What is a good cap rate for an Airbnb?
Updated October 1, 2026 · 7 min read · By STRROI Research
A cap rate tells you how much a property earns relative to its price, before any mortgage. Across the 56 US markets STRROI ranks right now, the typical market has a 3.7% median cap rate, and only 6 clear a 7.5% mortgage rate at the median. Here is how to calculate it and how to judge it.
What cap rate means
Cap rate (capitalization rate) is net operating income divided by purchase price. Net operating income (NOI) is gross rental revenue minus operating expenses: management, cleaning, supplies, platform fees, utilities, insurance, property tax, maintenance and reserves. It excludes your mortgage, so it measures the property itself, not your financing.
How to calculate it, with an example
| Line | Amount |
|---|---|
| Nightly rate x occupancy x 365 | $280 x 52% x 365 = $53,144 |
| Operating expenses | $30,584 |
| Net operating income | $22,560 |
| Purchase price | $450,000 |
| Cap rate | 5.0% |
See the full expense breakdown for every line in that total.
What counts as a good cap rate
The most useful benchmark is your mortgage rate. When a property's cap rate is above your interest rate, borrowing adds to your return (positive leverage). When it is below, every borrowed dollar costs more than it earns, and the deal usually needs a large down payment to cash flow.
| Cap rate | What it usually means at today’s rates |
|---|---|
| 7% or higher | Strong. Income can cover typical financing with room to spare. |
| 4.5% to 7% | Workable with a solid down payment or a below-list purchase. |
| Under 4.5% | Tight. You are mostly betting on appreciation or above-market performance. |
Where do cap rates look best right now?
Every market STRROI tracks, ranked by the median cap rate of homes for sale today.
Cap rate vs. cash-on-cash return
Cash-on-cash return is annual cash flow after the mortgage divided by the cash you put in (down payment, closing costs, furnishing). It is the number that tells you what your money is actually earning. In the example above, with 20% down at 7.5%, cash flow is -$637 per month and cash-on-cash is -7.4%. A decent cap rate can still produce negative cash flow at high interest rates.
Why cap rates differ so much between markets
Cap rates are lowest where home prices run far ahead of nightly rates: ski towns, luxury beach areas and big-city neighborhoods where buyers pay for appreciation and lifestyle. They are highest where prices are modest but demand is steady: drive-to lake and mountain towns, smaller beach markets and places with year-round events.
Right now the top-ranked market is Finger Lakes, NY at a 10.3% median cap rate. The full ranking shows every market side by side, and the price bands show what works at your budget.
A low market-wide cap rate does not rule a market out. It means you need to buy better than the median: below list price, a property with an amenity that lifts the nightly rate, or a smaller unit with stronger occupancy.
Mistakes that inflate cap rates
- Using gross yield. Revenue divided by price ignores 40% or more of the revenue that goes to expenses.
- Leaving out insurance and utilities. Together they often run $2,025 plus $3,600 a year on a typical house.
- Peak-season pricing. Use annual averages, not July rates.
- Raw calendar occupancy. Owner-blocked nights make occupancy look lower than a full-time operator achieves; availability-adjusted occupancy is the honest measure.
- Ignoring local rules. A great cap rate is worth nothing if the city bans new STR permits.
See every listing in a market, rated
STRROI underwrites every home for sale in a ZIP code as a short-term rental and ranks them 1 to 10. Try it on a sample market, no sign-up needed.
Questions
Is a 5% cap rate good for an Airbnb?
It depends on your financing. At a 7.5% mortgage rate, a 5% cap rate usually means negative cash flow with 20% down. It can still make sense with a larger down payment, a below-list price, or strong appreciation expectations.
Is a higher cap rate always better?
Not always. Very high cap rates can signal a cheap market with weak demand, a property needing major work, regulation risk, or optimistic revenue assumptions. Check the comps and the condition before trusting the number.
What is the average cap rate for short-term rentals?
Across the 56 markets STRROI ranks, the median market cap rate is 3.7%, based on 2,717 homes for sale. Individual listings range widely around that.
See every listing in a market, rated
STRROI underwrites every home for sale in a ZIP code as a short-term rental and ranks them 1 to 10. Try it on a sample market, no sign-up needed.