Thinking about buying a vacation rental in Antrim County and wondering what the numbers really look like? You are not alone. Between seasonal demand, higher operating costs, and changing local rules, cap rate can be tricky to pin down. In this guide, you will learn how to calculate cap rate correctly for short‑term rentals, which inputs matter most in Northern Michigan, and how to stress test your assumptions before you write an offer. Let’s dive in.
What cap rate means
Cap rate tells you a property’s pre‑debt return based on today’s income and expenses. The basic formula is simple:
- Cap Rate = Net Operating Income (NOI) ÷ Purchase Price
- NOI = Gross Operating Income − Operating Expenses
Cap rate helps you compare properties on an apples‑to‑apples basis. It excludes your mortgage, so it is independent of how you finance the purchase. If you plan to finance, you should also measure cash‑on‑cash return.
Gross vs. net cap rate
Some listings tout a “gross cap rate,” which is just annual gross rent divided by price. That ignores expenses like management, cleaning, utilities, and taxes. For vacation rentals, gross cap rate can be misleading. You want net cap rate based on true NOI.
Key vacation rental metrics
A strong cap rate analysis uses a few core metrics that reflect how short‑term rentals operate:
- Average Daily Rate (ADR): Average price per booked night.
- Occupancy Rate: Booked nights divided by available nights.
- Gross Rental Income (GRI): Nightly rent plus recurring fees you keep.
- Effective Gross Income (EGI): GRI minus vacancy/credit loss, plus other income you retain.
- Expense Ratio: Operating expenses divided by gross operating income.
- Cash‑on‑Cash Return: Annual pre‑tax cash flow after debt divided by your total cash invested.
Step by step: cap rate for a vacation rental
Short‑term rentals in Antrim County are seasonal. Build your numbers by season, not just an annual average.
Estimate revenue by season
Work from realistic, local inputs.
- Identify seasons: high (late spring to summer), shoulder, and low.
- Gather ADR by season and occupancy by season. Use historic platform data when available.
- Count available nights for the year. Adjust for personal use or maintenance downtime.
- Add any owner‑retained fees you actually keep, such as cleaning fees, pet fees, or parking.
Quick template:
- Annual rental income = ADR × Occupied nights (sum this for each season)
- Effective gross income = Rental income + owner‑retained fees
Estimate operating expenses
Short‑term rentals have more moving parts than long‑term leases. Budget annually for:
- Property management for STRs, often 20 to 35 percent of revenue
- Platform and payment processing fees
- Cleaning and turnover costs per stay
- Utilities: electric, gas, water, trash, internet, cable
- Insurance with short‑term rental or vacation rental endorsement
- Property taxes based on the assessor’s estimate
- HOA fees if applicable
- Routine maintenance, landscaping, and supplies
- Licensing, permitting, and any local transient occupancy taxes
- Capital reserves for big items like roof, HVAC, appliances
- Accounting, legal, and marketing
Be sure to separate what you collect from guests versus what you keep. If a guest pays a platform cleaning fee that goes straight to your cleaner, that is not income.
Calculate NOI and cap rate
Once you have annual effective income and annual operating expenses, the math is straightforward.
- NOI = Effective income − Operating expenses
- Cap Rate = NOI ÷ Purchase Price
Here is a simple hypothetical to show how seasonality and costs affect returns:
- Purchase price: 450,000 dollars
- High season ADR 425 dollars, 83 occupied nights revenue 35,275 dollars
- Shoulder season ADR 275 dollars, 31 occupied nights revenue 8,525 dollars
- Low season ADR 150 dollars, 53 occupied nights revenue 7,950 dollars
- Annual rental revenue: 51,750 dollars
- Owner‑retained cleaning fees: 6,000 dollars
- Gross operating income: 57,750 dollars
- Operating expenses: management 25 percent 14,438 dollars, cleaning 8,000 dollars, utilities 4,000 dollars, insurance 2,500 dollars, property tax 3,500 dollars, maintenance and reserves 5,000 dollars, platform fees 2,000 dollars, misc 1,500 dollars
- Total operating expenses: about 41,938 dollars
- NOI: about 15,812 dollars
- Cap Rate: about 3.5 percent
This shows how higher management, cleaning, and utility costs can compress cap rate even when ADR looks strong. Your actual numbers will differ, so plug in property‑specific data.
Run sensitivity scenarios
Short‑term rentals are sensitive to small changes in ADR and occupancy. Model three cases to see the swing in NOI and cap rate.
- Conservative: ADR down 10 to 20 percent, occupancy down 10 to 20 points, management at the high end, cleaning costs up
- Baseline: Recent 12 to 24 months performance or the average of similar comps
- Optimistic: ADR up 10 to 20 percent, occupancy up 10 to 20 points, tight expense control
Quick check for occupancy changes:
- Approximate incremental NOI = ADR × change in occupied nights − variable costs per extra night or stay
Use this to gauge how a few extra summer weeks or a stronger shoulder season could move your cap rate.
Local factors in Antrim County
Antrim County is a classic Northern Michigan market with a strong summer season and variable shoulder and winter demand. Your cap rate depends on property type and location.
Seasonality and demand drivers
- High season demand is driven by inland lakes such as Torch Lake and Lake Bellaire, boating, and family vacations.
- Shoulder seasons can perform if you offer proximity to trails, state parks, vineyards, or downtowns like Bellaire or Elk Rapids.
- Off‑season demand often depends on accessibility to US‑31 or I‑75 corridors and regional airports.
Regulations and taxes
Short‑term rental rules are set by each municipality. Before you rely on pro forma income, confirm with the county and the specific township, city, or village where the property sits.
- Check licensing or registration requirements, occupancy and parking rules, and safety inspections.
- Confirm whether local transient occupancy or lodging taxes apply and how they are remitted.
- Verify HOA or deed restrictions that may ban or limit short‑term rentals.
- Understand state‑level sales, use, and lodging tax obligations.
Insurance and infrastructure
- Short‑term rental insurance often requires specific endorsements and can cost more than standard coverage.
- Many homes use septic systems and private wells. Septic capacity and permits can limit legal bedroom count and guest occupancy.
- Waterfront homes may face shoreline and flood risks. Check FEMA flood zone status and whether flood insurance is needed.
Operating logistics
- Turnover frequency drives cleaning and laundry costs. Track stays per month, not just nights.
- Supply and linen management affects reviews and repeat bookings.
- Local STR managers command higher fees but can improve occupancy and ratings, which feeds revenue.
Competition and supply
- Watch for changes in short‑term rental inventory. Rising supply can put pressure on ADR and occupancy.
- New developments or policy shifts can change conditions quickly in smaller markets.
Due diligence checklist
Use this list to avoid surprises that can derail your cap rate.
Property and physical
- Full home inspection, plus roof, HVAC, septic, and well
- Septic capacity documents and bedroom permit verification
- Shoreline, seawall, and pier permits for waterfront homes
- FEMA flood map review and insurance implications
- Verify the number of legal bedrooms
Revenue and operations
- Ask for platform exports or management reports for the last 2 to 3 years
- Validate cleaning turnover logs and true cleaning costs
- Confirm which fees you actually retain versus platform‑paid pass‑throughs
- Talk to local property managers about seasonal patterns and pricing
- Confirm parking capacity and any municipal parking rules
Regulatory and tax
- Call the township or city clerk plus Antrim County to confirm current STR rules
- Check for pending ordinances or petitions that could limit STRs
- Pull the current property tax bill from the assessor and ask about reassessments
- Confirm state and any local lodging tax registration and remittance steps
Financial
- Get insurance quotes specific to short‑term rental use
- Request seller profit and loss statements and tax returns
- Model conservative, baseline, and optimistic scenarios before offering
- If financing, confirm lender requirements for short‑term rental properties
Common benchmarks and how to use them
Cap rates vary by property quality, location, and risk. In seasonal markets like Northern Michigan, short‑term rentals often require higher target returns because income is more volatile and operating intensity is higher. Compare like with like: similar bedroom count, waterfront versus non‑waterfront, and similar management models.
Also compare your result to alternatives:
- Local long‑term rental cap rates for stability context
- Your personal target returns and risk tolerance
- Risk‑free or low‑risk alternatives like bonds for opportunity cost
Cap rate vs. cash‑on‑cash
Cap rate ignores financing by design. If you will use a mortgage, add a cash‑on‑cash analysis to see your true return on invested cash.
- Cash‑on‑Cash = (NOI − Annual Debt Service) ÷ Cash Invested
- Cash invested typically includes down payment, closing costs, and initial repairs or furnishings
Use both metrics together. Cap rate helps you compare asset quality. Cash‑on‑cash shows how the deal performs with your financing.
A simple workflow you can follow
- Gather seasonal ADR and occupancy from host dashboards or STR analytics. Use at least 12 months, ideally multiple years.
- Build annual income by season and add only owner‑retained fees.
- Price out each operating expense category, including management and cleaning by stay.
- Compute NOI and cap rate. Note your expense ratio.
- Run conservative, baseline, and optimistic scenarios.
- Validate revenue with platform exports and tax returns, and verify local rules before finalizing your offer.
Wrap up and next steps
Cap rate for an Antrim County vacation rental starts with realistic seasonal revenue and a complete expense picture. Management, cleaning, utilities, and insurance all add up, and small shifts in ADR or occupancy can move your returns. Use verified host data, quotes from local managers and insurers, assessor tax records, and township rules to build a grounded model before you buy.
If you want a local, data‑driven sounding board, connect with Traverse City Real Estate. We help you source the right comparables, pressure test assumptions, and negotiate with confidence in Antrim County and across Northern Michigan.
FAQs
What is cap rate in vacation rentals?
- Cap rate is NOI divided by purchase price, a pre‑debt return that lets you compare properties on asset quality, not your financing.
How do I estimate ADR and occupancy for Antrim County?
- Use historic platform performance, local STR analytics, and quotes from area managers to build seasonal ADR and occupancy by high, shoulder, and low seasons.
Which expenses most impact cap rate for short‑term rentals?
- Management fees, cleaning per stay, platform fees, utilities, insurance, property taxes, and capital reserves typically drive the expense ratio.
How do local rules affect my cap rate in Antrim County?
- Licensing, occupancy and parking limits, HOA restrictions, and any local lodging taxes affect both allowable operations and net income.
What is the difference between cap rate and cash‑on‑cash?
- Cap rate uses NOI and ignores financing, while cash‑on‑cash measures your return after debt service relative to your actual cash invested.
Should I include cleaning fees in income?
- Include only the portion you retain; if the platform pays cleaners directly, do not count that as your income.
How do I stress test a lakefront rental?
- Run conservative, baseline, and optimistic scenarios by varying ADR and occupancy 10 to 20 percent and adjusting variable costs like cleaning and management.
