If your STR missed its pro forma, which assumption actually moved?

Question

I'll be upfront about who I am: I'm a financial analyst based in Hamburg, Germany. I don't own a US short-term rental. I work with financial models and variance analysis professionally, and I've been looking at STRs through that lens: what was expected when the property was bought, what actually happened after 12 months, and where the biggest differences came from.

One thing I keep noticing: when a deal underperforms, most people describe it as one general feeling ("it's not hitting what I expected"). But the gap is almost always concentrated in one or two lines, and it's usually not the one people name first.

A simple way to split it, if you have your original numbers:

Rate effect = (assumed ADR − actual ADR) × actual nights booked
Volume effect = (assumed nights − actual nights) × assumed ADR
Expense effect = whatever is left over

Add the three up and they reconcile to your total gap. It takes maybe 30 minutes with a transaction export and the spreadsheet you underwrote on. What surprises people is the split, plenty of hosts assume occupancy let them down, then find out they held occupancy by discounting, and the real damage was rate. Those two problems have opposite fixes, which is why the distinction matters.

What I'd like to learn from people who actually operate: for those of you who have gone back and checked, which line moved most? And did anything come in materially worse than you modeled, insurance, cleaning, the stuff nobody budgets properly?

Curious whether the pattern I see in the math matches what you see in the field.

John Underwood · Answer

I just buy vacation rentals to use and for the fun of it.

Some make money some break even. I don't sweat it either way.

I make the bulk of my money finding deals to turn into more LTR'S or occasionally properties to flip.

Michael K Gallagher · Answer

this is what i'm trying to get to!  much respect.

Mark Miles · Answer

When people don’t hit their numbers, there’s typically two causes: increased competition, increased inflation.

Increased competition lowers your rate and volume. Inflation increases your expenses. The gap crushes you. It’s pretty straightforward

Jules Aton · Answer

I'm also not doing this for a living so with one turning a small profit and one breaking even with property values slightly edging up I'm good. I have one that is on target with expectations of expenses and occupancy. My newest property is on target with occupancy but has included notably more competition than anticipated, high insurance costs and higher taxes for non-owner occupied than I predicted. The estimated income reports received from Realtor and PM were overly optimistic which I suspected. Perhaps the biggest surprise is how desperate people are to fill their units.

Andrew Steffens · Answer

So I am primarily an STR property manager but also sell properties, about 2-3 per month averaged so I get about 20-25 new clients a month.  I primarily overshoot expenses and undercut revenue potential and most of my clients hit their numbers.  This is also because my market is particularly stable.  Looking at last years financials or even projection relying on last year's data is a lagging indicator.  There are more relevant indicators on supply side and demand side that is typically a good thing to consider.  If a property did $100k last 12 months and there is now 10% more supply in their segment, I would expect maybe $90k.

Julian Schmidt · Answer

Fair point on the mortgage being fixed, but I'd push back on it being the bulk of the expense column for an STR. On a property doing $100k gross, debt service is often around a third. Cleaning, management, insurance, utilities, supplies and platform fees make up the rest and that's the part that isn't fixed.

Andrew Steffens · Answer

I think that will depend on who prepared the pro forma.  I very often see pro forma's put out by the selling side with inflated projections and way low expenses, which is obviously problematic.  When working with my buyers I do the opposite.  I try to underpromise and underdeliver so I have a lasting client.  This approach is likely to lead to more accuracy.

There was a post her about inflation, which is now running in the US about 3.5% which is not nothing but the mortgage payment is rather fixed which is the bulk of the expense column.

Julian Schmidt · Answer

Mark, that's the standard explanation and it's usually where people stop. The problem is competition and inflation push in opposite directions on different lines, so "the gap crushes you" doesn't tell you what to fix. Rate pressure and expense creep need different responses.

Andrew, your supply point is the useful one here. If a segment adds 10% supply, last year's revenue is a lagging indicator. That's a forward adjustment most people never make.

What I'm still curious about, for anyone who owns: when you actually put your first twelve months next to what you underwrote, which single line was furthest off? Not the reason, the line. My guess is it's expenses more often than people expect, but I'd rather hear it than assume it.

If your STR missed its pro forma, which assumption actually moved?

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