Every week someone asks me if a Fredericksburg short-term rental is a good investment. My honest answer is that it depends on the property and the numbers. I grew up handling reservations for my family's B&B reservation service, and I have helped dozens of clients buy and sell STRs. The buyers who do best are the ones who know how to read the numbers. Here is how I walk my clients through them.
Please note: This is general education, not financial, tax or legal advice. Talk with your CPA and lender about your own situation.
Start With Gross Revenue
Gross revenue is the total rent the property brings in before expenses. It is the first number most sellers share, and it is the headline on most STR listings. It is a great starting point, but it is only a starting point.
When you look at gross revenue, ask:
- Is this from real booking records or a projection?
- How many years of history are there? One great year can be an outlier.
- Does the figure include cleaning fees?
- Does it include hotel occupancy tax? Tax is collected from guests and passed on to the state and city, so it is not your income.
- Was the property operating the full year, or was it closed for repairs or remodeling?
I always ask for statements from the booking platforms or the property manager. Real records beat a spreadsheet every time.
Occupancy, ADR and RevPAR
These three numbers tell you how the revenue was earned.
- Occupancy: The share of available nights that were booked. If a home was booked 15 of 30 available nights, occupancy was 50%.
- ADR (average daily rate): Rental revenue divided by the number of booked nights. It tells you what guests paid per night on average.
- RevPAR (revenue per available night): ADR multiplied by occupancy. It combines both into one number, which makes it easier to compare properties.
Look at these by month, not just by year. Fredericksburg has busy seasons, like spring wildflowers, festival weekends and the holidays, and quieter stretches. Monthly numbers show you how the property performs across the calendar.
The Expenses That Matter
This is where many first-time investors get surprised. A realistic budget includes:
- Property management: Usually a percentage of revenue if you hire a manager.
- Cleaning and laundry: Sometimes covered by guest fees, sometimes not.
- Booking platform fees: These vary by platform and how fees are split with guests.
- Utilities: Electric, water, trash, internet and streaming services.
- Property taxes: Check the Gillespie Central Appraisal District record, and remember taxes can change after a sale.
- Insurance: Make sure the policy covers short-term rental use.
- Supplies: Linens, toiletries, coffee and all the small things guests expect.
- Maintenance and repairs: Hot tubs, pools, HVAC, landscaping and wear and tear.
- Furniture and replacements: Guest use wears things out faster than normal use.
- Permits and compliance: City STR permit costs, inspections and any fixes they require.
Ask the seller for a profit and loss statement, and then check it against your own budget. If an expense is missing, add it back in.
Hotel Occupancy Tax
The City of Fredericksburg lists a 7% local hotel occupancy tax and a 6% state hotel occupancy tax, for a combined 13% charged to guests. Lodging providers in the City Limits and the ETJ must collect and remit it. The city files are quarterly, and the state sets your filing schedule. Unpaid hotel tax can also lead to a suspension of a city STR permit, so this is not a detail to skip.
The Permit Is Part of the Value
Inside the City Limits, a short-term rental needs a city permit, and zoning decides what types are allowed. In some residential zones, new unoccupied STR permits are not available, which can make an existing permitted property more valuable. Before you run any numbers, confirm that the property can legally operate the way you plan. My post on Fredericksburg STR rules covers the details.
Questions I Ask on Every STR
- Is the permit active, and what type is it?
- How many bedrooms and parking spaces does it have?
- What are the reviews like, and will the listing history transfer?
- Are future bookings on the calendar, and will they transfer at closing?
- Is it furnished, and what conveys?
- Who manages it today, and what do they charge?
So, Is It a Good Investment?
A good STR investment is one where the real numbers work for your goals. Some buyers want cash flow. Others want a second home that helps pay for itself, with time for their own family getaways. Both can work. The key is to look at real revenue, real expenses and real rules, and to know which goal you are buying for.
Want help reading the numbers on a property? Contact me and let's go through it together.