How to Calculate Net Operating Income (NOI) for Short-Term Rentals: January 2026 Guide

When you’re evaluating a short-term rental investment or trying to improve your current property’s performance, Net Operating Income is the metric that matters most. It shows you the real operational profit your vacation rental produces before mortgage payments and capital expenses come into play. Think of it as your property’s true earning power, stripped of all the financial engineering and one-time costs that can hide what’s really happening.

TLDR:

• NOI shows your vacation rental’s true profit by subtracting operating costs from gross income.
• STR operating expenses run 30-70% of revenue vs 35-40% for long-term rentals.
• Calculate NOI by multiplying ADR by booked nights, adding fees, then subtracting all operating costs.
• Exclude mortgage payments, capital improvements, and taxes from your NOI calculation.
• AvantStay manages 2,300+ properties with $5B+ in assets using tech-driven revenue optimization.

What Is Net Operating Income for Short-Term Rentals

Net Operating Income (NOI) is the financial metric that shows you how much profit your vacation rental generates before accounting for mortgage payments, taxes, and major capital expenses. Think of it as your property’s core earning power.

For short-term rental (STR) operators, NOI reveals whether your property actually makes money from operations. It strips away financing decisions and one-time costs to show the raw performance of your rental business. This matters because a property might generate impressive gross revenue but still underperform once you account for cleaning, maintenance, utilities, and management fees.

At AvantStay, we track NOI across our entire portfolio of vacation rentals because it’s the clearest indicator of operational efficiency. You can’t hide behind high occupancy rates or flashy booking numbers when NOI tells the real story.

The Complete NOI Formula for Vacation Rentals

The basic formula is straightforward:

Gross Operating Income – Operating Expenses = Net Operating Income

Gross Operating Income includes all revenue your vacation rental generates from guest bookings, plus any ancillary income like cleaning fees you keep, pet fees, or early check-in charges. Operating Expenses cover everything it costs to run the property daily, from housekeeping and utilities to property management fees and supplies.

The vacation rental twist comes on the expense side. Your STR will have significantly higher operating costs than a traditional long-term rental. You’re turning over the property constantly, which means more frequent cleaning, higher utility bills from guest usage, and increased wear on furnishings and amenities.

Where long-term rentals might budget 35-40% of gross rent for operating expenses, vacation rentals often see 50-60% or higher. That’s why the formula stays simple, but the numbers inside it tell a completely different story for short-term rental investors.

How to Calculate Gross Operating Income for STR Properties

1. Start with your Average Daily Rate

Calculating Gross Operating Income for a vacation rental starts with your Average Daily Rate (ADR). Multiply your ADR by the number of nights you expect to rent throughout the year. If you charge $300 per night and project 200 booked nights annually, that’s $60,000 in base rental income.

2. Factor in Year-Round Rates for your ADR

But vacation rentals rarely maintain consistent rates year-round. You need to factor in seasonality. Break your calendar into peak, shoulder, and off-season periods, each with different ADRs. A beach house might command $500 per night in summer, $300 in spring and fall, and $200 in winter. Calculate expected revenue for each season separately, then sum them.

3. Add Ancillary Income Streams

Next, add ancillary income streams. Guest fees for pets, parking, early check-ins, or late checkouts contribute to your total gross operating income. If you charge a cleaning fee that exceeds your actual cleaning cost, that difference counts as revenue too.

Bottom line

Vacancy is your biggest variable. While long-term rentals might budget 5% vacancy, vacation rentals can see 30-40% or higher depending on location and competition. Short-term rental operating costs vary from 30% to 70% of gross revenue, which makes nailing your occupancy projections essential for accurate NOI calculations.

Your final Gross Operating Income number should reflect realistic booking patterns, not best-case scenarios. Conservative estimates protect you from overvaluing a property’s actual earning potential.

Operating Expenses to Include in Your NOI Calculation

Short-term rental operating expenses fall into several categories that differ dramatically from traditional rentals:

Cleaning and Turnover Costs eat up 10-15% of gross revenue. You’re paying for professional cleaning after every single guest, not once a year. Linens need constant washing or replacement, and restocking toiletries adds up fast.

Property Management Fees typically run 20-30% of gross bookings if you hire a company to handle operations. Self-managing saves this cost but demands significant time investment for guest communication, maintenance coordination, and 24/7 availability.

Utilities stay high year-round because guests use more electricity, water, and gas than long-term tenants. You’re covering these costs entirely, not splitting them with a tenant.

Insurance premiums for short-term rentals run 2-3x higher than landlord policies. You need commercial coverage that protects against frequent guest turnover and liability exposure.

Maintenance and Repairs accelerate with constant use. HVAC systems, appliances, and plumbing work harder when a property hosts 50+ guest groups annually versus one family.

Platform Commissions from Airbnb, Vrbo, or Booking.com take 3-5% of each reservation. Direct bookings eliminate this, but most vacation rentals rely heavily on these channels.

Supplies and Amenities include everything from coffee and kitchen basics to pool chemicals and welcome gifts. These recurring costs don’t exist in long-term rentals where tenants supply their own consumables.

What Not to Include When Calculating NOI

Understanding what to exclude from NOI is just as important as knowing what to include. These common line items don’t belong in your operating income calculation, even though they impact your overall profitability.

Mortgage payments stay out of NOI because they reflect financing decisions, not operational performance. Two investors could own identical vacation rentals with completely different loan terms. NOI measures how the property performs regardless of how you paid for it.

Capital expenditures like roof replacements, HVAC upgrades, or full kitchen renovations get excluded because they’re one-time improvements that add value to the asset. A new $15,000 deck shouldn’t distort your annual operating performance. Regular maintenance counts as an operating expense, but substantial improvements that extend the property’s life don’t.

Income taxes depend on your personal tax situation, entity structure, and other investments. NOI focuses solely on property-level performance before owner-specific tax implications.

Depreciation is an accounting concept that doesn’t involve actual cash leaving your account. While valuable for tax planning, it has no place in NOI calculations that measure real operational cash flow.

Understanding Cap Rate and Its Relationship to NOI

Cap rate reveals how efficiently your vacation rental converts property value into income. The formula is simple: divide your annual NOI by the property’s purchase price or current market value. A property generating $50,000 in NOI with a $500,000 value delivers a 10% cap rate.

Good cap rates for short-term rentals typically range from 8% to 12%, with 8-10% representing solid returns in stable vacation markets. Higher cap rates suggest higher income relative to property cost, making it easier to compare different investment opportunities across markets and property types.

NOI drives the cap rate entirely. Increase your NOI through better revenue management or cost control, and your cap rate improves immediately.

Key Factors That Impact NOI in Vacation Rentals

Location

Location determines your vacation rental’s NOI more than any other single variable. A beachfront property in San Diego will command higher ADRs and occupancy than an identical home three blocks inland. Proximity to attractions, walkability, and views directly influence how much you can charge and how often guests book.

Season

Seasonality creates NOI swings that long-term rentals never experience. Ski resort properties might generate 70% of annual revenue across 90 winter days, then sit mostly vacant in summer. Beach destinations flip this pattern. Your NOI calculation needs to account for these dramatic peaks and valleys, not average them out.

Local Regulations

Local regulations reshape your operating expenses overnight. New permit fees, occupancy taxes, or minimum night stay requirements can slash your gross income or add compliance costs. Some markets ban short-term rentals entirely in certain zones, making location research essential before purchase.

Property Amenities

Property type and amenities separate top performers from mediocre ones in the vacation rental market. Homes with pools, hot tubs, or unique features like game rooms command premium rates and longer booking windows. At AvantStay, we’ve seen properties with standout design and group-friendly layouts achieve 20-30% higher NOI than comparable but generic homes.

This volatility makes vacation rental NOI harder to predict than traditional rentals, where lease terms lock in predictable monthly income regardless of season or market conditions.

How STR NOI Differs From Long-Term Rental NOI

The fundamental difference between STR and long-term rental NOI lies in the expense-to-income ratio. While vacation rentals can generate 2-3x the gross revenue of a comparable long-term lease, they often consume 50-60% of that income in operating expenses versus 35-40% for traditional rentals.

Long-term rentals deliver predictable monthly checks with minimal involvement. One tenant pays rent, covers utilities, and handles day-to-day maintenance. Your operating costs stay stable and low.

Vacation rentals flip this model. You’re essentially running a small hotel with constant guest turnover, perpetual cleaning cycles, and hands-on management demands. Every booking creates a mini-cycle of preparation, guest service, and post-checkout restoration. The revenue upside comes with operational intensity that traditional landlords never face.

This explains why comparing gross revenue alone misleads investors. A vacation rental generating $80,000 annually might produce similar or lower NOI than a long-term rental bringing in $30,000, once you account for the dramatic difference in operating costs.

Step-by-Step Example: Calculating NOI for a Vacation Rental Property

Let’s walk through a real example. Imagine you own a 4-bedroom vacation rental in Palm Springs.

Gross Operating Income Calculation:

• Peak season (90 nights): $400/night = $36,000
• Shoulder season (120 nights): $275/night = $33,000
• Off-season (60 nights): $200/night = $12,000
• Pet fees and extras: $2,000
• Total Gross Operating Income: $83,000

Operating Expenses:

• Property management (25%): $20,750
• Cleaning and turnover: $12,000
• Utilities: $6,500
• Insurance: $3,500
• Maintenance and repairs: $4,000
• Platform commissions: $3,000
• Supplies and amenities: $2,500
• HOA fees: $2,400
• Total Operating Expenses: $54,650

Net Operating Income: $28,350

This 34% NOI margin reflects the operational intensity of vacation rentals, where more than half your gross revenue covers the cost of constant guest turnover and premium service standards.

Using NOI to Evaluate Vacation Rental Investment Opportunities

NOI becomes your primary comparison tool when evaluating multiple vacation rental opportunities. If you’re choosing between two properties at similar price points, the one with higher NOI generates better operational returns regardless of location or property type. Calculate projected NOI for each option using market data on ADRs, occupancy rates, and operating expenses specific to that area.

Factoring in Your Investment

Cash-on-cash return builds on NOI by factoring in your actual investment. Subtract annual debt service from NOI, then divide by your total cash invested (down payment plus closing costs and initial improvements). A property with $28,000 NOI and $18,000 in annual mortgage payments yields $10,000 in cash flow. If you invested $100,000 upfront, that’s a 10% cash-on-cash return.

This metric matters more than NOI alone when you’re financing a purchase. Two properties with identical NOI can deliver vastly different cash returns depending on loan terms. The one requiring less down payment or carrying a lower interest rate puts more money in your pocket annually.

Comparing Your Projected Returns

Compare your projected returns against alternative investments. If vacation rentals in your target market consistently deliver 6-8% cash-on-cash returns but require active management, would that capital perform better in REITs or other passive vehicles? NOI helps you make this assessment objectively rather than getting swept up in vacation property excitement.

How to Improve Your Short-Term Rental NOI

Have a Dynamic Pricing Tool

Improving NOI requires attacking both sides of the equation simultaneously. Start with dynamic pricing tools that adjust rates based on local events, competitor pricing, and seasonal demand patterns.

At AvantStay, we use sophisticated revenue management algorithms across our portfolio that consistently outperform static pricing by 15-20%.

Invest in Professional Photographers

Extend your booking window by investing in professional photography and compelling listing descriptions that convert browsers into bookers. Higher occupancy spreads fixed costs across more revenue days, directly improving your NOI margin.

Negotiate with Service & Supply Vendors

Control expenses without sacrificing guest experience by negotiating bulk rates with cleaning services and supply vendors. Automate guest communication to reduce management overhead while maintaining responsiveness. Small efficiency gains compound when you’re turning over a property 50+ times annually.

Add Strategic Amenities to Your Rental Home

Strategic amenity additions pay for themselves quickly if they increase your ADR. A $3,000 fire pit might justify a $25 nightly rate increase, recovering costs within a single season while boosting your property’s appeal for years.

Final thoughts on net operating income for vacation rentals

Your short term rental NOI tells the story your gross revenue can’t. It reveals whether your property actually makes money or just looks busy on paper. Calculate it quarterly at minimum, use it to benchmark against similar properties in your market, and let it guide every decision from pricing adjustments to amenity investments.

FAQs

How is NOI different from the total revenue my vacation rental generates?

NOI shows your actual profit after covering all operating costs like cleaning, utilities, and management fees, while total revenue only reflects guest bookings before expenses. Most vacation rentals keep just 40-50% of gross revenue as NOI due to high turnover costs.

What’s a realistic NOI margin I should expect for my short-term rental?

Plan for 34-40% NOI margins in most vacation rental markets, meaning operating expenses will consume 60-66% of your gross revenue. Properties with higher turnover or premium amenities typically see margins on the lower end of this range.

Should I include my mortgage payment when calculating NOI?

No, mortgage payments stay out of NOI calculations because they reflect your financing choices rather than how well the property performs operationally. NOI measures pure property-level performance before debt service.

How can I quickly improve my vacation rental’s NOI without major renovations?

Implement dynamic pricing to capture 15-20% more revenue during peak periods, negotiate bulk rates with cleaning services, and automate guest communication to reduce management overhead. These changes deliver immediate NOI improvements without capital investment.

What cap rate should I target when buying a vacation rental property?

Look for cap rates between 8-12% in most vacation rental markets, with 8-10% representing solid returns in stable locations. Calculate this by dividing your projected annual NOI by the property’s purchase price to compare different investment opportunities.