Key Takeaways
- This glossary defines 25 essential short-term rental terms every STR investor and operator should know
- ADR, occupancy rate, and RevPAR are the three core performance metrics for any rental property
- Cap rate, NOI, DSCR, and cash-on-cash return are the key financial metrics lenders and investors use to evaluate STR deals
- Understanding these terms helps you analyze markets, compare properties, and communicate with lenders and property managers
Whether you are evaluating your first Airbnb investment or managing a portfolio of short-term rentals, the industry uses a specific set of terms and metrics. This glossary covers every term you need to understand STR performance, financing, and operations.
Each definition includes a plain-language explanation. Financial metrics include the formula and a worked example so you can apply them to your own properties.
A
ADR (Average Daily Rate)
The average revenue earned per occupied night. Calculated by dividing total rental revenue by the number of nights booked. ADR is one of the three core STR performance metrics alongside occupancy rate and RevPAR.
Formula: ADR = Total Revenue / Nights Booked
Example: A property that earns $12,000 from 80 booked nights has an ADR of $150.
ALE (Additional Living Expenses)
Insurance coverage that pays for temporary housing when a policyholder is displaced from their home due to a covered event like fire or flood. ALE claims are a significant source of medium-term rental bookings, often at premium rates.
Arbitrage (Rental Arbitrage)
A strategy where an operator leases a property long-term and then sublists it as a short-term rental, profiting from the difference between the lease payment and STR income. Arbitrage requires landlord permission and compliance with local STR regulations.
C
Cap Rate (Capitalization Rate)
The ratio of a property’s net operating income to its purchase price or current market value. Cap rate measures the expected return on a real estate investment before financing costs. Higher cap rates indicate higher potential returns but often come with higher risk.
Formula: Cap Rate = Net Operating Income / Property Value x 100
Example: A property worth $400,000 generating $28,000 in NOI has a 7% cap rate.
Cash-on-Cash Return
The annual pre-tax cash flow divided by the total cash invested. Unlike cap rate, cash-on-cash return accounts for financing and measures the actual return on the money you put in. It is the most practical metric for comparing leveraged STR investments.
Formula: Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested x 100
Example: An investor who put $100,000 down and nets $12,000 per year in cash flow has a 12% cash-on-cash return.
Channel Manager
Software that synchronizes availability, pricing, and bookings across multiple listing platforms to prevent double bookings. Many PMS tools include built-in channel management.
Comp Set (Competitive Set)
A group of comparable rental properties used to benchmark performance. A comp set typically includes properties with similar location, size, amenities, and target guest profile. Analyzing your comp set helps set competitive pricing and identify market opportunities.
D
DSCR (Debt Service Coverage Ratio)
The ratio of a property’s net operating income to its annual mortgage payments. Lenders use DSCR to determine whether a property generates enough income to cover its debt. Most STR lenders require a DSCR of at least 1.25.
Formula: DSCR = Net Operating Income / Annual Debt Payments
Example: A property with $38,000 NOI and $28,000 in annual mortgage payments has a DSCR of 1.36.
Direct Booking
A reservation made directly with the property owner or manager, bypassing OTA platforms. Direct bookings eliminate platform fees and give hosts full control over guest communication, pricing, and cancellation policies.
Dynamic Pricing
An automated pricing strategy that adjusts nightly rates based on demand, seasonality, local events, competitor pricing, and booking pace. Tools like PriceLabs, Beyond Pricing, and Wheelhouse implement dynamic pricing for STR operators.
G
Gross Rental Yield
Total annual rental income divided by the property purchase price, expressed as a percentage. Gross yield is a quick screening metric that does not account for expenses, vacancies, or financing.
Formula: Gross Rental Yield = Annual Gross Rent / Purchase Price x 100
Example: A $300,000 property generating $45,000 in annual gross rent has a 15% gross rental yield.
L
LTR (Long-Term Rental)
A property leased to a tenant for an extended period, typically 12 months or more. LTR is the traditional rental model and is often compared against STR when investors evaluate a property’s income potential.
Lead Time
The number of days between when a booking is made and the actual check-in date. Shorter lead times are common in urban markets and during high-demand periods. Tracking lead time helps optimize pricing and minimum stay strategies.
M
MTR (Medium-Term Rental)
A furnished rental with stays typically ranging from 30 days to 12 months. MTR targets traveling professionals, relocating families, and insurance displacement tenants. Many cities exempt stays over 30 days from short-term rental regulations.
Minimum Night Stay
The shortest booking duration a host will accept. Longer minimums reduce turnover costs and attract different guest segments, while shorter minimums maximize occupancy but increase cleaning frequency and wear. Many cities mandate minimum stays as part of STR regulations.
N
NOI (Net Operating Income)
Total rental income minus all operating expenses, excluding mortgage payments and income taxes. NOI represents the actual cash a property generates from operations and is the starting point for most investment calculations.
Formula: NOI = Gross Rental Income – Operating Expenses
Example: A property earning $60,000 annually with $22,000 in expenses has an NOI of $38,000.
O
OTA (Online Travel Agency)
A platform that connects travelers with rental properties and handles bookings, payments, and reviews. Airbnb, Vrbo, and Booking.com are the three largest OTAs for short-term rentals. OTAs typically charge hosts 3-15% per booking.
Occupancy Rate
The percentage of available nights that are booked over a given period. Occupancy rate reflects demand for a property and is influenced by location, seasonality, pricing strategy, and listing quality.
Formula: Occupancy Rate = Nights Booked / Total Available Nights x 100
Example: A property booked 219 out of 365 available nights has a 60% occupancy rate.
P
PMS (Property Management Software)
Software that helps STR operators manage listings, calendars, guest communication, pricing, and cleaning schedules across multiple platforms. Popular PMS options include Hospitable, Guesty, OwnerRez, and Hostaway.
R
RevPAR (Revenue Per Available Rental)
The average revenue generated per available night, whether booked or not. RevPAR accounts for both pricing and occupancy, making it the single best measure of overall STR performance.
Formula: RevPAR = Total Revenue / Total Available Nights (or ADR x Occupancy Rate)
Example: A property with a $200 ADR and 60% occupancy has a RevPAR of $120.
Revenue Management
The practice of using data and analytics to optimize pricing, availability, and distribution to maximize total revenue. In STR, revenue management involves dynamic pricing, minimum stay adjustments, seasonal strategies, and platform-specific optimizations.
S
STR (Short-Term Rental)
A furnished property rented for short stays, typically fewer than 30 consecutive days. Short-term rentals are listed on platforms like Airbnb, Vrbo, and Booking.com or booked directly through the owner. Regulations vary significantly by city and county.
Seasonality
The predictable fluctuation in demand throughout the year driven by weather, holidays, local events, and travel patterns. Understanding seasonality is essential for pricing strategy, cash flow planning, and setting realistic revenue expectations.
Superhost / Premier Host
A status designation awarded by Airbnb (Superhost) or Vrbo (Premier Host) to operators who consistently deliver excellent guest experiences. Requirements include high ratings, fast response times, low cancellation rates, and a minimum number of bookings.
T
Turnover
The cleaning and preparation process between guest checkouts and new check-ins. Turnover costs typically range from $75 to $250 per clean depending on property size, and turnover efficiency directly impacts profitability and guest satisfaction.
We do our best to keep our content accurate and up to date, but things change and we are only human. Always verify details directly with local sources before making decisions.
Frequently Asked Questions
What is the most important metric for STR investors?
RevPAR (Revenue Per Available Rental) is widely considered the single most important metric because it combines both pricing power and occupancy into one number. A property can have a high ADR but low occupancy, or high occupancy but low rates. RevPAR tells you how well the property performs overall.
What is a good cap rate for a short-term rental?
Most STR investors target cap rates between 6% and 10%, though this varies significantly by market. Urban properties in high-demand areas often have lower cap rates (4-6%) but offer appreciation potential, while rural or vacation properties may offer higher cap rates (8-12%) with more seasonal risk.
What DSCR do lenders require for STR loans?
Most STR-friendly lenders require a minimum DSCR of 1.25, meaning the property must generate at least 25% more income than its debt payments. Some lenders will go as low as 1.0 for strong borrowers, while others require 1.5 or higher for short-term rental properties due to perceived income volatility.
What is the difference between ADR and RevPAR?
ADR measures the average price per booked night and ignores vacant nights entirely. RevPAR measures revenue across all available nights, including unbooked ones. A property charging $300 per night with 50% occupancy has a $300 ADR but only $150 RevPAR. RevPAR gives a more complete picture of performance.
What is rental arbitrage and is it legal?
Rental arbitrage is leasing a property long-term and then subletting it as a short-term rental for profit. It is legal in many areas but requires explicit permission from the landlord and compliance with local STR regulations. Some cities ban or restrict subletting, so always check local ordinances before pursuing this strategy.
