Short-Term vs Long-Term Rentals: Profitability Breakdown

Trying to choose between short-term and long-term rentals? Here’s the quick answer:

• Short-term rentals (like Airbnb) can earn 30% more annually than long-term rentals, with average monthly earnings of $4,300. But, they come with higher costs (50% of revenue), frequent turnovers, and stricter regulations.
• Long-term rentals offer steady monthly income, lower costs (35% of revenue), and fewer management hassles. They’re ideal for passive income seekers.

Quick Comparison

Criteria	Short-Term Rentals	Long-Term Rentals
Income Potential	Higher (30% more annually)	Lower but consistent
Occupancy Rates	50–70% (varies by season & location)	90%+ (steady over time)
Operating Costs	~50% of revenue	~35% of revenue
Management Effort	High (frequent turnovers, guest handling)	Low (longer leases, less turnover)
Regulations	Strict (varies by city, permits required)	Standardized tenant laws
Best For	Active investors seeking high returns	Passive investors prioritizing stability

Bottom Line:
Go short-term if you’re ready for active management and higher risks for bigger rewards. Choose long-term for stable, hands-off income. Or, combine both strategies to maximize flexibility and returns.

Let’s dive deeper into revenue, costs, and legal considerations for both options.

My verdict after 2 years- Short term rental vs long term rental vs more traditional investments

1. Revenue Potential: Income Comparison

Different rental strategies bring varied income opportunities, costs, and occupancy trends. Let’s break down the income potential of short-term and long-term rental models.

Short-Term Rentals: Higher Nightly Rates

Short-term rentals often rely on dynamic pricing, adjusting rates based on demand, seasons, and local events. This approach can significantly boost earnings during peak periods. In fact, properties using dynamic pricing have reported revenue increases of up to 85% compared to those with fixed pricing models.

The income potential of short-term rentals can be impressive. In tourist-heavy areas, they can generate 2–3 times more revenue than traditional long-term rentals. However, occupancy rates tell a different story. By 2025, short-term rental occupancy is expected to stabilize around 54.9%. Professionally managed properties tend to perform better, achieving occupancy rates of 70–90%, compared to 50–70% for self-managed units.

Globally, occupancy rates vary. Oceania leads with 59%, followed by Europe at 56% and North America at 51%. Yet, as competition grows in high-density areas, occupancy rates and nightly prices may decline over time. Adding to the challenge, more than 220 U.S. cities now enforce specific regulations for short-term rentals, which can impact earnings in certain markets.

"Setting the right price is like navigating a complex course. Every turn and decision must be carefully calculated to reach the destination." - Michela Trolese, Commercial Director, Valor Hospitality

While short-term rentals can deliver high returns, they also come with greater complexity and fluctuating demand.

Long-Term Rentals: Steady Monthly Income

Long-term rentals, on the other hand, provide a more predictable income stream. With fixed 12-month or longer leases, landlords benefit from consistent monthly cash flow, making financial planning much simpler.

The pricing structure for long-term rentals is straightforward. Rent increases are typically limited to annual adjustments and must comply with local rent control laws, offering stability even during market fluctuations. Plus, long-term tenants reduce vacancy periods and turnover costs. Management fees are also lower - around 8–12% of rent, compared to 15–25% for short-term rentals.

These rentals perform particularly well in suburban areas, workforce housing markets, and student-heavy neighborhoods, where demand tends to stay steady. While these locations may not command the premium rates seen in tourist hotspots, they offer reliable income with fewer operational demands.

When it comes to gross income, short-term rentals often outpace long-term rentals, earning about 30% more annually on average. However, the higher earnings come with higher operating expenses - around 50% of revenue compared to 35% for long-term rentals.

For investors focusing on passive income and long-term property appreciation, the consistent monthly payments of long-term rentals are appealing. Additionally, platforms like Lofty allow investors to explore fractional real estate opportunities, enabling diversification without requiring significant upfront capital.

2. Operating Expenses: Cost Breakdown

Getting a clear picture of expenses is essential for figuring out real profitability. On average, operating costs for short-term rentals eat up about 50% of revenue, compared to 35% for long-term rentals. That 15% difference in expenses can level the playing field when it comes to net profits, even if gross income varies. This breakdown sets the stage for diving into turnover challenges and maintenance needs in the sections that follow.

Short-Term Rentals: Frequent Turnover Costs

Short-term rentals come with some unique expenses, mainly due to the constant flow of guests. Cleaning fees alone can range from $50 to $200 per turnover. If a property hosts 100 bookings a year, cleaning costs could add up to anywhere between $5,000 and $20,000 annually. Furnishing these properties is another big-ticket item, with standard setups costing $15,000 to $25,000, and luxury units going beyond $50,000.

On top of that, professional property management services can take a hefty cut - typically 15–25% of revenue in most markets, and as much as 30–40% in high-demand areas. Insurance for short-term rentals is also pricier, averaging $2,000–$3,000 annually, largely because of the higher risks tied to frequent turnovers. Add in marketing and advertising costs, and it’s clear these properties require a significant financial commitment.

Long-Term Rentals: Maintenance and Legal Expenses

Long-term rentals, on the other hand, operate with a steadier and more predictable cost structure. Maintenance expenses usually amount to just 1–2% of the property’s value each year, and property management fees hover around 8–12% of monthly rent. Since cleaning and maintenance are only needed during occasional tenant changes, these costs are much lower compared to short-term rentals.

However, long-term rentals aren’t completely free of unexpected expenses. Legal fees can crop up, especially in cases of evictions or other regulatory issues. Still, property taxes remain consistent regardless of the rental type, which simplifies expense forecasting.

This stability is particularly appealing for investors using platforms like Lofty, where fractional real estate investments often involve evaluating multiple properties across various markets. The predictable nature of these costs makes cash flow planning easier and more reliable. These expense patterns also play a role in occupancy rates and risk, topics we’ll tackle in the next section.

Up next: a closer look at occupancy trends and how vacancy risks differ between these rental strategies.

3. Occupancy Rates and Vacancy Risk

Grasping occupancy trends is a key part of assessing the potential of your rental investment. While the national rental vacancy rate hovers at 6.3%, this number only scratches the surface. Short-term and long-term rentals come with their own unique challenges, and these differences play a big role in shaping your returns. Let’s take a closer look at how seasonal patterns and lease terms influence occupancy outcomes.

Short-Term Rentals: The Impact of Seasonal Demand

Short-term rentals thrive in a market that’s anything but steady. For example, the average occupancy rate in the U.S. during the spring of 2025 sits at about 50%, showcasing the clear effects of seasonality. Demand typically spikes during the winter months and again from mid-spring through late summer. But it's not just the seasons that matter - external factors, like local events or economic shifts, can also sway occupancy rates. To adapt, property owners often tweak prices or run promotions to balance out these fluctuations, though this makes predicting future occupancy a tricky task.

Long-Term Rentals: Stability Over Time

On the other hand, long-term rentals are known for their steadier performance. With longer leases, landlords can count on consistent occupancy and a reliable cash flow. While tenant turnover can occasionally lead to vacancies, the lower frequency of these changes helps reduce the overall impact. Smart strategies like thorough tenant screening and proactive lease renewals can go a long way in keeping those vacancy periods to a minimum.

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4. Legal and Tax Requirements

Navigating legal and tax regulations is a critical aspect of managing rental properties. Both short-term and long-term rentals come with their own set of rules, and understanding these frameworks is essential for maintaining compliance and profitability. These requirements often tie directly into the operational costs discussed earlier.

Short-Term Rentals: Permits and Tax Obligations

Short-term rentals are subject to a complex web of regulations that vary across federal, state, and local levels. Many areas require property owners to obtain permits or licenses, which often involve inspections, fees, and adherence to safety standards. Zoning laws further dictate where short-term rentals are allowed, with restrictions in tourist-heavy areas sometimes reducing property values by as much as 30%.

Taxes are another key consideration. Hosts must collect and remit various taxes, such as state sales taxes and local tourist development taxes. Here are a few state-specific examples:

• Florida: Hosts must register with the Florida Department of Business and Professional Regulation and collect both state and local taxes.
• Arizona: Operators need a Transaction Privilege Tax (TPT) license and are required to collect taxes at the state, county, and city levels.
• Texas: A 6% hotel occupancy tax is mandatory, and cities like Austin, Houston, and Dallas often impose additional permit requirements and occupancy limits.
• California: In Los Angeles, owners must secure a city-issued registration number, comply with a 120-day annual rental cap, and collect Transient Occupancy Tax (TOT).

Beyond taxes, operational restrictions such as noise, parking, and waste disposal rules can complicate matters. For example, in Riverside County, California, short-term rentals cannot host commercial events like weddings or concerts without special permits.

New York City’s recent regulations, implemented in September 2023, highlight the growing scrutiny on short-term rentals. Hosts must register their properties, remain on-site during stays under 30 days, and limit occupancy to two unrelated guests. Fines for violations range from $1,000 to $7,500. These strict requirements underscore the importance of staying compliant to avoid penalties that could erode profits.

Long-Term Rentals: Tenant Protections and Legal Standards

Long-term rentals operate under a more standardized legal framework, primarily focused on tenant protection laws. While less varied than short-term rental regulations, these laws still require careful attention to ensure a steady income stream.

Landlord-tenant laws, which vary by state, typically include provisions like rent control, habitability standards, and limits on rent increases. While these rules protect tenants, they can also restrict landlords’ revenue potential by capping rent and mandating strict maintenance standards.

Evictions in long-term rentals often involve lengthy legal processes. Landlords may need to file lawsuits, and tenants have the right to contest evictions in court. On the tax side, the IRS categorizes rental income as passive, allowing landlords to deduct ordinary and necessary expenses. However, passive activity rules may limit the ability to offset losses against other income.

Unlike short-term rentals, long-term rental properties generally don’t require special permits or licenses. However, landlords must still comply with local housing codes, fair housing laws, and disclosure requirements, which can vary significantly depending on the jurisdiction.

The regulatory landscape for both types of rentals is constantly evolving. For instance, Homeowners Associations (HOAs) sometimes impose stricter rules on short-term rentals than local zoning laws allow. Meanwhile, regulations for long-term rentals increasingly focus on tenant protections and affordable housing initiatives. Successful property owners stay vigilant, adapting to changes to ensure compliance and maintain profitability.

5. Profitability Calculations and Metrics

Understanding profitability involves digging into both gross yield and cash flow to uncover your actual returns. Whether you're looking at short-term or long-term rentals, analyzing specific financial metrics is essential to figure out which strategy aligns with your investment goals. Let’s break it down, starting with gross yield and cash flow - two foundational metrics.

Gross Yield and Cash Flow Analysis

Gross yield is a straightforward calculation: divide the annual gross income by the purchase price. While it’s a good starting point, it doesn’t tell the whole story. That’s where cash flow comes in. Cash flow measures your monthly profit by subtracting expenses from total income.

Here’s an example from Kiavi using the BRRRR strategy. An investor buys a property for $250,000, spends $50,000 on rehab, and achieves an after-repair value (ARV) of $350,000. After refinancing at 75% of the ARV with a 7.75% interest rate over 30 years, the numbers look like this:

• Monthly Rent: $3,200
• Annual Gross Rental Income: $38,400
• Total Annual Operating Expenses: $8,020
• Net Operating Income (NOI): $30,380
• Annual Mortgage Payments: $22,440
• Annual Cash Flow: $7,940
• Monthly Cash Flow: $662
• Cash-on-Cash Return: 21.17%

In this example, NOI is calculated by subtracting operating expenses from total income. Meanwhile, cash-on-cash return measures how much return you’re getting on the cash you’ve invested.

Short-term and long-term rentals show very different return patterns. Short-term rentals often yield returns between 10% and 15%, while long-term rentals usually fall in the 4% to 10% range. Anything above 12% is considered exceptional. While short-term rentals can offer higher rewards, their fluctuating rates make cash flow projections trickier. In contrast, long-term rentals provide steady income, making them easier to plan for.

Internal Rate of Return (IRR) is another metric worth noting. It typically ranges from 10% to 20%, though this varies depending on the property type. Fractional ownership platforms like Lofty can offer more stable returns by diversifying across multiple properties. This approach also lowers the capital requirements compared to owning a full property outright.

Tax Deductions and Filing Requirements

Taxes play a major role in profitability, and the rules differ depending on whether you’re managing short-term or long-term rentals. Both types allow deductions for mortgage interest, property taxes, repairs, and depreciation, but the specifics vary.

Long-term rentals benefit from simpler tax planning. They follow a 27.5-year residential depreciation schedule and are generally considered passive activities unless you qualify as a real estate professional. The steady income from long-term rentals also simplifies tax filing.

Short-term rentals, on the other hand, can be classified as a business activity if you meet material participation requirements. Residential properties depreciate over 27.5 years, while commercial-classified short-term rentals use a 39-year schedule. The IRS has specific tests for material participation, such as working more than 500 hours annually or spending over 100 hours while being the most involved individual.

Short-term rental owners may also benefit from cost segregation studies and bonus depreciation, which is set to drop to 40% by 2025. However, these properties often require more detailed record-keeping due to frequent tenant turnover and variable income. Income and expenses for both rental types are reported on Schedule E (Form 1040), and the Qualified Business Income (QBI) deduction could reduce taxable income by up to 20%.

When it’s time to sell, rental property owners face capital gains tax and depreciation recapture tax, which is capped at 25%. State-level taxes add another layer of complexity. For instance, in Pennsylvania, rentals of less than 30 days are subject to sales and hotel occupancy tax. In California, income tax rates can range from 1% to 13.3%, which can significantly impact your rental income.

For those investing in fractional ownership through platforms like Lofty, tax implications are often simplified. Since you’re buying shares in properties rather than managing them directly, the administrative burden is reduced, yet you still benefit from rental income and property appreciation.

6. Investment Tools and Property Management

Technology is reshaping the way rental properties are managed, making it easier and more profitable than ever. Whether you're diving into short-term or long-term rentals, having the right tools can mean the difference between a smooth operation and a stressful endeavor. These tools not only simplify the process but also complement the revenue and cost insights discussed earlier by improving overall efficiency.

Fractional Ownership: A New Way to Invest in Real Estate

Investing in real estate has traditionally required significant capital and hands-on management, but fractional ownership platforms are changing the game. These platforms allow multiple investors to share the costs of a property, enjoy rental income, and benefit from property appreciation - all without the hassle of full-scale management.

"Fractional Ownership makes it possible for people to invest in premium properties without spending a huge amount of money upfront. It opens the door to real estate investment for everyone, making it accessible and affordable." – 0xEquity

Take Lofty, for example. This platform offers fractional ownership of rental properties across the U.S., enabling investors to purchase property shares with less capital while earning steady income and appreciation. This approach removes many of the traditional barriers to real estate investing and provides an excellent way to diversify your portfolio.

The market for real estate tokenization, which often underpins fractional ownership platforms, is expected to hit $16 trillion by 2030. Fractional ownership also simplifies property management by spreading responsibilities and costs among multiple owners. Many agreements even include third-party management services to handle long-term property needs. Additionally, tokenization automates tasks like rental payment distribution, further streamlining operations. Unlike timeshares, fractional ownership gives you an actual stake in the property rather than just usage rights.

Next, let's dive into tools designed to ease the demands of managing short-term rentals.

Short-Term Rental Management Tools

Managing short-term rentals can be labor-intensive, but specialized software can significantly reduce the workload and costs. These tools focus on maximizing occupancy with features like listing integrations, automated guest booking, and dynamic pricing. Platforms like Guesty and Hostaway are popular examples.

Automation tools like Host Tools take efficiency to the next level by enabling users to create message templates and automate guest communication. This can save up to 80% of the time typically spent on manual tasks. Subscriptions for short-term rental management software generally range from $100 to $250+ per month. While this may seem like an added expense, the improved occupancy rates and reduced administrative burden often make it a worthwhile investment.

For those managing long-term rentals, the focus shifts to stable tenant relationships and efficient lease handling.

Long-Term Tenant Management Strategies

Long-term rental management revolves around tenant screening, lease management, and maintenance coordination. With 69% of renters paying rent online and a majority of Gen Z (81%) and Millennials (77%) preferring online portals for their rental needs, digital tools are more important than ever.

Several platforms cater specifically to long-term rental management. Baselane, for instance, offers features like free banking, bookkeeping, rent collection, and tenant screening. TurboTenant provides a free plan with essential tools like rental listings and applications. RentRedi offers full-feature access for $29.95 per month or $144 annually. For those on a tighter budget, Innago includes most features for free, with charges only for tenant screening and rent collection fees. TenantCloud also has a free plan, with paid options ranging from $17 to $55 per month.

Most platforms offer free trials, allowing you to test the software before committing.

When it comes to costs, long-term property managers typically charge between 8% and 12% of the monthly rental income. This is generally less than what short-term rental management fees cost. Full-service property management, however, can range from 10% to 30% of your rental income for either type. Digital tools not only enhance record-keeping and compliance but also improve tenant satisfaction. It's important to choose tools that align with your specific investment goals and management style.

Here’s a quick breakdown of software tiers for property management:

Software Tier	Monthly Cost	Key Features
Basic Entry-Level	Around $50	Essential tools like listing management and e-signatures
Mid-Range	$100–$250	Advanced features such as integrated payments and screening tools
Enterprise	$500+	Comprehensive solutions with customizations for large-scale management

Conclusion: Selecting Your Rental Investment Strategy

When it comes to rental investments, the choice between short-term and long-term strategies boils down to your financial goals, management preferences, and the local market landscape. Each approach has its own strengths and challenges, making it essential to align your strategy with your priorities.

Short-term rentals are ideal if maximizing cash flow is your goal. These properties can generate about 30% more income compared to long-term rentals, with an average annual revenue of $43,800. However, they come with added responsibilities like active management, navigating strict regulations, and dealing with income fluctuations.

Long-term rentals, on the other hand, provide stability and require less hands-on involvement. With a median monthly rent of $2,053 in 2024 (equating to $24,636 annually), they offer consistent returns. Plus, professional property management services typically cost 8% to 12% of gross rental income, making this option attractive for investors seeking a more passive approach.

"Rents and property appreciation both tend to tick up over time, which makes real estate a potentially lucrative income investment and long-term holding." - Devin Heitman, Schwab Senior Financial Planner

Location is the ultimate deciding factor. Tourist-heavy areas and unique destinations are prime spots for short-term rentals, while suburban neighborhoods with strong job markets cater to long-term rental demand. To make an informed decision, dive deep into local market data - average rents, vacancy rates, and regulatory requirements are key factors to consider.

A hybrid approach can offer the best of both worlds. By operating short-term rentals during peak seasons and switching to long-term rentals in off-peak periods, investors can balance income potential with risk management. This strategy is especially relevant as more than 75% of U.S. cities with active short-term rental markets introduce new regulations.

For those looking to diversify further, fractional ownership platforms like Lofty provide opportunities to invest in rental properties across the U.S. with lower upfront costs. These platforms allow you to combine rental income with property appreciation while spreading risk across various markets.

The rental investment landscape is constantly shifting. With 30+ day bookings growing by 94% year-over-year and a slowdown in short-term rental supply, staying informed is more critical than ever. Whether you go the short-term route, opt for long-term stability, or embrace a hybrid strategy, your success will depend on thorough market research, a clear understanding of local regulations, and aligning your approach with your financial goals and management style. The right strategy is one that not only meets your needs today but also positions you for growth in the future.

FAQs

What should I consider when choosing between short-term and long-term rental strategies?

When choosing between short-term and long-term rental strategies, there are a few factors to consider that can help guide your decision:

• Income Potential: Short-term rentals often bring in higher nightly rates, especially in tourist hotspots. However, they also tend to have more frequent vacancies. Long-term rentals, while offering lower monthly returns, provide a steadier and more predictable income stream.
• Management Effort: Short-term rentals demand more hands-on involvement. Tasks like coordinating frequent guest check-ins, cleaning between stays, and handling ongoing maintenance can be time-consuming. In contrast, long-term rentals usually require less daily attention, making them easier to manage.
• Market Conditions: The location of your property is a major factor. Properties in areas with strong tourism are typically better suited for short-term rentals, while those in stable residential neighborhoods are ideal for long-term leases.

The right choice depends on your financial objectives, how much risk you're comfortable with, and the specific attributes of your property. If you're interested in exploring rental property investments without a significant upfront cost, platforms like Lofty let you purchase fractional shares in U.S. real estate, giving you the flexibility to test both rental approaches.

What are the differences in costs and management between short-term and long-term rentals?

Short-term rentals often come with higher operating expenses, which can climb to as much as 50% of the gross income. These expenses cover frequent cleaning, ongoing maintenance, and consistent marketing efforts to attract new guests. In contrast, long-term rentals are generally less costly to operate, with expenses averaging about 35% of the gross income. This is because they demand less frequent upkeep and require little marketing once tenants are in place.

When it comes to management, short-term rentals need more hands-on attention. Tasks like guest communication, check-ins, and regular property maintenance make them a more active investment. On the flip side, long-term rentals are much more low-maintenance. Once tenants are settled, the day-to-day involvement is minimal, making them a better fit for investors who prefer a steady income with less effort.

What legal and tax factors should I consider when choosing between short-term and long-term rentals?

When weighing the pros and cons of short-term rentals (STRs) versus long-term rentals (LTRs) in the U.S., it’s essential to understand the legal and tax considerations involved. STRs often come with stricter regulations, including zoning laws, licensing requirements, and restrictions on the number of rental days allowed. These rules can vary significantly from city to city, with some areas even banning STRs entirely. In contrast, LTRs typically face fewer legal obstacles, making them easier to navigate from a regulatory standpoint.

On the tax side, STRs can offer some unique advantages, such as the 14-day rule. This rule allows property owners to earn tax-free income if they rent out the property for 14 days or fewer while also using it personally for at least 14 days. However, STR income often comes with the added burden of lodging taxes, which can complicate the tax process. LTRs, by comparison, are taxed at regular income tax rates, and landlords can take straightforward deductions for expenses like mortgage interest and property taxes.

While STRs have the potential to generate higher returns, they demand more attention to legal compliance and tax details. LTRs, on the other hand, offer a more stable and easier-to-manage option.