How to Calculate Cash-on-Cash Return on an Airbnb

Most operators evaluating their next door quote a nightly rate and an occupancy number, then guess at whether the deal is any good. Cash-on-cash return is the metric that turns that guess into a number you can compare across the whole portfolio: what percentage of the actual cash you put in comes back to you in a year.

It is not the same as “return” in the loose sense, and it is not cap rate. It answers one specific question: for every dollar of your own money in the deal, how many cents of pre-tax cashflow did it produce this year.

TL;DR: Cash-on-cash return equals annual pre-tax cashflow / total cash invested. The numerator is revenue net of OTA commission, operating costs, and (if financed) mortgage payments. The denominator is only your out-of-pocket cash: down payment plus closing costs plus furnishing, never the borrowed portion and never the property value. Financing usually raises the percentage and the risk at the same time. To run your own numbers automatically, use the Nightlyroi Airbnb ROI calculator. This is informational, not financial advice.

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The formula

Cash-on-cash return is one division:

cash-on-cash return = annual pre-tax cashflow / total cash invested

Both inputs have precise definitions, and getting them slightly wrong is where most back-of-envelope STR math falls apart.

Total cash invested is the out-of-pocket cash it took to get the unit operating. It is the down payment, the closing costs, and the upfront furnishing and setup. It is not the property value, and it is not the money you borrowed (per Corporate Finance Institute, reviewed July 2026; see also Wall Street Prep, reviewed July 2026).

Annual pre-tax cashflow is what the property throws off in a year before income tax: gross revenue, minus OTA commission, minus operating costs, and if the property is financed, minus the mortgage payments (debt service). The numerator is net of debt service, which is the detail that trips people up (per J.P. Morgan, reviewed July 2026).

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What goes into “total cash invested”

Only cash that left your account. For a typical financed STR acquisition, three buckets:

• Down payment. The equity slice of the purchase price you paid in cash.
• Closing costs. Lender fees, title, escrow, appraisal, transfer taxes, prepaids. The one-time cost of the transaction.
• Furnishing and setup. For a short-term rental this is not optional and it is not small: beds, sofas, kitchenware, linens, decor, smart locks, photography, initial supplies. A long-term rental skips most of this; an STR cannot.

What does not belong in cash invested: the mortgage principal (borrowed money, not yours), the full property value, and any financed portion of a renovation. If a lender paid it, it is not part of your cash-on-cash denominator.

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What goes into “annual pre-tax cashflow”

Start at gross booking revenue and work down:

1. Gross revenue. Nightly rate times booked nights, plus cleaning fees and any ancillary revenue you actually collect.
2. Minus OTA commission. On Airbnb, most professional operators are on the host-only fee of roughly 15.5 percent (typically in a 14 to 16 percent band), which is mandatory for hosts connected to property-management or channel software (per Airbnb Help Center article 1857, reviewed July 2026). Booking.com has no single published rate; it commonly runs around 15 percent with a 10 to 25 percent range depending on market and program (per Booking.com partner help, reviewed July 2026).
3. Minus operating costs. Cleaning, supplies, utilities, insurance, software (PMS, dynamic pricing), maintenance, property management or co-host fees, licensing.
4. Minus debt service (only if financed). Your annual mortgage payments, principal plus interest.

What is left is annual pre-tax cashflow. Note that both principal and interest come out here, even though principal is building your equity, because both are cash leaving your account this year.

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A worked example (illustrative, hypothetical)

Round numbers, chosen to make the arithmetic clean. These are not a projection for any real property and not a promise of any return. They exist to show the mechanics.

The hypothetical deal:

• Purchase price: 400,000 dollars
• Down payment (25 percent): 100,000 dollars
• Closing costs: 12,000 dollars
• Furnishing and setup: 28,000 dollars

Total cash invested = 100,000 + 12,000 + 28,000 = 140,000 dollars.

The hypothetical annual operations:

• Gross revenue: 90,000 dollars
• OTA commission (roughly 15.5 percent on the OTA-booked share, with the rest booked direct): 12,000 dollars
• Operating costs (cleaning, utilities, insurance, software, maintenance, management): 33,000 dollars
• Net operating income (before financing): 90,000 - 12,000 - 33,000 = 45,000 dollars

Financed version (with mortgage)

• Annual debt service on the 300,000 dollar loan: assume 22,000 dollars
• Annual pre-tax cashflow: 45,000 - 22,000 = 23,000 dollars
• Cash-on-cash return: 23,000 / 140,000 = 16.4 percent (illustrative)

All-cash version (no mortgage)

If you bought the same property outright, there is no debt service, but your cash invested is much larger:

• Total cash invested: 400,000 + 12,000 + 28,000 = 440,000 dollars
• Annual pre-tax cashflow: 45,000 dollars (no mortgage to subtract)
• Cash-on-cash return: 45,000 / 440,000 = 10.2 percent (illustrative)

For reference, this deal’s cap rate is 45,000 / 400,000 = 11.25 percent. The all-cash cash-on-cash (10.2 percent) lands a touch lower only because closing and furnishing add to the cash you invested. That is the all-cash case where cap rate and cash-on-cash nearly coincide.

Same property, same operations, two very different financed-versus-unfinanced percentages. That gap is the whole point of the next section.

One caveat before you anchor on 16.4 percent: these inputs were chosen clean to show the mechanics. A real underwrite has to layer in vacancy, seasonality, and financing at today’s rates, all of which pull the number down. This is exactly why a high pro-forma cash-on-cash on optimistic occupancy is hiding risk rather than describing it, as the pillar explains. Pressure-test with a conservative occupancy, not a hopeful one.

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How the mortgage flips the number

In the example, financing pushed cash-on-cash from about 10 percent to about 16 percent. That is leverage doing its job: you controlled a 400,000 dollar asset with 140,000 dollars of your own cash, so the cashflow is measured against a smaller base.

Two things to hold in your head at once:

• Leverage usually raises cash-on-cash when the property cashflows positively after debt service, because the denominator shrinks faster than the numerator.
• Leverage also raises risk. A mortgage is a fixed cost that does not care about your occupancy. In a soft season, debt service eats the cushion first. US STR occupancy averaged around 55 percent nationally through mid-2025 (54.9 percent in the first half) and is highly seasonal and market-dependent (per AirDNA, reviewed July 2026), so the cashflow that services the loan is not a flat line across the year.

This is why cap rate exists as a separate metric. Cap rate is net operating income / property value and ignores financing entirely, so it does not move when you change your loan-to-value. Cap rate equals cash-on-cash only in the all-cash case. The moment you take a mortgage, they diverge, which is the subject of the cash-on-cash vs cap rate, ROI, and IRR comparison.

The operator move is to compute both a financed and an all-cash version, the same way the example does. The financed number tells you how hard your cash is working; the all-cash number tells you the property’s underlying yield without the leverage flattering it.

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What cash-on-cash is not

Cash-on-cash is a single-year snapshot. It deliberately ignores three things that other metrics capture:

• Appreciation and the eventual sale. Simple ROI, used loosely, is strictly cumulative over the whole holding period and includes the sale proceeds and any appreciation. Cash-on-cash sees none of that; it is this year only.
• The time value of money. Internal rate of return (IRR) is the discount rate that makes the net present value of all cash flows, including the eventual sale, equal to zero, and it accounts for the holding period and the timing of every dollar (per Investopedia, reviewed July 2026). Cash-on-cash has no time dimension.
• Taxes. It is a pre-tax figure. Depreciation, deductions, and how you file can change your after-tax result, and a tax professional can tell you how they apply to your situation. See the STR tax deductions guide for the mechanics.

None of this makes cash-on-cash wrong. It makes it a fast, comparable, year-one filter, which is exactly what you want when you are ranking several doors against each other before committing cash.

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What counts as a “good” number

Investors commonly cite roughly 8 to 12 percent as a target cash-on-cash for rentals (per BiggerPockets, reviewed July 2026), and STR deals are sometimes underwritten to a higher target. But that is an opinion, not a floor and not a guarantee.

Measured reality tends to run lower. Ranked top US STR markets put cash-on-cash nearer 6 to 7.5 percent (per Mashvisor, reviewed July 2026). Observed returns vary widely by market, financing, and how honestly the operating costs were estimated.

Use any benchmark as a rough anchor for whether a deal is even in the conversation, not as a prediction of what you will earn. This is informational, not financial advice.

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Common mistakes

• Putting the loan in cash invested. The denominator is only your out-of-pocket cash. Adding the borrowed principal inflates the base and understates the return.
• Forgetting to subtract OTA commission. Gross booking value is not revenue you keep. On Airbnb the host fee is roughly 15.5 percent for most connected pros; leaving it out overstates cashflow.
• Omitting furnishing from cash invested. For an STR, furnishing and setup is real out-of-pocket cash and frequently 20,000 to 40,000 dollars. Skipping it makes the return look better than it is.
• Confusing cash-on-cash with cap rate. They are equal only all-cash. Quoting one while thinking about the other is a common way to misjudge a leveraged deal.
• Using a “market” occupancy as if it were your property’s. National averages are context, not a per-property projection. Underwrite conservatively.
• Counting principal as an expense mentally, then as equity too. Principal is out of the numerator as debt service this year, and it is also quietly building equity. That equity build is a real benefit cash-on-cash does not credit, which is another reason to pair it with a holding-period metric.

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The fast way to do this

The arithmetic is simple; the discipline is in getting every input right and running the financed and all-cash versions consistently across every door you evaluate. Rather than rebuild the spreadsheet per deal, the Nightlyroi short-term rental calculator takes purchase price, financing, furnishing, revenue, and operating costs and returns the cash-on-cash figure both ways, so you can compare candidates on the same basis.

For the strategic view of how cash-on-cash fits your portfolio and target ranges, see the cash-on-cash return for short-term rentals pillar. For how the metric behaves as you add doors, the scaling STR operations from 10 to 30 properties guide covers where portfolio-level returns tend to compress and why.

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All benchmark and platform figures in this article are cited inline with their source and review date (July 2026). Verify current OTA commission terms and market data directly with each provider before underwriting a deal. This article is informational only and is not financial, investment, or tax advice.