Rental properties come in all shapes and sizes, but for investors they tend to fall into two distinct buckets – short-term rentals (STRs) and long-term rentals (LTRs). Investors looking to close on a new rental property will likely need to make a decision on which type they want it to be, as they are managed quite differently.
In short, a short-term rental is closer to a hotel, providing guests with short stays, while a long-term rental requires tenants to sign a lease and make it their primary residence. Each type of landlord has vastly different responsibilities, and investors should know the difference before closing.
In this guide will break down the difference between the two, including how they are operated, and what the investment potential can be for each.
What's the difference between a short-term rental and long-term rental?
The fundamental difference between short-term rentals (STRs) and long-term rentals (LTRs) comes down to lease duration and how you operate the property.
Short-term rentals typically host guests for stays of less than 30 days, often ranging from a single night to a few weeks. These rental properties are usually listed on platforms like Airbnb, VRBO, or Booking.com, and they cater to vacationers, business travelers, or people in transition. The landlord furnishes the property completely, provides amenities like linens and kitchen supplies, and manages frequent guest turnover.
Long-term rentals involve lease agreements that span months or years, typically six months to a year or longer. Tenants sign formal leases, pay monthly rent, and treat the space as their primary residence. These rental properties may come unfurnished or partially furnished, and landlords deal with far less turnover compared to short-term arrangements.
The choice between short-term and long-term rental strategies affects nearly every aspect of your investment, from daily management responsibilities to tax treatment and income potential. Understanding these differences helps real estate investors align their rental property strategy with their financial goals, time availability, and risk tolerance.
Short-term rental vs. long-term investment returns
The income potential between STRs and LTRs can differ dramatically, though higher returns often come with higher effort and risk.
Short-term rental income potential
Short-term rentals typically generate higher gross rental income than long-term rentals in the same location. Popular vacation markets in Florida, California, or Colorado can command nightly rates that, over a month of bookings, exceed what you'd collect from a traditional tenant by 50% to 200%.
For example, a property in Austin, Texas that might rent long-term for $2,000 per month could potentially generate $4,000 to $6,000 monthly as a short-term rental during peak seasons, especially during the months of Austin City Limits or South by Southwest festivals. Cities like Miami, Denver, and Nashville show similar income premiums for well-managed STRs.
However, that gross income comes with significantly higher operating expenses. Short-term rentals require professional cleaning after each guest (often $75 to $150 per turnover), utilities you pay rather than the tenant, regular restocking of supplies, and typically 15-25% in platform fees and property management costs. Your occupancy rate also fluctuates seasonally, meaning those high nightly rates may not translate to year-round income. As much as you may be able to charge for that Austin rental during festival season, you may not have guests at all when it's 110 degrees in the dead heat of July.
Real estate investors often see 20-30% of their gross STR revenue consumed by operating expenses, compared to 5-10% for long-term rentals where tenants cover utilities and handle basic upkeep.
Long-term rental stability
Long-term rentals offer predictable, stable rental income with far lower operating costs. Once you place a tenant, you collect the same rent check monthly (ideally) for the lease duration. There's no seasonality concern, no nightly vacancy risk, and operating expenses remain minimal since tenants typically pay utilities and handle minor maintenance.
The tradeoff is lower gross returns. Your rental income is capped at market rent for long-term leases, which rarely approaches STR peak earning potential. However, many investors find the stability and passive nature of LTRs worth accepting lower returns.
From a pure cash flow perspective, well-located short-term rentals in strong markets usually outperform long-term rentals. But when you factor in the time investment, management complexity, and higher risk of regulatory changes, the "best" investment return depends heavily on your specific situation and market.
Tax advantages shift the math
One area where short-term rentals dramatically outperform long-term rentals is tax treatment. Thanks to the short-term rental loophole, investors who materially participate in their STR business can deduct rental property losses against their W-2 or active business income.
This tax benefit is particularly powerful with the return of 100% bonus depreciation through 2029 thanks to the recently-passed "One Big Beautiful Bill." Real estate investors can immediately write off substantial amounts for furniture, appliances, and improvements in their first year of ownership. For high-income earners, these deductions can create tens of thousands of dollars in tax savings that long-term rental depreciation cannot provide.
Long-term rental losses are considered "passive" and can only offset other passive income, severely limiting their tax benefit for most investors. This fundamental difference in rental income tax treatment makes short-term rentals especially attractive to W-2 employees and business owners looking to reduce their overall tax burden.
Experts are predicting a surge in short-term rentals over the next few years as more investors recognize these tax advantages, particularly in markets with strong vacation demand.
Short-term vs. long term: Landlord responsibilities and risks
The day-to-day reality of managing STRs versus LTRs differs dramatically in terms of time investment, liability exposure, and operational complexity.
Time commitment and management intensity
Short-term rentals demand active, ongoing management. You're essentially running a small hospitality business that requires:
- Guest communication and booking management (responding to inquiries, coordinating check-ins, handling questions during stays)
- Property preparation between guests (coordinating cleaning crews, restocking supplies, inspecting for damage)
- Listing optimization and marketing (updating calendars, adjusting pricing, managing multiple platforms, responding to reviews)
- Routine maintenance and repairs (fixing issues quickly since any downtime directly impacts revenue).
Many STR owners report spending 10-20 hours per week on these tasks for a single property, though this decreases with experience and systems. Some hire property managers who charge 20-30% of gross bookings, which significantly impacts your net returns.
Long-term rentals require minimal ongoing management once you place a good tenant. After the initial showing, screening, and lease signing, you might spend 2-5 hours monthly collecting rent, addressing occasional maintenance requests, and handling administrative tasks. Many landlords successfully manage multiple long-term rental properties part-time while maintaining full-time jobs.
Liability and risk exposure
Short-term rentals carry higher liability risk due to frequent turnover and guests you don't thoroughly screen. Someone who books a weekend stay hasn't been vetted like a long-term tenant. If a guest gets injured, damages property, or disturbs neighbors, you're dealing with those issues regularly rather than once every few years.
You also face risks long-term landlords rarely encounter: unauthorized parties, commercial activity in your rental property, and potential violations of local STR regulations that could result in fines or forced closures.
Standard landlord insurance won't adequately cover these exposures. You need specialized short-term rental insurance that addresses the unique risks of transient occupancy and commercial activity. These policies typically cost more than traditional landlord insurance but provide essential protection.
Long-term rentals present more traditional landlord risks: tenant screening failures, late or missed rent payments, property damage during tenancies, and eviction processes if tenants violate lease terms. While these risks are serious, they're more predictable and manageable with proper screening and lease agreements.
Read more: The new tenant screening crisis: Protecting your rental property from fraud
Regulatory uncertainty
Short-term rentals face an evolving regulatory landscape that creates ongoing uncertainty. Cities across the country continue implementing new restrictions, permit requirements, and occupancy taxes on STRs. Popular markets in California, New York, and even smaller municipalities regularly update STR rules.
You might purchase a property where short-term rentals are permitted only to find your city implements a permit cap, limiting zones, or bans STRs entirely within your first few years of ownership. This regulatory risk doesn't exist with long-term rentals, which are governed by well-established landlord-tenant laws that change incrementally.
Before investing in any short-term rental market, verify current regulations directly with local authorities and consider the political climate around STRs. Markets with established, stable regulations (like many areas in Texas, Tennessee, and Arizona) present less regulatory risk than markets where activists are pushing for restrictions.
Pros and cons of short-term rentals for real estate investors
Understanding the complete picture of STR advantages and disadvantages helps investors determine if this strategy aligns with their goals.
Advantages of short-term rentals
Higher income potential stands as the primary attraction. Well-managed short-term rentals in strong markets generate significantly more gross revenue than long-term rentals. Popular vacation destinations and business travel hubs in Florida, Hawaii, Colorado, and California consistently demonstrate this income premium.
Powerful tax benefits separate STRs from traditional rental properties. The ability to deduct losses against active income, combined with 100% bonus depreciation through 2029, creates substantial tax advantages for high-income investors. This rental income tax treatment can reduce your tax burden by tens of thousands of dollars annually.
Flexibility to use the property yourself adds personal value. Unlike long-term rentals where tenant leases prevent owner use, you can block dates for personal vacation stays. Many investors in desirable locations like Scottsdale, Charleston, or Maine enjoy this benefit.
Shorter commitment to any single guest means problem guests leave quickly rather than requiring lengthy eviction processes. If someone damages property or causes issues, they're gone in days rather than months. This also allows you to adjust pricing dynamically based on demand, maximizing revenue during peak seasons.
Property condition remains better with frequent turnover and cleaning. You or your cleaning crew inspect the property after each guest, catching maintenance issues early before they become expensive problems. The property stays furnished and move-in ready, maintaining its value and guest appeal.
Disadvantages of short-term rentals
Time and management intensity create the biggest practical challenge. Running a successful short-term rental requires constant attention to bookings, guest communications, cleaning coordination, and maintenance. This active management responsibility makes STRs unsuitable for truly passive investors.
Higher operating costs significantly reduce net income. Between cleaning fees, utilities, supplies, platform commissions, and increased maintenance from turnover, 20-30% of gross revenue typically goes to operating expenses. Property management companies can handle these tasks but charge 20-30% of bookings, further reducing your net returns.
Income volatility adds uncertainty. Unlike the predictable monthly rent check from long-term tenants, STR income fluctuates with seasonality, local events, and broader travel trends. A slow month or unexpected economic downturn can leave your property sitting empty while you still pay the mortgage.
Regulatory risk threatens your entire investment strategy. Cities continue implementing STR restrictions, and political winds can shift quickly. An investment that makes sense today might become illegal or heavily restricted tomorrow. Markets in California and New York are particularly risky.
Higher insurance costs and specialized coverage requirements increase expenses. Short-term rental insurance costs more than standard landlord policies, though it's essential protection given the liability exposure from transient guests.
Neighbor relations can become strained in residential areas. Frequent guest turnover, noise complaints, and parking issues often create tension with neighbors who didn't sign up to live next to what functions as a mini-hotel.
Pros and cons of long-term rentals for real estate investors
Long-term rentals represent the traditional landlord model, offering a different set of advantages and challenges.
Advantages of long-term rentals
Stable, predictable income provides the foundation for conservative investment strategies. Once you place a quality tenant, you receive the same rent check monthly for the lease duration. This predictability makes financing easier, budgeting simpler, and portfolio management more straightforward.
Lower operating costs dramatically improve net returns relative to gross revenue. Tenants pay utilities, handle minor maintenance, and take care of day-to-day property upkeep. Your expenses typically involve only major repairs, property management fees (if used), and occasional turnover costs between tenants.
Minimal time investment allows truly passive investing. After placing a tenant, you might spend just a few hours monthly on administrative tasks and maintenance coordination. Many investors successfully manage multiple long-term rental properties while working full-time jobs.
Established legal framework and clear regulations provide certainty. Landlord-tenant laws are well-developed in every state, giving you predictable processes for handling issues, collecting rent, and removing problem tenants. You won't wake up to find your entire business model illegal due to new city ordinances.
Lower insurance costs and simpler coverage make protection affordable. Standard landlord insurance adequately covers long-term rentals at reasonable premiums, without the specialized policies and higher costs short-term rentals require.
Better neighbor relations in residential areas come naturally. Your tenants become part of the community rather than creating the disruption frequent guest turnover causes. This matters particularly in single-family home rentals where you want to maintain good relationships with surrounding property owners.
Less competition and simpler acquisition process help newer investors enter the market. You're not competing with hospitality-focused investors for every property, and you don't need specialized knowledge about STR platforms, guest management systems, or dynamic pricing strategies.
Disadvantages of long-term rentals
Lower income potential compared to STRs in strong vacation markets is the primary financial drawback. You're limited to market-rate monthly rent, which rarely approaches what optimized short-term rentals generate in desirable locations.
Limited tax advantages restrict your ability to offset active income. Long-term rental losses are considered passive and can only offset other passive income. The powerful tax benefits that make short-term rentals attractive to high earners simply don't exist for traditional landlords.
Difficult tenant removal requires lengthy legal processes. If a tenant stops paying rent or violates lease terms, eviction can take months and cost thousands in legal fees and lost rent. During this period, you can't access your property or generate any income from it.
No personal use flexibility means the property is off-limits during lease terms. If you want to visit or use the property yourself, you must wait until the tenant moves out or negotiate temporary arrangements, which most tenants won't accept.
Tenant turnover costs add up over time. Each time a tenant leaves, you face vacancy periods, cleaning and repairs, marketing costs, and screening new applicants. While this happens far less frequently than STR turnover, the concentrated cost of each turnover can be significant.
Less control over property condition between inspections creates risk. Unlike STRs where you see the property after every guest, long-term tenants might damage property or neglect maintenance issues for months before you discover problems during routine inspections.
Which rental strategy is right for you?
Choosing between short-term and long-term rentals depends on your personal situation, financial goals, and the specific market where you're investing.
Short-term rentals make more sense if you:
Have significant W-2 or active business income you want to offset with rental property losses. The tax advantages of short-term rentals deliver maximum value to high earners who can materially participate in the business.
Can dedicate substantial time to active property management or can afford professional STR management fees of 20-30%. The operational demands require either your direct involvement or professional help that significantly impacts returns.
Are investing in markets with strong vacation or business travel demand and favorable STR regulations. Properties in established vacation markets in Florida, Tennessee, Texas, and Arizona typically perform well.
Want to use the property yourself periodically while generating income when you're not there. The flexibility to block personal-use dates adds value beyond pure investment returns.
Have the systems and mindset to run a small hospitality business. Successful STR investors think like business owners rather than passive real estate investors.
Are willing to accept income volatility and regulatory uncertainty in exchange for higher potential returns. The risks of seasonality and changing regulations come with the territory.
Long-term rentals make more sense if you:
Want truly passive income with minimal ongoing time investment. Long-term rentals allow you to maintain full-time employment or focus on other ventures while your rental properties generate steady income.
Prefer predictable, stable cash flow over maximizing gross returns. The certainty of monthly rent checks appeals to conservative investors or those relying on rental income for expenses.
Are investing in markets without strong vacation demand or where STR regulations are restrictive. Many excellent real estate markets simply don't support profitable short-term rentals but offer solid long-term rental opportunities.
Want to minimize operating complexity and keep expenses low. The simple operational model of LTRs reduces both costs and management headaches.
Value established legal frameworks and regulatory certainty over potential tax advantages. Knowing your rental business won't be outlawed by city council votes provides peace of mind.
Are building a large portfolio where individual property attention becomes impossible. Managing dozens of short-term rentals is exponentially harder than managing dozens of long-term rentals.
Consider a hybrid approach
Many experienced investors don't limit themselves to one strategy. They might operate short-term rentals in strong vacation markets while maintaining long-term rentals in secondary markets or keeping some properties as LTRs for stability while experimenting with STRs for higher returns and tax benefits.
This diversification balances the income volatility of short-term rentals with the stability of long-term leases. It also lets you optimize tax benefits while maintaining passive income streams that don't require constant attention.
Getting started with your rental property investment
Regardless of which strategy you choose, success requires careful market selection, proper financial analysis, and adequate insurance protection.
Start by thoroughly researching your target market. For short-term rentals, analyze actual booking data from similar properties on Airbnb and VRBO. Look at occupancy rates, average daily rates, and seasonal patterns. Verify local regulations directly with city or county offices and ensure you can obtain necessary permits.
For long-term rentals, research median rents, vacancy rates, and tenant demand in specific neighborhoods. Talk with local property managers to understand market dynamics, tenant quality, and realistic rental income expectations.
Run comprehensive financial projections that include:
- Realistic income based on comparable properties (not optimistic best-case scenarios)
- All operating expenses including utilities, cleaning, supplies, management fees, platform fees (for STRs), and maintenance reserves
- Mortgage costs at current interest rates
- Tax implications specific to your strategy
- A sufficient buffer for vacancy and unexpected expenses
Secure appropriate insurance coverage before your first guest or tenant moves in. Short-term rental insurance through a specialized provider protects against the unique risks of transient occupancy. Standard landlord insurance adequately covers long-term rentals but won't protect STR operations.
Build systems for success. Short-term rental investors need reliable cleaning crews, maintenance vendors, guest communication templates, and property management software. Long-term rental investors need thorough tenant screening processes, solid lease agreements, and trusted contractors for repairs.
Most importantly, match your rental strategy to your personal situation and goals. Don't choose short-term rentals just because they offer higher potential returns if you lack the time for active management. Similarly, don't default to long-term rentals simply because they're familiar if your financial situation would benefit significantly from STR tax advantages.
Both rental property strategies can build substantial wealth when executed properly in the right markets. The best approach is the one that aligns with your available time, risk tolerance, financial goals, and the specific opportunities in your target market.
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