I use this rule to see if a market is worth deep diving.

John BianchiJan 22, 20261m 42s468 viewsScore 75
Pricing & Profitability
intermediate
20% rule
short-term rental profitability
cash on cash return
investment analysis
price to rent ratio
M

Summary

AI-generated

Learn about the 20% rule for short-term rentals, a guideline to assess market profitability. Understand how purchase price influences the ideal revenue percentage and discover when this rule is most effective and its limitations.

Key insights

  • A 10% cash-on-cash return is generally considered a satisfactory outcome for real estate investments, indicating a healthy profit relative to the cash invested.

Mistakes to avoid

  • Applying the 20% rule rigidly to smaller purchase prices can be misleading. For a $200,000 cabin, the rule would suggest $40,000 in revenue, but this could lead to a negative 6% cash-on-cash return if not adjusted.

Tools & resources

  • Underwriting Sheettool

    An underwriting sheet is a crucial tool for detailed financial analysis of a rental property, allowing hosts to input purchase price, revenue, and calculate key metrics like cash-on-cash return.

Frequently Asked Questions

Curated by Learn STR by GoStudioM · Summary & key insights generated by AI · Reviewed by editorial