Short-Term Rentals
Short-term rentals, like those on Airbnb, typically involve renting out a property for a few days to a few weeks. They offer flexibility and higher nightly rates but require frequent tenant turnover and more management. Long-term rentals, on the other hand, involve leases of six months or more, providing stable, consistent income with less frequent tenant changes and lower management demands. The tax treatment runs the opposite direction from what most people assume. Short-term rentals attract local transient-occupancy (“hotel”) taxes and heavier licensing, but on the federal side they are the advantaged form: a rental whose average guest stay is seven days or less is not a “rental activity” under the IRC §469 regulations at all, which is precisely what lets its losses reach your salary (section “The Short-Term Rental Loophole”). Long-term rentals are per se passive, and their losses are trapped. Pay the occupancy tax; it is cheap relative to what the passive-loss rules cost you on the other side.
| Short-Term Rentals (STRs) | Long-Term Rentals (LTRs) | |
| Rental duration | Typically rented for days to weeks. Examples include vacation homes, Airbnb listings, and holiday rentals. | Leased for months to years. Examples include traditional apartment leases and residential homes. |
| Income Stability | Income can be highly variable, depending on seasonality, location, and market demand. | Provides steady, predictable income through fixed monthly rent. |
| Management Intensity | Requires frequent management, including guest turnover, cleaning, and maintenance. | Less frequent management, mainly dealing with tenant issues and periodic maintenance. |
| Regulations | Subject to local zoning laws, licensing, and taxes. Some cities have stringent regulations or bans. | Governed by landlord-tenant laws, which are generally more stable and predictable. |
Underwrite the yield, not the headline nightly rate. The metric that matters is gross annual revenue divided by purchase price:
where ADR is the average daily rate. A $500,000 property renting at $300 a night with 60% occupancy grosses $65,700, a 13% gross yield — respectable for an STR, and roughly double what the same house would produce as a long-term rental. Treat 10–15% as the realistic band for a well-run STR in a genuine destination market; anything a broker projects above 20% is either an exceptional asset or an exceptional spreadsheet, and you should assume the latter until the trailing twelve months of booking data say otherwise.
Then halve it, roughly. STR operating costs run far above the long-term-rental rule of thumb: cleaning between every stay, platform commissions of 3–15%, furnishing and its replacement cycle, utilities and internet you now pay, dynamic-pricing software, and a management company that charges 20–30% of revenue versus the 8–10% a long-term rental commands. The premium nightly rate is real; so is the cost structure that eats most of it. And appreciation is harder to underwrite for STRs than for conventional rentals, because a meaningful part of the property’s value rests on the right to operate it that way — a right the city council can withdraw (section “Regulatory Risk Is the Real Risk”).