STR Returns: Measure Profit Against Total Cash Committed

Define total cash

Include the down payment, closing costs, immediate repairs, furnishings, setup, and the operating reserve funded at purchase. Show each category rather than hiding it inside one estimate. Excluding setup costs makes a property appear more efficient without changing what the buyer must spend.

Define the annual cash flow

Start with room revenue supported by comparable demand and operating records. Subtract recurring expenses, management, replacement allowances, and debt service. Keep tax benefits outside the operating return unless the investor and tax professional have separately modeled their availability.

Compare consistent scenarios

Use the same cost definitions for every candidate. Show base, downside, and delayed-opening cases. A higher base return can be less attractive when it requires aggressive occupancy, lower insurance costs, or no maintenance allowance.

Track the actual result

After launch, compare monthly actuals with the underwriting model. Explain variances in price, occupancy, cost, and capital spending. A useful review identifies what can be changed operationally and what was a purchase assumption that cannot be repaired by marketing.

Action checklist

• Include reserves and setup cash
• Deduct actual debt service
• Separate tax modeling from operations
• Compare a downside case
• Review monthly actuals after opening

Is cash-on-cash return the same as total return?

No. It focuses on cash flow relative to cash invested. Appreciation, principal reduction, sale costs, and taxes require separate analysis.