STR vs LTR Underwriting: Compare NOI, Not Gross Rent

A short term rental vs long term rental analysis on one property, underwritten both ways — full expense stack, seasonal revenue, NOI, DSCR and worst case.

A short-term rental on the property below grosses 1.84 times what the long-term rental grosses, and produces less net operating income. That is the whole argument, and it is the reason gross revenue comparisons sell bad short-term rentals.

The honest comparison is NOI, cash-on-cash on the full cash invested, and DSCR under a worst case. Below is one house at $285,000 underwritten both ways, line for line, with the arithmetic shown.

A long-term rental is a financing spread. A short-term rental is a business that owns a house.

That reframe drives everything else. A long-term rental is a stabilised asset: you lock a rent for twelve months, deduct a vacancy allowance, pay a cost basket that barely moves, and keep the spread between NOI and debt service. The operating risk is concentrated in one event per year — the turnover.

A short-term rental is an operating business. It re-prices nightly, re-sells itself 69 times a year, carries payroll-like costs, buys its own consumables, pays its own utilities and depends on a distribution channel it does not control. It also happens to own real estate. Underwrite it like a lease and you will miss most of its cost structure and all of its risk.

The property, underwritten once

Both underwrites use identical acquisition terms. Only the operating model changes.

The 6.67% is the 30-year fixed rate mortgage average for the week of 13 August 2026. Payment is the standard amortisation formula published on the CasaWise calculations page.

Revenue: one line is a monthly number, the other is 365 daily auctions

Long-term. Rent is $2,600. Effective gross rent is rent x 12 x (1 − vacancy). The US rental vacancy rate was 7.3% in Q2 2026, so:

Gross scheduled rent = $2,600 x 12          = $31,200.00
Effective gross rent = $31,200 x (1 - 0.073) = $28,922.40

Short-term. Revenue is ADR x occupancy x 365, plus cleaning fees billed to guests. The trap is the word "annual." An annual average occupancy of 61% does not mean 61% every month, and the mortgage does not care about the average — it is due on the first, twelve times.

Here is the same house on a summer-peak ladder, with the full monthly operating cost and the $1,375.03 payment applied to each month. Cleaning fees are billed to guests at $135 per turnover and shown in revenue; the cleaner's invoice appears in expenses. Turnovers assume a 3.2-night average stay.

Eight of twelve months do not cover their own costs plus the mortgage. July and August together carry $4,741.28 of the year. That is a cash-cycle problem the annual average cannot show you, and it is why a short-term rental needs an operating reserve a long-term rental does not.

Gross comparison: $57,395 against $31,200. The short-term rental grosses 1.84x. Hold that number.

The expense structure is where the comparison is actually decided

Same house, same roof, same tax bill. Every line below is an annual figure. Management and platform rates are example assumptions used to make the arithmetic legible, not market rates — quote your own before you offer.

Four things in that table deserve calling out.

Management is not the same service. Eight percent of a long-term rent buys rent collection and a maintenance call tree. Twenty percent of room revenue buys pricing, listing management, guest messaging, turnover scheduling and damage handling — a staffed operation. Comparing the two percentages as if they measure the same thing is the most common error in these comparisons.

Insurance is a different policy, not a bigger one. Short-term use typically falls outside a standard rental owner's policy form and requires coverage written for transient occupancy. Do not scale your long-term premium by a multiple. Get a bound quote and put that number in the model.

Cleaning does not net to zero. The $9,315 billed to guests exactly offsets the $9,315 paid to cleaners in this example, but platform fees are charged on the full booking value including the fee. That is real leakage, and it is why the fee cannot be treated as a pass-through.

Utilities move from the tenant's name to yours. So does internet. Those two lines alone are $4,620 a year that simply does not exist on the long-term underwrite.

NOI, cash flow, cash-on-cash and DSCR, both ways

Using the CasaWise formulas: NOI = effective gross revenue − operating expenses; DSCR = NOI / annual debt service; cash-on-cash = annual cash flow / total cash invested.

The short-term rental grossed 1.84x and produced 76.5% of the NOI. It also went from a financeable 1.16 DSCR to 0.89 — below break-even, below any lender's 1.20 requirement, and a negative cash flow position at acquisition. Be extremely cautious about that.

The useful sensitivity is the break-even. Holding this cost structure, the short-term rental needs $65,580.84 of revenue to match the long-term NOI — 2.10x the long-term gross, which at this ADR ladder means about 70% annual occupancy. That is the real hurdle rate, and it is nowhere near the 1.5x that gets quoted.

Furnishing is cash out the door, and it lowers cash-on-cash

Total cash invested is down payment + rehab + closing costs + points. The $24,000 furnishing package is acquisition capital in exactly the same sense as a roof — you cannot let the property earn without it, and it never appears in NOI. It belongs in the denominator.

Use the self-managed case below, which produces positive cash flow of $7,767.08, to see the size of the effect:

Ignoring furnishing:  $7,767.08 / $79,087.50  = 9.82%
Counting furnishing:  $7,767.08 / $103,087.50 = 7.53%

That is 229 basis points of return that exists only in models that forgot to count the cash. Note the mirror-image trap in the managed case: dividing a negative cash flow by a larger base makes cash-on-cash look less bad (−1.79% against −2.34%), which is not an improvement.

Worst case: the long-term rental degrades, the short-term rental breaks

CasaWise runs three scenarios with fixed modifiers — worst case is vacancy x1.8, expenses x1.2 and CapEx x1.4. Apply them to both. For the short-term rental, vacancy is 1 − occupancy: 38.6% x 1.8 is 69.5% vacancy, which puts occupancy at roughly 30% — 111 booked nights instead of 224.

The long-term rental degrades: DSCR 1.16 to 0.93, a manageable $1,168.70 a year of injected cash. The short-term rental breaks. A negative NOI means the property does not cover its own operating costs before a dollar of the mortgage is paid, and the owner is writing a cheque for roughly $1,912 a month with no asset-side event having occurred. Nothing about the building changed. Only the revenue line moved.

That asymmetry is structural. High fixed operating costs plus a re-priced-nightly revenue line equals high operating leverage in both directions. A long-term rental cannot lose 50% of its revenue without a catastrophe. A short-term rental can lose it to a competitor supply wave, a ranking change, or a soft season.

Regulation is an underwriting input, not a footnote

Every other risk on this page is priced by the market. Regulatory risk is binary and it is imposed. The question to answer before you offer is not whether restrictions are likely — it is what this property is worth to you if short-term use is prohibited at some point in your hold period.

You already have that answer. It is the long-term underwrite: NOI $19,144.99, DSCR 1.16, and $24,000 of furnishing that no longer earns anything. If the long-term column does not survive on its own, the short-term rental is a single-permit business with a mortgage attached. Underwrite the fallback first. This is the same discipline as checking a deal before you make an offer — you are pricing the downside, not forecasting it.

When the short-term rental genuinely wins

Plainly: when you supply the labour, or when the revenue clears the break-even by a wide margin.

Remove the management line — self-manage — and the same house produces:

That beats the long-term rental on every line: $24,267.45 of NOI against $19,144.99, 7.53% cash-on-cash against 3.34%, DSCR 1.47 against 1.16. Measured against the Deal Score anchors, 7.53% cash-on-cash is above the ceiling and 1.47 DSCR is above it too.

The $9,616 you added back is your wage for pricing 365 nights, coordinating 69 turnovers and answering messages at 11pm. That is a real job and it is a legitimate way to earn a return — just book it honestly as earned income rather than as investment yield. And note that even self-managed, the worst case still produces −$1,672.77 of NOI and a DSCR of −0.10. The labour changes the base case. It does not change the shape of the risk.

How CasaWise handles it

Short-Term Rental Analysis and Investment Duration Analysis are both part of the Pro AI Investors tier — see pricing. The free calculation engine already runs the long-term column, the three-scenario worst case, DSCR and cash-on-cash on every deal, so you can build the fallback underwrite before you decide whether the short-term column is worth modelling at all.

Every formula on this page — NOI, DSCR, cash-on-cash, cash invested — is published on How We Calculate, along with the scenario modifiers used above. Set the CapEx reserve deliberately rather than by habit; what you should actually set aside covers how that number is built.

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