A real estate investment doesn’t have to mean flipping homes or managing long-term tenants. A short-term rental can be a straightforward way to generate income from a property you already own or plan to purchase.
Short-term rentals, sometimes called vacation rentals, allow you to rent your property to guests for a short stay, and they can be profitable for everyday investors. Not only do these short-term rentals present the opportunity for income, but they also give owners more flexibility regarding personal use of the property than long-term rentals and may offer specific tax advantages, though owners should consult with a tax professional.
However, rental properties have risks and challenges. Income isn’t always stable, and hosting guests requires extra work on your part (marketing, guest bookings and daily upkeep, to name a few). Here, we discuss everything you need to know about short-term rental properties so you can decide if this real estate strategy is right for you.
Key Takeaways:
- Short-term rentals are typically properties rented to guests for 30 nights or fewer and are generally rented through platforms like Airbnb, Vrbo and Booking.com.
- Compared to long-term rentals, vacation rentals can generate higher income, but they offer less predictable revenue and require more hands-on management.
- Local regulations vary widely, so understanding the rules in your market before you invest is essential
- Upfront and ongoing costs, including platform fees, furnishings, cleaning and insurance, can significantly affect your return on investment.
What Is A Short-Term Rental?
A short-term rental is any residential property rented to guests for a limited period – typically 30 nights or fewer, though the exact definition varies by jurisdiction. These properties are most commonly listed on platforms like Airbnb, Vrbo and Booking.com, which handle bookings, payments and guest communication on behalf of property owners.
Short-term rentals come in many forms: private rooms, entire homes, condos, cabins, boats and more. What they have in common is that guests pay for temporary access, whether for a weekend getaway, a family vacation or a business trip.
Users benefit as they can stray from traditional hotels and experience a destination in a unique way. Instead of being confined to a small hotel room in a busy tourist area, guests can sprawl out over an entire home, making short-term rentals a great option for families. Even smaller spaces can help reduce costs and allow travelers to easily experience a destination’s local neighborhoods. For investors, they represent an opportunity to generate income from a property while retaining the ability to use it themselves.
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Short-Term Vs. Long-Term Rentals: Key Differences
Short-term and long-term rental properties can both be sound real estate investments, but they differ in important ways.
Rental Duration
The definition of “short term” varies by jurisdiction, but generally, it’s 30 nights or fewer. Owners (hosts) can set minimum and maximum stays at their discretion, provided these limits fall within their jurisdiction’s “short term” parameters. Some hosts allow guests to book 1 or 2 nights at a time, whereas others may require a minimum of a week or more. These requirements can fluctuate by day of the week or season.
Traditional rental properties, on the other hand, typically require tenants to sign long-term leases, also called fixed-term leases, which usually range from 6 – 24 months and are often difficult to break without penalty. With a fixed-term lease, the monthly rent is set for the term of the lease.
Of course, there are exceptions. In some cases, a property owner may offer monthly vacation rentals or allow a month-to-month lease, especially if the tenant has already occupied the property for an extended period. For example, with a traditional rental, a tenant might sign a 12-month lease and, upon its expiration, switch to a month-to-month lease.
Income Potential And Stability
The rental time differences can have a surprising impact on your return on investment (ROI). With a traditional rental, as an owner, you’re entitled to a steady, predictable monthly income, as the rent is outlined in the lease. With a vacation rental, however, the owner has full control over pricing, but the market can fluctuate seasonally or by day of the week.
Management Requirements
Managing a vacation rental is kind of like running an inn. You’ll typically have to provide (and, when necessary, restock) essentials like towels, sheets, and kitchen and bathroom basics. Ensuring that utility services and everyday luxuries, like cable and Wi-Fi, are available is also likely to help you secure more bookings.
In fact, as a host, you’re sort of a jack-of-all-trades. You’ll have to ensure your property’s furniture and overall decor are attractive to potential guests, so you’re a part interior designer. You’re also a multitasking manager responsible for bookings and check-ins/checkouts. Communicating with guests (before and during their stay) and vetting travelers before they arrive is also part of your job. And then there’s overseeing cleaning services and marketing your property to generate income.
With a traditional rental, you’re much less involved. Typically, the owner provides only the basic residence. The tenant is often responsible for securing their own utilities (though some landlords do include heat and water as part of the monthly rent payment), and they sign up for their own “extras,” such as streaming services and internet, as well as stock their own supplies. In most cases, a renter will be responsible for furnishing the rental, though in some cases, an owner will offer a furnished property.
Expenses
Whether you’re the owner of a short-term or long-term rental, you’ll have to deal with the costs associated with most real estate investments: mortgage payments, insurance and HOA fees (if they apply). As the owner of either, you’ll also have to absorb the cost of marketing your rental property.
Traditional long-term rentals require less investment by the owner. Once tenants arrive, most of the expenses are on them. However, in this situation, owners absorb the costs of setting up leases, conducting background checks on potential tenants and, in some cases, handling evictions.
Flexibility
As a traditional landlord, you can’t use your own property once you rent it out. But as a vacation home owner, you can block off dates and stay there yourself.
Note that short-term rental properties are typically classified as either second homes or investment properties for mortgage and tax purposes. Each classification has its own rules around personal use, financing and tax treatment. Make sure you understand which applies to your situation before you buy a rental property.
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How Many Short-Term Rental Properties Can You Own?
There’s no universal limit on how many short-term rental properties you can own or list on major platforms. Most allow you to manage multiple rental properties under a single account, and you can also list one rental property on multiple platforms. That said, local regulations may restrict the number of short-term rentals permitted at a single address or within a specific neighborhood. HOAs may impose additional limits or prohibit vacation rentals entirely.
Before expanding your portfolio, confirm that local rules support multiple listings in your target area.
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The Pros Of A Short-Term Rental
There are many upsides to owning a vacation rental.
Flexibility
Want to stay at your property during the fall and rent it out during other seasons? With a vacation rental, you can. Having short-term tenants allows you to use your property whenever you wish. Block out dates so guests know your property isn’t available. Local regulations may stipulate time limits on your use as an owner, so be sure to know the rules before you pack your bags.
Guaranteed Income Once The Property Is Booked
With a traditional rental property, your tenant could suddenly stop paying rent. Not only is that a loss of income, but costly legal expenses could follow. With a short-term rental, that’s less of an issue. Listing platforms typically process payments before check-in, often at booking, so once the cancellation window ends, your payment is secured. Note, however, that policies vary by platform.
Built-In Marketing
Platforms like Airbnb and Vrbo have large, established user bases. Even with minimal marketing effort on your part, guests can find your listing through the platform’s search tools.
Host Protections
Most major platforms offer some form of host protection, including liability coverage and reimbursement for damage. These policies vary by platform and don’t replace standard homeowners or landlord insurance, but they add a layer of protection against guest-caused damage.
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The Cons Of A Short-Term Rental
Given the nature of a rental property, there are also some unique drawbacks.
Higher Ongoing Costs
Platform fees, professional cleaning, furnishings, utilities, insurance and maintenance add up quickly and must be factored into your ROI calculations.
Potentially More Work For You
Unless you hire a property manager and/or a cleaning service, turning over your rental between guests could require a time commitment from you. If you do enlist those services, of course, they will add to your expenses.
Inconsistent Income
With a long-term rental, as long as your tenant sticks to the terms of the lease, you’ll have money coming in every month and a steady income to anticipate. With a vacation property, you could go weeks or even months without a booking.
Risk Of Property Damage
When you rent out a home to long-term tenants, they may be more likely to treat your property with respect – after all, it’s their home for a while. With a short-term rental, however, you will have guests who book your property for a couple of days and who you might never hear from again. Those guests may be less mindful of property damage since there’s no long-term relationship to risk.
Strict Local Regulations
Some neighborhoods, housing communities and HOAs place restrictions on short-term rentals. You may need to adhere to specific rules, such as limiting the number of guests you can accommodate. Some areas or housing communities do not allow vacation rentals at all, so it’s essential to know any regulations before you get started.
How To Start And Manage A Short-Term Rental Property
- Find your property. Your first step is to identify a property that could serve as a good short-term rental. You’ll want to pay attention to price, location and local rules.
- Understand your financing. Short-term rentals are typically financed as second homes or investment properties, each with different mortgage requirements and rates. Talk to a lender early to understand which classification applies and what you’ll need to qualify.
- Furnish and prepare the property. Once you have a property locked in, it’s time to furnish it. You’ll want to invest in sturdy, attractive furniture that not only appeals to guests, but also withstands plenty of wear and tear.
- Price competitively. Conduct research to price your rental competitively. Start by examining comparable properties, and note the rates they command at different times of the year.
- Create a strong listing. Next, take some high-quality photographs for your listing. Ensure you capture rooms from different angles so guests know what to expect. Write a clear, detailed description that covers the number of rooms, beds and bathrooms; key amenities; and what makes your property unique.
- Get the right insurance. Standard homeowners insurance typically doesn’t cover short-term rental activity. Look into a dedicated vacation rental insurance policy or landlord policy that covers guest-related liability and property damage.
- Decide how you’ll manage it. Decide early whether you’ll manage the property yourself or hire a property management company. Self-management keeps costs down but requires consistent time and availability. Property managers typically charge 10% – 40% of rental revenue – a significant cost, but one that removes you from day-to-day operations.
Are Short-Term Rentals Profitable?
They can be, but profitability depends on several factors: the property you choose, the market you’re in, the rates you can command, your occupancy rate and how well you control operating costs. Run the numbers carefully before you buy.
Factor in your mortgage payment, platform fees, cleaning, insurance, furnishings and maintenance, and compare that total to realistic revenue projections based on comparable listings in the area.
Connecting with experienced short-term rental investors through local real estate investor groups or online communities can give you a clearer picture of what to expect in your target market.
The Bottom Line: Short-Term Rentals Can Generate Income With The Right Preparation
Short-term rental investment properties offer real income potential and flexibility that long-term rentals can’t match. But they also require more active management and carry higher operating costs. Before you invest, take time to understand your target market, run the numbers and confirm that local rules support your plans.
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Maurie Backman
Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.
