We Stress-Test Every STR Offer at 60% Occupancy - Here's Why That Number and Not AirDNA's Projection

There's a specific conversation I have with every client who's considering a Nashville short-term rental purchase, and it comes after we've looked at the property, after we've discussed the neighborhood, and usually after the investor has started to get excited about the upside. The conversation is this: let me show you what this deal looks like at 60% occupancy.

Not 75%. Not 80%. Not the number the seller's property manager projected. 60%.

If the deal survives that stress test — if it still produces a cash-on-cash return that's acceptable to the investor at 60% occupancy — then we have a deal worth pursuing. If it doesn't, we need to talk about whether the risk profile matches what the investor is actually comfortable with. This isn't pessimism. It's the way I think good STR underwriting should work in the Nashville market in 2026.

Why 60%?

The choice of 60% isn't arbitrary. It comes from watching Nashville STR properties go through multiple market conditions — pandemic disruption, the peak occupancy years of 2021-2022, and the supply compression that's characterized more recent years as more inventory came onto the market.

During the peak years, well-positioned Nashville STR properties were regularly hitting 75-85% occupancy. Those numbers drove a lot of investment into the market. But the 75-85% numbers were achieved in a period of historically compressed supply and historically high demand. They were not the baseline — they were the peak. Building a pro forma around peak performance is building your investment thesis around the best-case scenario rather than a sustainable expectation.

60% represents something closer to a durable base case for a competently operated Nashville STR in the current supply environment. It's not the floor — properties underperform 60% during slow periods, just as they exceed it during peak periods. What 60% represents is a realistic middle range that a property should be able to sustain across a full 12-month cycle without exceptional circumstances.

If a deal only works at 75%, it works in the good years and fails in the moderate ones. If it works at 60%, it has a margin of safety against the inevitable variance in any short-term rental operation.

What the 60% Stress Test Reveals

Running a pro forma at 60% occupancy surfaces a few things that higher occupancy assumptions obscure.

First, it reveals how dependent the deal is on the debt service coverage. A deal with aggressive financing — a small down payment or a high purchase price relative to income — tends to fail the 60% test quickly. The fixed cost of the mortgage doesn't move when occupancy drops; the income does. Deals with meaningful equity cushions or conservative financing tend to survive the stress test in a way that leveraged-up deals don't.

Second, it reveals the operating cost structure. If the property's operating expenses (management, maintenance, insurance, supplies, cleaning, platform fees) consume 45-50% of gross revenue, the remaining income needs to cover debt service and still leave something for the investor. At 60% occupancy, that math gets tight fast. The deals that have the most padding in the stress test are the ones where operating costs as a percentage of revenue are controlled, not because the investor cut corners, but because the property type and management approach are efficient.

Third, it reveals how much of the return is dependent on appreciation rather than cash flow. Some investors are comfortable with a deal that produces modest cash flow at 60% occupancy because they're underwriting significant appreciation over a 5-7 year hold period. That's a legitimate strategy in certain Nashville submarkets. But it's a different investment thesis than "strong cash flow with appreciation as the bonus," and investors should understand clearly which one they're making.

How I Use the Calculator

My Nashville STR underwriting calculator is built specifically to run these scenarios. You can input the purchase price, financing terms, projected nightly rate, and operating cost assumptions, and the calculator will show you the return at multiple occupancy scenarios — including 60%. It's a quick way to see where your deal sits relative to the stress test before you've spent significant time and money in the due diligence process.

The calculator doesn't replace a full underwriting conversation, but it's a useful filter. If the numbers at 60% look obviously unworkable before you've even refined the operating cost assumptions, that's a signal worth paying attention to early. If the numbers look promising, it's a foundation for the more detailed analysis I do with clients before we make an offer.

What I'm Looking for in a Deal That Passes

The STR investments I'm most confident recommending are the ones that check four boxes at 60% occupancy: positive cash flow (even modest), a projected hold period return that includes a realistic appreciation scenario, operating cost assumptions that are conservative rather than optimistic, and a location that I believe has durable STR demand rather than trend-driven demand that could fade.

That last point matters. Some Nashville STR locations produce strong returns during peak demand periods because the market is hot. Others produce consistent returns because they serve a persistent guest demand that doesn't depend on Nashville being at the peak of its national exposure moment. The latter type is where I want investors focused in 2026, because the supply environment has changed and the deals that hold up over time are the ones with genuine location advantages, not just favorable timing.

My short-term rental page covers how I think about STR investing in Nashville from the beginning of the process. If you're currently evaluating a specific Nashville STR opportunity and you want to walk through the 60% stress test together before you make an offer, reach out through how I can help. That's exactly the kind of conversation I'd rather have before a closing than after one.

The Investors Who Get Hurt

It's worth being direct about what goes wrong when investors skip the stress test. They buy a Nashville STR at a price that makes sense at 80% occupancy. The first year goes well — the property benefits from the energy of a new listing on the platforms, the novelty factor drives bookings. The occupancy looks close to projections. The investor is pleased.

Then year two arrives. The novelty has faded. There are more competitive listings in the neighborhood. A platform algorithm change reduces their search visibility. A slow month in the winter coincides with an unexpected maintenance expense. Occupancy runs 55% across the year instead of 80%. The cash flow that looked comfortable in the pro forma is now negative or barely break-even. The investor is in a deal they can't comfortably hold and can't sell without a loss.

That scenario is preventable. It's preventable with a stress test that runs the numbers at 60% before you close, with honest operating cost assumptions, and with a purchase price that reflects the actual income potential of the asset rather than a projection built on peak-year comparables. The investors who avoid these problems aren't smarter — they're just more disciplined about the underwriting. That's a discipline I can help you build before you make a move, and it's the only approach I'm willing to take with the people I work with.