A vacation rental can be a great investment, but how do you know if it’s really making money? The key is understanding your return on investment (ROI). At Cascadia Getaways, we believe in helping owners make smart, informed decisions—and that starts with knowing your numbers. Here’s a friendly, step-by-step guide to help you calculate ROI and increase your vacation rental returns.
What Is ROI and Why It Matters
ROI (Return on Investment) shows how much profit you’re making compared to what you spent on your property. It’s usually shown as a percentage. The higher the ROI, the more successful your rental is financially. A good ROI for vacation rentals is typically between 8% and 12%, and anything over 15% is excellent.
How to Calculate Vacation Rental ROI
Step 1: Know Your Total Investment
Add up the purchase price, closing costs, renovation expenses, furniture, and any upfront licensing or permitting fees.
Example:
- Purchase Price: $400,000
- Closing Costs: $10,000
- Renovations: $20,000
- Furniture & Setup: $15,000
- Total Investment: $445,000
Step 2: Estimate Your Annual Net Income
Subtract your annual expenses from your annual rental income. Need help with a projection? We’ve got you!
Annual Income Example:
- Gross Rental Income: $90,000
- Operating Costs (cleaning, maintenance, utilities, taxes, insurance, management fees): $40,000
- Net Operating Income: $50,000
Step 3: Calculate ROI
Use the formula: ROI = (Annual Net Income / Total Investment) × 100
ROI = ($50,000 / $445,000) × 100 = 11.24%
Key ROI Metrics You Should Know
Gross Yield
Annual rental income divided by the purchase price. A quick snapshot of profitability.
Net Operating Income (NOI)
Your income after operating expenses, not including mortgage payments.
Capitalization Rate (Cap Rate)
NOI divided by property price. Helps compare properties in the same market.
Cash-on-Cash Return
Annual pre-tax cash flow divided by actual cash invested (down payment + closing + improvements).
Factors That Influence ROI
Property Location
A vacation rental in a high-demand, seasonal destination like the Pacific Northwest will typically earn more.
Amenities & Design
A vacation rental high in amenities and good design can boost your rental income significantly. Make sure to factor in costs for amenities such as hot tub maintenance and chemicals. Or lean towards lighter operating expense amenities like a pickleball court.
Demand and Seasonality
Expect income to vary month to month. Higher in peak seasons, lower in off-seasons.
Operating Expenses
Property management, repairs, utilities, cleaning services, taxes, insurance—they all cut into profits.
Regulatory Environment
Zoning laws, permitting, and tax policies can affect your ability to operate and earn.
Ways to Increase ROI
Smart Financing
Choose the right loan based on your goals:
- Conforming loans: Low rates, 20% down
- Portfolio loans: More flexible income verification
- Bridge & hard-money loans: Short-term, fast funding, but higher rates
- Crowdfunded loans: Moderate rates, quick turnaround
Find High-ROI Properties
- Set up MLS alerts
- Browse Airbnb, Vrbo, and other listings
- Network with agents and wholesalers
- Check out auctions, foreclosures, and expired listings
Optimize Operations
- Use dynamic pricing tools
- Offer seasonal discounts
- Improve guest experience
- Add amenities and design elements that make people book!
- Automate check-in/out
- Use professional photography and wide platform listings
Need ideas on optimizing your property? Set up time to chat, we’d love to help! We have been doing short term rentals for over a decade so we have plenty of ideas to help your rental.
FAQ: How Do I Calculate ROI on a Vacation Rental?
What is the formula for vacation rental ROI?
ROI = (Net Annual Income / Total Investment) × 100
What is considered a good ROI?
8–12% is solid. Over 15% is excellent.
Should I include mortgage payments?
Yes, if you’re measuring cash-on-cash return. For Cap Rate, use NOI without debt.
How do I factor in vacancy?
Estimate a realistic occupancy rate (e.g., 50% – 70%) when projecting income. Cascadia Getaways can assist with projections.
What expenses should I count?
Cleaning, maintenance, utilities, property management, taxes, insurance, and repairs. If you are hiring a property manager, make sure to inquire what is included and excluded in their management fee.
How do I find out local ROI potential?
Use comps from Airbnb/Vrbo, talk to local agents, and run property data through calculators. Or ask Cascadia Getaways to assist with a projection.
Final Thoughts
Vacation rental ROI isn’t one-size-fits-all. By understanding your numbers and making smart decisions, you can turn your property into a reliable income source. At Cascadia Getaways, we help owners not just list their homes but make the most of them.
Want help maximizing your ROI? Set up a no pressure chat today and let’s turn your vacation property into a top performer!