Is Your Airbnb Actually Profitable?

Most short-term rental owners know exactly how much revenue their property generates.
Far fewer know how much money the property actually makes.

Airbnb and VRBO make revenue easy to see. But revenue is only the top line.
Once you subtract cleaning costs, utilities, software, maintenance, supplies,
insurance, property management expenses and eventually the mortgage, the number
that actually ends up in your pocket can look very different.

If you want to understand whether your Airbnb is really performing well,
you need to look beyond revenue and occupancy.

Revenue Is Not Profit

Suppose your short-term rental generates $60,000 in annual revenue.
That sounds great.

But now consider the operating expenses:

• Cleaning and turnover expenses
• Utilities
• Internet and streaming services
• Insurance
• Property taxes
• Repairs and maintenance
• Guest supplies
• Software and subscriptions
• HOA or condo fees
• Lawn, pool or exterior maintenance

If those expenses total $23,000, the property’s operating profit is:

That $37,000 is your approximate Net Operating Income, or NOI.

What Is NOI?

NOI is one of the most useful numbers for evaluating a rental property because
it tells you how the property performs before financing.

NOI = Rental Revenue – Operating Expenses

Mortgage payments are generally not included in NOI. That distinction matters
because two owners could operate identical properties with identical revenue
and expenses but have completely different loans.

Looking at NOI lets you evaluate the performance of the property itself,
independent of how you chose to finance it.

NOI Is Not the Same as Cash Flow

NOI tells you how the rental operation performs. Cash flow tells you what is
actually left after financing.

Using our example:

So while the property generated $60,000 in revenue, the owner may only see
about $13,000 in annual cash flow before income taxes and major
capital expenditures.

That’s why simply looking at gross Airbnb revenue can create a misleading picture
of how well a rental is actually performing.

The Mortgage Can Be Misleading Too

There’s another wrinkle with mortgage payments.

A mortgage payment usually includes both interest and
principal.

Interest is a true financing expense. Principal is different. Principal reduces
your loan balance and increases your equity in the property.

So if your rental produces $13,000 in cash flow but also pays down $8,000 of
mortgage principal during the year, your economic benefit from owning the
property is greater than cash flow alone suggests.

That’s why I like to track both:

• Cash flow after mortgage payments
• Mortgage principal paid

Together, those numbers give you a much better picture of what the property is
doing for you financially.

Occupancy Can Be Misleading Too

Hosts often focus heavily on occupancy.

But high occupancy does not automatically mean high profitability.

A property that is 90% occupied because it is priced too cheaply may make less
money than a similar property operating at 70% occupancy with a stronger
average nightly rate.

That’s why occupancy should be considered alongside:

• Average Daily Rate (ADR)
• Revenue
• Operating expenses
• NOI
• Cash flow
• RevPAR

The goal isn’t simply to fill the calendar. The goal is to generate the best
return from the property without creating unnecessary work.

That’s also one of the reasons I focus so heavily on

how to automate your Airbnb
.
A rental that generates good returns but requires constant manual attention
isn’t really operating efficiently.

The Expenses Hosts Often Forget

The large expenses are usually obvious. The smaller recurring ones are where
things get interesting.

Think about expenses like:

• Smart-lock subscriptions or gateways
• Dynamic-pricing software
• Guest messaging software
• Streaming subscriptions
• Replacement linens and towels
• Coffee and guest supplies
• Air filters
• Pest control
• Minor maintenance visits
• Credit-card or banking fees
• Furniture and appliance replacements

Individually, these costs may not seem significant. Across twelve months and
multiple properties, they add up quickly.

A Simple Monthly Profitability Check

You don’t need complicated accounting software to understand whether your STR
is performing well.

At the end of each month, I want to be able to answer five questions:

1. How much revenue did the property generate?
2. How much did it cost to operate?
3. What was the NOI?
4. How much cash was left after the mortgage?
5. How did those numbers compare with previous months and my other properties?

If you can answer those questions quickly, you’ll have a much better understanding
of the health of your rental business.

How I Track It

After managing multiple short-term rentals, I wanted one place where I could
see the financial performance of each property without piecing together numbers
from Airbnb, VRBO, bank statements and spreadsheets.

So I built the

STR Income & Expense Tracker

I use to monitor the numbers that actually matter.

It tracks things like:

• Monthly revenue
• Operating expenses
• NOI and NOI margin
• Mortgage payments
• Cash flow after debt
• Mortgage principal paid
• Occupancy
• ADR
• RevPAR
• Maintenance and capital expenses
• Performance across multiple properties

The goal isn’t to turn hosts into accountants. It’s simply to make it easy to
see what your rentals are actually producing.

The Bottom Line

Revenue is useful. Occupancy is useful. But neither one tells you whether your
short-term rental is actually a good investment.

The numbers that matter most are the ones that tell you what the property earns
after the costs required to operate and finance it.

Once you understand those numbers, decisions about pricing, expenses,
improvements and even whether to keep a property become much easier.

Before trying to optimize your Airbnb, make sure you know what it is actually
making.