A listing can clear every legal and landlord-fit filter and still be a bad deal. The only way to know for sure is to underwrite it properly before you sign anything - not after you've already paid a deposit and started furnishing. Here's the framework, step by step.
1. Total your true cost to launch
The rent is the recurring cost. Before that, you have a one-time cost to actually open the unit for bookings. Add these up before you get excited about the monthly spread:
- Security deposit and first/last month's rent due at signing.
- Furnishing - beds, linens, kitchenware, workspace, decor. This varies enormously by unit size and your standard, so price it out for the actual unit, not a rule of thumb.
- Photography - listing photos meaningfully affect booking rate and price; budget for a real shoot, not phone photos.
- Licenses, permits, and STR-specific insurance, where required.
- A cash buffer for the first one to two months before bookings ramp up.
2. Build a revenue range, not a single number
Never underwrite off a single optimistic revenue figure. Build three scenarios - conservative, expected, and optimistic - based on comparable listings in the same neighborhood and unit type, not the metro-wide average. A market can have strong overall STR demand while your specific micro-location and unit size underperforms it, and vice versa.
Occupancy and nightly rate both swing seasonally in most markets. Model at least a full year, not just the strongest quarter, and make sure your conservative scenario can still cover rent and expenses on its own.
3. Count every recurring expense, not just rent
Monthly rent is the headline number, but it's rarely the only recurring cost. Depending on the lease and the unit, also budget for:
- Utilities and internet, if not included in rent
- Cleaning and turnover costs between guest stays
- Platform fees (Airbnb and any other channels you list on)
- Restocking consumables (toiletries, coffee, cleaning supplies)
- A maintenance reserve for repairs and replacements
- Property management, if you're not self-managing
4. Calculate your real break-even occupancy
Once you have total monthly costs (rent + recurring expenses) and an expected nightly rate, break-even occupancy is simple: the number of nights per month you need to book at that rate to cover costs, divided by days in the month. The number that matters isn't your expected occupancy - it's how much cushion sits between break-even and your conservative scenario. A deal with a slim gap there is fragile against any market softening.
5. Model your payback period
Add your one-time launch costs back in and calculate how many months of net cash flow it takes to recover them. A shorter payback period gives you more runway before the lease renewal decision, and matters more the shorter your initial lease term is.
The takeaway
Underwriting isn't a formality before a deal you've already decided to do - it's the process that tells you which deals are actually worth doing. The unit that looks best on rent alone is often not the unit with the widest, most durable margin once every cost and a realistic revenue range are on the table.
AirLoom runs this underwriting automatically for any US market - live rent, real short-term demand comps, and a full financial model, scored into one verdict per listing.