Question 1

What is a good Cap Rate for a vacation rental?

Accepted Answer

A 'good' cap rate is subjective and depends on the market, but generally, a rate between 8% and 12% is considered strong for a short-term rental property due to the higher management intensity and turnover compared to long-term rentals.

Question 2

What is Net Operating Income (NOI)?

Accepted Answer

NOI is the income generated by a property after subtracting all operating expenses. It is a before-tax figure, so it does not include debt service (mortgage payments) or income taxes. It's a key indicator of a property's ability to generate profit.

Question 3

Why doesn't this calculator include my mortgage payment?

Accepted Answer

Cap Rate is a measure of a property's intrinsic profitability, regardless of how it's financed. By excluding debt service, you can compare properties on an apples-to-apples basis. To analyze your return with financing, you would calculate your Cash-on-Cash Return.

Question 4

How can I increase my rental yield?

Accepted Answer

You can increase your yield by either increasing your Net Operating Income (NOI) or, less commonly, by acquiring the property at a lower price. To increase NOI, focus on maximizing revenue (e.g., dynamic pricing, upselling services) and minimizing operating expenses (e.g., energy efficiency, preventative maintenance).

Question 5

Should I use the purchase price or current market value for 'Property Value'?

Accepted Answer

For calculating the potential return of a new investment, use the purchase price. To understand the performance of a property you already own, it's often more insightful to use the current market value. This tells you if the property is still a good investment compared to other opportunities.

Short-Term Rental Yield Calculator

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Understanding Rental Yield

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