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Analyzing A Short Term Rental - Estimating Cash On Cash Returns

By Travis

When analyzing a short term rental property, it is important to be able to estimate cash on cash returns. This allows you to understand whether something is a good investment or not. When you estimate your cash on cash returns, there are a few things you will need to first do.
 
Before reading this post, read the first two posts I had at the links below:
Now that you understand how to input those values, it is time to look at the last variables I have added to my analysis spreadsheet.
 
Ability To Increase Nightly and Occupancy Rates
There are two additional factors that are important to understand. These are your base night minimum rate and occupancy rate increases. I have added the ability to see what the impact of these variables are to your overall cash flow and cash on cash returns. The below snapshot shows how the inputs look on the excel file.
 
Occupancy and Nightly Rates
 
The beauty of the sensitivity analysis spreadsheet I have created is you can completely customize it. I have given the ability to analyze the property at 4 different occupancy levels. I have also given you the ability to analyze four different nightly rates.
 
What The Short Term Analysis Numbers Look Like
Here is a snapshot of what the final output looks like!
 
Nightly Rate Analysis
 
The numbers I have input in the above scenario are a real analysis done on a property recently. Let's break down what we are looking at.
 
In the rows, I have grouped together the nightly rates. Taking an isolated look at one snip from the top, we can analyze what the minimum nightly rate returns look like.
 
Min Night Cash Returns
 
In the above screenshot, we can see the 'Min Price Per Night' is $111. Now moving to the right, we can see four different rows analyzing the property at 4 different occupancy rates. For this example, those occupancy rates are 70%, 75%, 80%, 85%.
 
The next column details out expenses. For this example, the expenses are $1,894 per month. This includes everything detailed out in the previous understanding expenses post.
 
Next, we get to income. This is where the nightly rate and occupancy rates come into play. At a 70% occupancy rate, you can see income generated of $2,331. At 75%, 80%, and 85% occupancy rates, the income increases to $2,498, $2,664, and $2,831 respectively.
 
The next column details out the monthly cash flow generated at each of the occupancy rates. The next column details out your cash on cash return. To understand more of what cash on cash (CoC) return means, feel free to click the link above. To have your cash on cash return calculate properly, you will need to input how much cash you invested in the purchase of the property (or renting/furnishing, etc.). High cash flow is great, but not if your cash on cash return isn't high. I currently target 15-20% CoC return on short term rental properties.
 
Last but not least, you have the yearly cash flow! And just like that, you have successfully run the numbers for a short term rental property! You can see this same analysis performed on the rows below for the increased nightly rates.
 
Key Takeaways:
  • Understanding all components of analyzing a short term rental allows you to effectively run the numbers.
  • Occupancy levels and nightly price have a significant impact on cash flow. The ability to alter these to be conservative when you run the numbers allows for a great perspective. The better you get at getting a higher occupancy and higher nightly rental rates, the more cash you will see.
  • Cash on Cash return is one of the most important numbers to understand. The higher the cash on cash return, the better!
Interested to utilize my Short Term Rental Analysis Spreadsheet? You are in luck, I am currently offering a discounted price of $10 for the file! 

If you are interested in receiving this file, fill out the form below and I will email it to you!

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Don't forget @TheYoungRetireeBy33 3 Core Principles:
1 - Your money should make money for you
2 - Start early to realize the power of compound interest
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