How much do you stress-test an STR before buying?

Question

I’ve been thinking about how easy it is to get excited about a short-term rental property based on projected revenue alone.

But when you start changing the numbers — occupancy, ADR, operating expenses, financing costs — the deal can look very different.

I think testing different scenarios before buying can reveal risks that aren't obvious at first.

For those of you who analyze STR investments, what numbers or risks do you consider most important before deciding if a property is actually a good deal?

Dan Handford · Answer

Roxana, I would start with the break-even occupancy rather than the projected revenue. Build a monthly model so seasonality is visible, then reduce both occupancy and average daily rate while increasing cleaning, management, utilities, insurance, and maintenance. I would also test a regulatory change, a major repair, and several months of weak bookings. The most useful question is whether the property can carry its debt and fixed costs during the slow season without depending on peak-month revenue. I also like to evaluate the fallback as a mid-term or long-term rental, even if that is not the primary plan. If the deal fails under a modest downside case, the purchase price or financing structure probably needs more margin.

DC Dobbs · Answer

Roxana, I think you're asking the right question.

But I'd come at it from a different direction.

Everybody's going to tell you to stress-test the occupancy, ADR, expenses, financing, and run your conservative, base, and optimistic scenarios.

Of course.

That's not where I'd start.

I'd start by asking who gave you the numbers.

Because a spreadsheet can be mathematically perfect and still be completely wrong.

If the revenue projection came from the seller, the broker, the property manager, some STR software, or your own assumptions, I want to know that before I start playing with the numbers.

Not because I think anybody's lying.

Because everybody has a reason for believing the number they gave you.

And I'm interested in the reason.

Then I want to find the number the whole deal is standing on.

There's usually one.

You can have twenty-seven numbers on a spreadsheet and nine different assumptions buried underneath them, but there's often one little bastard holding the whole thing together.

Find that number.

Then ask yourself what happens to the deal if it's wrong.

That's where I'd start.

Give me the property, the purchase price, how you're financing it, and where your revenue and expense projections came from.

We'll pull the thread from there

-DC Dobbs

Gulf Coast Emerald.

Roxana Castaneda · Answer

Thanks, Ecaterina! That’s very helpful. I completely agree that projected revenue alone isn’t enough. I’ve been especially interested in how occupancy, ADR, operating costs and financing can completely change whether an STR actually makes financial sense. I also think stress-testing different scenarios before committing to a property is really important. I’m not evaluating a specific property at the moment — I’ve been researching how STR investors analyze deals and make the final go/no-go decision.

Ecaterina Katerina Morosan · Answer

Hi Roxana, pleasure to connect! What market are you looking into?

When evaluating an Airbnb investment, I primarily look at the current numbers, whether the listing is active, and whether the seller is willing to provide the Airbnb financials. I also like to have a local short-term rental property manager run the numbers and provide comparable listings in the area.

I then compare their projections with AirDNA and nearby Airbnb or other short-term rental listings, based on my knowledge of the market.

If you’re financing the purchase, your lender may also be able to determine the maximum loan amount based on projected rental income and perform their own analysis. The appraiser will typically evaluate this as well.

With a 15-day due diligence period, you should have enough time to gather and review all of these reports. From there, you can either renegotiate the purchase price or walk away if the numbers don’t support the investment.