The Oswald Group at eXp Realty
A short-term rental is worth what it earns, not what it looks like. Analyzing one means projecting revenue for that specific submarket, costing everything it takes to open the doors, and running it down to cash flow before an offer goes in.
This is the process we run on every property, in the order we run it. It takes about an hour once the data is in front of you, and it is the hour that decides whether the next five years are profitable or expensive.
Order matters. Most people start with the property and work backwards to justify it. We start with what it can earn and let that decide whether the property is worth looking at.
North Charleston does not behave like Folly Beach, and Summerville does not behave like either. Nightly rates, occupancy, seasonality and permit rules all differ. North Charleston caps short-term rental permits at sixty per council district and several districts are already full, so for some addresses the answer is no before you have looked at the property at all.
Not an average for Charleston. A projection for that bedroom count, in that submarket, at that quality level. We use AirDNA for the market data and cross-check it against what comparable properties we operate actually earn, because a projection that has never been tested against a real P&L is a guess with a chart on it.
Renovation and furnishing are two separate budgets and both get underestimated. Furnishing a four bedroom to a standard that photographs well and survives turnover is rarely under forty thousand dollars. That money is spent before the first guest arrives.
How the loan is structured changes the answer more than the purchase price does. A DSCR loan qualifies on the property's projected income rather than your tax returns, which is why most investors end up there. No personal income test, a higher rate than an owner-occupied mortgage, and typically twenty five to thirty percent down, because short-term rentals usually sit at the stricter end of a lender's terms.
Management, cleaning, platform fees, utilities, insurance, property tax, restocking, maintenance. Short-term rental insurance and utilities both run well above what the same house costs as a long-term rental, and almost every spreadsheet we are handed has understated them.
Revenue minus operating costs gives net operating income. Subtract the mortgage and you have cash flow. Divide that by the total cash you put in and you have cash-on-cash return, which is the number that actually compares one deal against another.
Run it again at 20 percent below the revenue projection. If it still covers the mortgage, it is a real deal. If it only works at the top of the projection, it is a bet. Regulation changes, new supply and a soft season all show up in the same place.
A performing rental sells to an investor on its numbers. An underperforming one sells to a family on comparable sales, usually for less than you hoped. In North Charleston there is a second catch worth knowing before you buy: permits do not transfer with the sale. Your buyer has to apply from scratch, and in a district that has filled up since you bought, they may not get one.
Four bedrooms, three baths, North Charleston. Every figure below is illustrative and is here to show the method rather than to describe a specific property. Your numbers will differ.
| Getting in | |
|---|---|
| Purchase price | $525,000 |
| Down payment, 25 percent | $131,250 |
| Closing costs | $12,000 |
| Renovation | $35,000 |
| Furnishing and setup | $45,000 |
| Total cash in | $223,250 |
| What it earns | |
| Projected gross revenue, year one | $88,000 |
| What it costs to run | |
| Management, 20 percent | $17,600 |
| Platform fees | $2,640 |
| Property tax | $6,800 |
| Insurance | $4,200 |
| Utilities and internet | $4,800 |
| Maintenance and repairs | $4,400 |
| Supplies and restocking | $2,400 |
| Total operating costs | $42,840 |
| The answer | |
| Net operating income | $45,160 |
| Mortgage, $393,750 at 7.0 percent over 30 years | $31,436 |
| Annual cash flow | $13,724 |
That last number is the one worth sitting with. This property covers its costs down to about $70,200 of gross revenue, which is roughly 20 percent below the projection. That is the margin. If the projection were $88,000 and the break-even were $86,000, the same deal would be a bet rather than an investment.
These are the four things that most often turn a promising set of numbers into a disappointing one.
Where the numbers come from
The operating figures above are not pulled from a calculator. Through Vacation Ventures we manage short-term rentals in the same Charleston submarkets our clients buy in, which means the cleaning costs, the insurance, the restocking and the real occupancy come from running them.
That is the difference between an analysis and an estimate.
If you are weighing a property right now, send it over and we will run this process on it. You will get the revenue projection, the full cost to open, the financing options and the cash flow, whether or not it turns out to be a deal worth doing.
Book a ConsultationThis page is investment insight, not tax or legal advice. Revenue projections are estimates and will vary with management, seasonality and local regulation. Consult a qualified tax professional before you invest.