Short-Term Rental Cap Rate: Seattle Deal Guide

A broker sends a Seattle Airbnb projection showing $120,000 of annual revenue and calls the deal a 9% cap. The spreadsheet forgot management, furniture replacement, permits, utilities, and the months needed to stabilize the listing. That is not a cap rate. It is a headline divided by a purchase price.

Short-term rental cap rate is useful only when net operating income and property basis are defined consistently.

What is the cap-rate formula for a short-term rental?

Cap rate = stabilized annual net operating income ÷ property value or total acquisition basis

If stabilized NOI is $60,000 and the property basis is $800,000, cap rate is 7.5%.

Cap rate excludes financing payments and income taxes so investors can compare property operations independent of loan structure and individual tax position. It is not the same as cash-on-cash return.

Define the denominator

Investors use purchase price, current market value, or all-in acquisition basis in different contexts. State which one.

For an acquisition decision, all-in basis may include purchase price, closing costs, initial renovation, furniture, design, and required setup. If an $800,000 purchase requires $80,000 before it can operate, dividing NOI by only $800,000 overstates the return on capital committed to the asset.

Do not add refundable reserves or financing costs blindly; keep the methodology consistent with the comparison set and advisor guidance.

Stabilize STR revenue instead of annualizing one month

Use a full-year model with available nights, occupancy, average daily rate, minimum stays, owner blocks, seasonality, and channel mix. New-listing launch discounts and a major event can distort early months.

Build low, base, and high cases. The base case should not assume every open Friday sells at peak summer pricing. For a Seattle acquisition, test shoulder months and property-specific guest demand.

The Seattle STR acquisition due-diligence guide covers property and regulatory checks that come before the revenue model.

Calculate gross potential revenue transparently

One simple model groups nights by season:

These numbers are illustrative, not Seattle market data. Replace them with comps and property assumptions. If owner stays remove 30 nights, available nights change before occupancy is applied.

Build true net operating income

Start with rental and other operating income, then subtract ordinary property operating expenses:

• management fee;
• platform and payment charges;
• cleaning cost not offset by guest cleaning revenue;
• utilities and internet;
• insurance;
• property taxes;
• licenses and recurring compliance costs;
• supplies, linen, landscaping, pest, snow or exterior care where relevant;
• routine repairs and maintenance;
• software and accounting;
• replacement and capital reserves used in underwriting.

Debt service, depreciation, and owner income tax generally sit below NOI for cap-rate analysis. Ask your lender and CPA to align definitions.

Handle cleaning revenue and expense correctly

If guest cleaning charges are included in gross revenue, include the corresponding cleaner and linen cost. If the model reports nightly rent only, keep cleaning pass-through outside both sides or show the net difference.

Mixing guest cleaning collected into revenue while omitting vendor invoices inflates NOI. This error is common because platform payouts bundle several components.

Include management even if you plan to self-manage

An investor comparing property performance should usually include a market management expense or explicit owner-labor cost. Otherwise the cap rate rewards the investor for donating time and becomes difficult to compare with professionally operated properties.

If self-management is the strategy, show two NOIs: property NOI with market management and owner cash flow without the fee but with owner labor tracked. The management-worth-it guide explains that distinction.

Add a replacement reserve

STR furniture, linen, cookware, locks, appliances, and finishes experience guest turnover. A model with zero replacement reserve assumes the property never wears.

Set reserve from actual inventory, expected life, and property history rather than a universal percentage. Keep major capital work separate from routine operating expense, but include a capital reserve in underwriting if that is the investor's chosen method.

Cap rate versus cash-on-cash return

Cap rate measures unlevered property operations relative to value or basis. Cash-on-cash return measures annual pre-tax cash flow after debt service relative to cash invested.

Two investors can buy the same property at the same cap rate and receive different cash-on-cash returns because their down payments, rates, loan terms, and closing costs differ.

Financing belongs in a separate schedule. Our financing a vacation rental guide covers occupancy classification and loan questions.

Stress-test the cap rate

Change one risk at a time:

1. ADR 10% below base.
2. Occupancy 10 percentage points below base.
3. Management fee increases or cleaning net worsens.
4. Property tax or insurance changes.
5. A major system replacement occurs earlier.
6. STR use is interrupted and the fallback is mid-term or long-term rent.

Watch NOI, debt coverage, and cash reserves. A deal that works only in the high case is not underwritten; it is hoped for.

Compare cap rates only after normalizing assumptions

One listing may include furniture and management while another excludes both. One may use trailing twelve-month actuals; another uses next-year projection. Normalize revenue period, available nights, expense categories, and denominator before comparing.

Ask for platform statements, bank records, tax bills, insurance quote, utility history, cleaning invoices, management agreement, maintenance history, and furniture inventory. A seller spreadsheet is a lead, not diligence.

URPM is realtor-led and can help investors assess operations and management assumptions, but it does not replace lender, appraisal, legal, or tax advice. Start with our Seattle property management and STR strategy for a property-specific operating review.

Reconcile the purchase basis before comparing deals

The denominator should capture the capital required to place the property into stabilized service, not merely the number printed on the purchase contract. Add buyer closing costs, immediate life-safety or permit work, furniture, linens, locks, photography, and renovations needed for the revenue forecast. Do not add financing costs to NOI; model those in the leveraged return.

This adjustment matters when comparing a furnished operating rental with an empty home that needs a full setup. The second property can appear to have a better cap rate only because its launch capital was omitted. Keep a separate schedule of one-time basis items and recurring expenses so replacement reserves are not confused with initial acquisition work.

FAQ

What is a good cap rate for a Seattle short-term rental?

There is no universal target. It depends on property risk, location, condition, regulatory fit, operating assumptions, financing environment, and investor goals. Compare normalized deals and downside cases.

Do you include mortgage payments in STR cap rate?

No, cap rate is generally an unlevered metric using NOI before debt service. Mortgage payments belong in cash-flow and cash-on-cash analysis.

Should management fees be included in NOI?

Yes for a professionally managed property, and often as a market expense for comparable underwriting even if the investor plans to self-manage.

How do owner stays affect cap rate?

Owner stays reduce available nights and potentially revenue. Model them before applying occupancy and keep personal-use tax implications for a CPA.

Is STR cap rate the same as ROI?

No. Cap rate is one unlevered annual operating metric. ROI can include leverage, appreciation, sale proceeds, tax effects, and the full holding period.