How to Underwrite a Short-Term Rental Before You Buy

Most STR Buyers Skip the Math — Don't Be One of Them

The number one mistake buyers make when purchasing a short-term rental in Southern Utah is buying based on the seller's income claims or a Zillow listing that says "great STR potential." Neither of those is analysis. They're marketing.

Underwriting an STR means building your own financial model from real data, with conservative assumptions, before you make an offer. Here's exactly how to do it.

Step 1: Estimate Gross Revenue

Gross revenue is the product of two numbers: Average Daily Rate (ADR) and Occupancy Rate. Both vary by location, property type, season, and how well the listing is managed.

ADR Benchmarks for Southern Utah (2025–2026)

• Cedar City (2–3 bed) — $120–$180/night. Higher during Shakespeare Festival (June–October) and SUU events
• Hurricane / Sand Hollow area (3–4 bed) — $200–$350/night. Premium for pool, hot tub, or UTV access
• Zion corridor (2–4 bed) — $175–$300/night. Strong spring through fall, softer in winter

Occupancy Benchmarks

• Well-managed properties — 60%–75% annual occupancy
• Average properties — 45%–60%
• New listings (first 6 months) — 30%–50% while reviews build

Use 55%–65% occupancy in your base case. If your deal only works at 75%+ occupancy, it's too thin.

Gross Revenue Formula

ADR × Occupancy Rate × 365 = Annual Gross Revenue

Example: $225/night × 60% × 365 = $49,275 gross

Step 2: Calculate Operating Expenses

This is where most projections go wrong. Sellers understate expenses. Buyers forget line items. Here's the full list:

Fixed Costs (Monthly)

• Mortgage (PITI) — principal, interest, taxes, insurance. This is your biggest line item
• HOA dues — if applicable. $100–$400/month in Sand Hollow and planned communities
• Utilities — electric, gas, water, sewer, trash, internet. Budget $300–$600/month for a 3-bed home. Higher in summer for AC-heavy markets like Hurricane
• Landscaping / pool maintenance — $100–$300/month if applicable

Variable Costs (Per Booking or Percentage of Revenue)

• Platform fees — Airbnb takes 3% from hosts (plus guest service fee). VRBO charges 5% for most hosts. Budget 3%–5% of gross
• Cleaning — $100–$250 per turnover depending on size. This adds up fast at high occupancy. Budget $400–$800/month
• Supplies and consumables — toiletries, coffee, paper products, cleaning supplies. $75–$150/month
• Property management — if using a manager, 20%–30% of gross revenue. If self-managing with Hospitable or similar software, $25–$100/month for the platform
• Maintenance reserves — budget 5%–10% of gross revenue for repairs, replacements, and unexpected issues. Things break faster in STRs than in long-term rentals
• Linens and furnishing replacement — mattresses, pillows, towels, and kitchenware wear out. Budget $1,000–$2,000/year

Other Costs

• Business license — most municipalities in Southern Utah require an STR business license. $50–$200/year
• Transient room tax — Utah counties collect occupancy tax (typically 3%–5.5%). This is passed to the guest but must be collected and remitted
• Insurance — standard homeowner's insurance doesn't cover STR use. You need a short-term rental policy or a commercial policy. Expect $2,000–$4,500/year

Step 3: Calculate Net Operating Income (NOI)

Gross Revenue minus Total Operating Expenses = NOI

Example using the $49,275 gross from above:

• Platform fees (4%): $1,971
• Cleaning ($175 × 80 turnovers): $14,000
• Utilities: $5,400
• Supplies: $1,200
• Insurance: $3,200
• Maintenance reserve (7%): $3,449
• Furnishing reserve: $1,500
• License/misc: $300
• Total expenses: $31,020
• NOI: $18,255

Step 4: Calculate Cash Flow (After Debt Service)

NOI minus annual mortgage payment = Cash Flow

If you purchased this property at $450K with 25% down ($112,500) at 6.75% on a 30-year conventional loan, your annual mortgage payment is roughly $26,400.

$18,255 NOI − $26,400 mortgage = −$8,145 annual cash flow

This deal is cash-flow negative on paper. That doesn't automatically make it bad — you're building equity, getting tax benefits, and the property may appreciate — but you need to know this going in, not discover it six months later.

Step 5: Run Scenarios

Never underwrite a single scenario. Build three:

• Conservative — 50% occupancy, ADR 15% below market average. If the deal survives this, it's solid
• Base case — 60% occupancy, market-rate ADR. This is your planning assumption
• Optimistic — 70%+ occupancy, ADR 10% above average. This is the upside, not your plan

If the conservative case puts you $15K+ negative annually, the deal has too much downside risk unless you have deep reserves.

Where to Get Real Data

• AirDNA — market-level ADR, occupancy, and revenue estimates by property type and location. Paid tool but worth it for serious investors
• PriceLabs / Wheelhouse — dynamic pricing data that shows actual booking patterns in your target area
• Airbnb and VRBO search — manually search active listings in your target area. Check their calendars to estimate occupancy. Read reviews to understand guest expectations
• Local agents with STR experience — an agent who operates STRs (not just sells them) can give you ground-truth numbers that data tools miss

Red Flags in Seller Claims

• "$80K gross revenue last year" — ask for the actual booking history, not a round number. Verify through platform records, not owner-created spreadsheets
• No expense documentation — if the seller can't produce utility bills, cleaning receipts, and maintenance records, their net income claims are unreliable
• Revenue includes one-time events — a $5K/week booking during a special event isn't repeatable. Strip outliers from your analysis
• HOA or zoning risk — verify the property can legally operate as an STR today and that the HOA hasn't changed rules since the seller started operating

Bottom Line

An STR can be a strong investment in Southern Utah — but only if the math works before you buy, not after. Build your own model, use conservative assumptions, and verify every number independently. If you want help underwriting a specific property near Zion, Sand Hollow, or Cedar City, reach out — I run STRs in this market and can tell you what the real numbers look like.

Related: A wider view on STR investing across Southern Utah — before you invest, start here.