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How to analyze a short-term rental deal: occupancy, nightly rate and break-even

A short-term rental can earn more than a long-term lease, but it also costs more to run and its income swings with the seasons. Here's how to test an Airbnb or VRBO deal before you buy, with the one number that matters most: break-even occupancy.

Updated October 20, 2026 · by Tidy Landlord

Step 1: Check that you're allowed to run it

Before any math, confirm that short-term rentals are permitted at that address and what registration, licence or permit the city, province or state requires. Condo and strata rules can ban them too. In Canada this is also a tax question (see below): expenses for a non-compliant short-term rental can't be deducted.

Step 2: Estimate the nightly rate and occupancy by month

Two numbers drive revenue: the average daily rate (ADR), what a booked night earns, and occupancy, the share of available nights that get booked. Estimate both month by month from comparable listings nearby, because a beach cottage that fills every night in July may sit empty in February. Revenue for a month is nights available × occupancy × ADR, plus cleaning fees per stay.

Step 3: Split costs into per-stay, per-night and fixed

Per stay: cleaning and laundry each time a guest checks out. Shorter average stays mean more turnovers.
Per night or per dollar: platform fees, supplies, and a reserve for repairs and replacing furniture.
Fixed: mortgage, property tax, insurance (ask for short-term rental cover), utilities, internet and streaming, which a long-term tenant would often pay instead.

Step 4: Find the break-even occupancy

Break-even occupancy is the share of nights you must book to cover every cost, mortgage included:

Break-even nights = annual fixed costs ÷ (revenue per booked night − variable cost per booked night)

Divide by the nights available to get a percentage. If your expected occupancy is only a little above it, a slow season or a new competitor puts you in the red.

A worked example

These numbers are made up to show the method, not market data. A two-bedroom house:

ADR $180, 62% occupancy: 226 booked nights a year; average stay 3 nights, about 75 stays
Cleaning fee charged $90 a stay; cleaning cost $85 a stay
Platform fee 3%, supplies $8 a night, repair and furniture reserve 5% of revenue
Fixed: utilities and internet $4,200, insurance $1,800, property tax $4,200, mortgage $22,800 a year: $33,000

Revenue per booked night is $180 + $90 ÷ 3 = $210. Variable cost per booked night is $6.30 platform fee + $28.33 cleaning + $8 supplies + $10.50 reserve = $53.13. Each booked night leaves $156.87 toward fixed costs, so break-even is $33,000 ÷ $156.87 = about 210 nights, 57.6% occupancy.

At 62% the house brings in about $47,430 and costs about $44,977, leaving roughly $2,453 a year, about $204 a month. That's a thin cushion: occupancy only 4.4 points lower wipes it out.

Step 5: Compare it with a long-term lease

Rented long-term for $2,300 a month, the same house brings in $27,600 a year. With the tenant paying utilities, and insurance $1,440, property tax $4,200, 5% for vacancy and 5% for repairs, expenses are $8,400. Net operating income is $19,200, which doesn't cover the $22,800 mortgage, a loss of $3,600 a year. Here the short-term plan wins on paper, but it's also far more work, and it depends on rules that can change. Run both before you choose.

Taxes in the US

Personal use: if you use the place yourself for more than the greater of 14 days or 10% of the days it's rented at a fair price, IRS Publication 527 treats it as used as a home, and your rental deductions can be limited.
Under 15 days: if you use it as a home and rent it for fewer than 15 days in the year, you don't report the rent and the expenses aren't rental expenses.
Dividing expenses: with mixed use, split expenses by days of rental and personal use. A day the place is available but not rented isn't a rental day.

Taxes in Canada

What counts: the CRA's guide T4036 defines a short-term rental as a residential property rented or offered for rent for less than 90 consecutive days.
Non-compliant rentals: if the province or municipality doesn't permit a short-term rental at that location, or requires registration, a licence or a permit and you don't comply, the expenses and capital cost allowance for the non-compliant days can't be deducted. Form T776 has lines 9366 and 9367 for those amounts.
Rental or business: the CRA says that if you provide services such as cleaning, security and meals, you may be carrying on a business; the more services, the greater the chance. Business income is reported using guide T4002 instead.

Keep booking and payout records by listing and by month; you'll need them for taxes and to check your estimates against reality.

Frequently asked questions

What is a good occupancy rate for an Airbnb?

There isn't one number; it depends on the market and the season. What matters is how far your expected occupancy sits above your break-even occupancy, the share of nights you need to cover every cost.

How do you calculate break-even occupancy?

Divide your annual fixed costs, mortgage included, by what each booked night leaves after per-night and per-stay costs. That gives break-even nights; divide by the nights available for a percentage.

Is a short-term rental more profitable than a long-term rental?

Sometimes. It can earn more per year, but costs, work and income swings are higher, and local rules can change. Compare both with the same mortgage before you decide.

Can I deduct expenses for an unregistered short-term rental in Canada?

Not for the days it's non-compliant. The CRA's T4036 says expenses and CCA for a short-term rental that isn't permitted, or isn't registered or licensed where that's required, can't be deducted.

Sources

This guide is general information, not financial, tax or legal advice. Every figure in the worked example is made up to show the method. Short-term rental rules and taxes differ by country, province, state and city and change often, so check the official sources linked above and your local rules, and ask a tax professional how they apply to you.

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