ROI Analysis for a Short-Term Rental
(example: Apartment in Florence, Italy)
(example: Apartment in Florence, Italy)
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Investment Scenario
Let’s consider purchasing an apartment in the historic center of Florence, which is already licensed for tourist rentals, allowing you to host guests all year round.
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Model used for Lorenzo International Real Estate
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Step 1: Why Florence Is Special for Short-Term Rentals
Unlike many seasonal tourist destinations, Florence benefits from steady demand 12 months a year, thanks to:
- International/domestic tourism and cultural events.
- Universities and study-abroad programs.
- Conferences and exhibitions.
- Business travel and extended stays.
Step 2: Estimated Monthly Occupancy Rates
The chart above shows realistic average occupancy rates for short-term rentals in Florence, based on historical demand patterns. Even in the lowest months (January and February), occupancy remains strong compared to many tourist cities.
Step 3: Estimating Operating Costs
Operating expenses for a Florence tourist rental typically range from 30% to 50% of gross income:
Step 4: Calculating Net Operating Income (NOI)
Step 5: Accounting for Taxes
With the cedolare secca flat tax at 21% for short-term rentals:
Step 6: ROI (Cap Rate)
Cap rate = Net Operating Income ÷ Total Investment
Step 7: Why Due Diligence Matters in Florence
Even with a license in place, buyers should verify:
Final Thoughts:
A licensed short-term rental in Florence’s city center can deliver stable, high returns year-round—making it one of Italy’s most attractive urban investment markets. The key is to buy a compliant property, keep expenses under control, and maintain high occupancy through excellent guest service.
As a dual-experiences broker in California and Italy, I help U.S. buyers secure the right property, run accurate ROI calculations, and ensure full compliance for a stress-free investment.
Thinking about buying in Italy? Let’s analyze your options together.
Step 3: Estimating Operating Costs
Operating expenses for a Florence tourist rental typically range from 30% to 50% of gross income:
- Lower end (30%): €27,000/year if self-managed or with minimal services
- Higher end (50%): €45,000/year if fully managed with premium guest services
Step 4: Calculating Net Operating Income (NOI)
- Low-cost scenario: €90,000 – €27,000 = €63,000 NOI
- High-cost scenario: €90,000 – €45,000 = €45,000 NOI
Step 5: Accounting for Taxes
With the cedolare secca flat tax at 21% for short-term rentals:
- Low-cost: €63,000 – €13,230 = €49,770 net income
- High-cost: €45,000 – €9,450 = €35,550 net income
Step 6: ROI (Cap Rate)
Cap rate = Net Operating Income ÷ Total Investment
- Pre-tax cap rate:
- Low-cost: 9.9%
- High-cost: 7.1%
- After-tax cap rate (21% rate):
- Low-cost: ~7.8%
- High-cost: ~5.6%
Step 7: Why Due Diligence Matters in Florence
Even with a license in place, buyers should verify:
- Proper registration with the Comune di Firenze for tourist rentals
- Compliance with condominium rules (regolamento condominiale)
- No outstanding tax or utility debts from the previous owner
- Property condition and adherence to safety regulations for guests
Final Thoughts:
A licensed short-term rental in Florence’s city center can deliver stable, high returns year-round—making it one of Italy’s most attractive urban investment markets. The key is to buy a compliant property, keep expenses under control, and maintain high occupancy through excellent guest service.
As a dual-experiences broker in California and Italy, I help U.S. buyers secure the right property, run accurate ROI calculations, and ensure full compliance for a stress-free investment.
Thinking about buying in Italy? Let’s analyze your options together.
FAQ
Q: What ROI can you expect from short-term rentals in Florence?
A: In a licensed short-term rental in Florence’s historic center, pre-tax cap rates range from about 7.1% to 9.9%, and after the 21% cedolare secca tax, net returns typically fall between approximately 5.6% and 7.8%
Q: Why is Florence a strong market for STR investments?
A: Florence benefits from year-round tourism—thanks to universities, conferences, cultural events, and business travelers—which supports higher occupancy rates and more stable rental income.
Q: What operating costs should investors consider?
A: Operating costs can vary from 30% (if self-managed) to 50% (with full management services) of gross income. These significantly impact net operating income (NOI) before taxes.
Q: What is a good short-term rental ROI benchmark?
A: A net ROI (after expenses and taxes) around 10% is considered very strong. The example studied provides net cap rates of ~5.6% to ~7.8%, which are competitive for urban European markets.
Q: How do Italian short-term rental yields compare nationally?
A: In Q1 2025, gross rental yields averaged around 7.56% in Italy. For Florence specifically, yields ranged between 6.25% and 7.84%. Higher yields are available in cities like Palermo (up to ~8.29%) or Turin (~8.34%)
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