The Short Answer: Yes, You Can
I’m not going to tell you that short term rentals are a guaranteed path to wealth. They’re not. You absolutely can lose money, and plenty of investors have.
I say this as someone who founded The Short Term Shop, the largest short term rental specialized brokerage in the country, with over 5,000 closed investor transactions. I’ve watched investors build incredible portfolios. I’ve also watched investors make avoidable mistakes that cost them tens of thousands of dollars.
The difference between the two groups almost never comes down to luck. It comes down to how they bought, what they bought, and whether they understood what they were getting into before they closed.
So let’s talk about what actually goes wrong.
The Most Common Ways Investors Lose Money
Overpaying Based on Inflated Proformas
This is the biggest one, and it deserves its own section (which it gets below). But the short version: if someone else ran your numbers for you, and that person had a financial incentive for you to close, those numbers might be optimistic. Possibly very optimistic.
A property that cash flows beautifully on paper can bleed money in reality if the revenue projections were aggressive and the expense estimates were low.
Buying in a Market Where Regulations Change
Local governments can and do change short term rental rules. Some markets have introduced permit caps, occupancy limits, or outright bans on non-owner-occupied short term rentals. If you buy in a market without understanding the regulatory landscape, you could find yourself holding a property you can no longer rent the way you planned.
This is why market selection matters so much. Markets like the Smoky Mountains, Destin, Gulf Shores, and Panama City Beach have tourism-dependent economies and regulatory environments that have been supportive of short term rentals. Florida actually preempts local short term rental bans at the state level. That doesn’t mean regulations will never change anywhere, but it means you should be buying in markets where tourism is the economic engine, not an afterthought.
Underestimating Expenses
New investors almost always underestimate what it costs to operate a short term rental. The list of expenses is longer than most people expect:
- Cleaning fees (you pay the cleaner per turn, and during peak season that can mean multiple turns per week)
- Maintenance and repairs (hot tubs break, HVAC systems fail, guests damage things)
- Utilities (guests leave the heat on and the doors open)
- Insurance (short term rental insurance costs more than a standard homeowner’s policy)
- Platform fees (Airbnb and Vrbo take their cut)
- Supplies (toiletries, linens, kitchen essentials, all the little things that add up)
- Property management fees (if you’re using a manager, typically 20% to 30% of gross revenue)
- Property taxes and HOA fees
- Mortgage payments
A rough sanity check that I teach investors: budget about 50% of your gross revenue for total expenses. That includes everything except your mortgage. If the remaining 50% doesn’t cover your mortgage with some cushion, the deal might not work.
Choosing the Wrong Property Type for the Market
Every market has a property type that dominates. In the Smoky Mountains, it’s log cabins with hot tubs and game rooms. In Destin and Panama City Beach, it’s Gulf-front condos. In Broken Bow, it’s luxury cabins near Beavers Bend State Park.
If you buy a property that doesn’t match what travelers are searching for in that market, you’ll struggle to compete. A three bedroom ranch house in Gatlinburg is going to underperform a three bedroom cabin with a mountain view and a hot tub, even if the ranch house cost less.
Poor Pricing Strategy
Pricing a short term rental is not like pricing a long term rental. You can’t just set a nightly rate and forget it. Rates need to fluctuate based on season, day of week, local events, lead time, and competitive supply. Investors who set one flat rate year-round leave money on the table during peak season and sit vacant during slow periods.
Dynamic pricing tools help, but they’re not magic. You need to understand your market’s seasonality and adjust your minimums and maximums accordingly.
Bad Photos and a Weak Listing
This one sounds obvious, but it’s shockingly common. Professional photos are not optional. Your listing description needs to highlight what guests actually care about: views, amenities, proximity to attractions, the number of beds (not just bedrooms). Investors who skip professional photography or write lazy listing descriptions pay for it in lower occupancy rates.
Not Understanding Seasonality
Short term rental income is not evenly distributed across the year. Gulf Coast markets like Destin, 30A, and Gulf Shores see their highest demand from Memorial Day through Labor Day. The Smoky Mountains have year-round demand but still see peaks around holidays and fall foliage. Broken Bow is strongest in fall and around holidays.
If you’re projecting annual revenue by taking your best month and multiplying by twelve, you’re going to have a bad time. You need to understand the seasonal rhythm of your specific market and plan your cash reserves around the slow months.
The Agent Problem: Why You Need to Run Your Own Numbers
Here’s something the short term rental industry doesn’t talk about enough.
Some brokerages run proformas for their clients. The agent pulls data, plugs in some assumptions, and hands you a nice-looking spreadsheet showing what a property “should” generate. Sounds helpful, right?
The problem is that the person running those numbers has a commission riding on the deal. When the person building the proforma gets paid only if you buy, there’s a structural incentive for those numbers to look good. Maybe they use 90th percentile revenue as the baseline. Maybe they undercount expenses. Maybe they compare your three bedroom cabin to the revenue of a five bedroom. The numbers look great on paper, the investor buys, and then reality shows up.
I’m not saying every agent does this intentionally. But the conflict of interest is real, and it’s built into the model.
This is exactly why The Short Term Shop teaches investors to run their own numbers. We don’t hand you a proforma and say “trust us.” We teach you how to pull the data yourself, how to read it, how to stress-test your assumptions, and how to recognize when numbers look too good to be true. Our agents are there to help you find the right property and guide you through the process, not to sell you on a deal.
We also don’t offer property management. That’s by design. If a brokerage also manages the properties it sells, there’s another layer of conflict: they earn management fees on every property they convince you to buy. We eliminated that conflict entirely so our agents’ only job is helping you make a smart purchase.
The Percentile Spread: Same Market, Wildly Different Outcomes
Want to see how much the property you buy and how you run it actually matters? Look at the revenue spread within a single market.
In the Smoky Mountains, a 25th percentile property generates about $33,055 per year. A 75th percentile property generates $81,641. Top performers (90th percentile) generate around $120,372, and some properties exceed even that.
That’s a range of nearly $90,000 between the bottom quarter and the top 10% in the same market. The 25th percentile investor might be losing money every month. The 90th percentile investor is building serious wealth.
The pattern holds across every market we serve:
- Destin: 25th percentile at $41,923, 75th at $98,604, 90th percentile at $145,317, and some properties exceed even that
- 30A: 25th percentile at $48,698, 75th at $134,815, 90th percentile at $216,754, and some properties exceed even that
- Gulf Shores: 25th percentile at $38,048, 75th at $89,287, 90th percentile at $126,092, and some properties exceed even that
- Panama City Beach: 25th percentile at $29,822, 75th at $68,858, 90th percentile at $95,285, and some properties exceed even that
- Broken Bow: 25th percentile at $32,305, 75th at $78,833, 90th percentile at $115,548, and some properties exceed even that
The property you buy, the amenities it offers, how you furnish it, how you price it, how you photograph it, and how you manage guest communication all determine which quartile you land in. This isn’t random. It’s the result of decisions you make before and after purchase.
How to Protect Yourself
Learn to Underwrite Deals Conservatively
Don’t rely on someone else’s numbers. Learn to pull revenue data from platforms like AirDNA, understand what percentile you’re looking at, and build your own projections.
Use 75th percentile revenue for your base case, not 90th. If a deal only works at the 90th percentile, it doesn’t work. You need room for error, for slow seasons, for the unexpected. If the numbers pencil out at the 75th percentile, you’ve got a buffer when things don’t go perfectly.
Budget Realistically for Expenses
Remember that 50% rule. Take your projected gross revenue, assume half goes to expenses (not including your mortgage), and see if the remaining half covers your debt service. This is a rough filter, not a precise calculation, but it catches deals that are obviously too tight.
Then get more specific. Research actual cleaning costs in your market. Get insurance quotes. Understand what property management costs if you plan to use a manager. Factor in the platform fees. Add a maintenance reserve.
Buy with Enough Reserves
Do not buy a short term rental with barely enough cash to close. You need reserves. A minimum of six months of mortgage payments sitting in an account, untouched, specifically for this property.
Short term rentals can have slow months. A furnace can die in January. A tree can fall on the deck. If you don’t have reserves, one bad month or one expensive repair can put you in a financial spiral. Reserves give you the breathing room to handle the unexpected without panic.
Buy in the Right Market
Choose markets with strong, established tourism demand and a regulatory environment that supports short term rentals. Look for markets where the local economy depends on visitors, where there’s infrastructure built around accommodating tourists, and where the government understands that short term rentals are part of the economic engine.
The Smoky Mountains welcome over 14 million visitors per year. Destin and the Emerald Coast are drive-to beach destinations for millions of families across the Southeast. Gulf Shores offers an affordable Gulf Coast alternative with a welcoming regulatory environment. These aren’t places where short term rentals are fighting for survival. They’re places where short term rentals are part of the fabric.
Match the Property to the Market
Buy what works in the market you’re targeting. In the Smoky Mountains, that means cabins with hot tubs, game rooms, and mountain views. In Destin or Panama City Beach, that means beachfront or Gulf-view condos. In 30A, it means properties within the recognized communities like Rosemary Beach, WaterColor, or Seaside. In Broken Bow, it means luxury cabins near the state park.
Don’t get creative with property types unless you deeply understand the market. Buy what travelers are already searching for.
Why The Short Term Shop Does Things Differently
We built The Short Term Shop around a simple idea: the investor should be the one making informed decisions, not the one being sold a deal.
Every one of our agents lives in the market they serve. That’s a non-negotiable hiring requirement. They’re not sitting in a different state pulling listings off a portal. They know the neighborhoods, the HOA rules, the noise ordinances, the best-performing property types, and which streets flood when it rains.
We teach you to run your own numbers. Our free post-purchase mentorship covers listing optimization, self-management training, and pricing strategy. We want you to understand the business you’re getting into, not just the property you’re buying.
And we deliberately chose not to offer property management. When a brokerage also manages properties, every sale becomes recurring revenue for the brokerage. That creates an incentive to close deals regardless of whether they’re great investments. We eliminated that conflict. Our agents succeed when you succeed, not when you sign a management contract.
With over 1,400 verified five-star reviews and 5,000+ closed transactions, the model works. But it works because it puts the investor first, not because it tries to do everything for the investor.
Frequently Asked Questions
Can you lose money on a short term rental investment?
Yes. Investors lose money when they overpay based on inflated projections, underestimate expenses, buy in the wrong market, or fail to operate the property competitively. The difference between a profitable short term rental and one that loses money often comes down to how conservatively you underwrote the deal and how well you execute on operations.
What is the biggest mistake short term rental investors make?
Relying on someone else’s revenue projections without understanding how those numbers were generated. If the person running your proforma has a financial interest in you closing the deal, those numbers may be optimistic. Learning to run your own numbers using tools like AirDNA and understanding percentile data is the single most important skill for a short term rental investor.
How much should I budget for short term rental expenses?
A useful rough benchmark is 50% of gross revenue for all operating expenses excluding your mortgage payment. This includes cleaning, maintenance, utilities, insurance, platform fees, supplies, property management (if applicable), and reserves for repairs. Get specific quotes for your target market, but use 50% as an initial sanity check on whether a deal can work.
How much cash reserves do I need before buying a short term rental?
At minimum, keep six months of mortgage payments in reserve for each short term rental property you own. Short term rental income is seasonal, and unexpected expenses happen. Reserves protect you from having to make desperate decisions during a slow month or after an expensive repair.
How do I find a real estate agent who specializes in short term rentals?
Look for an agent who lives in the market you’re targeting, works exclusively with short term rental investors, and does not have a financial interest in managing your property after purchase. The Short Term Shop has dedicated agents in 18 vacation rental markets across the country, each living in the market they serve. Our agents teach you to run your own numbers and offer free post-purchase mentorship on listing optimization and pricing strategy.
What revenue should I use when analyzing a short term rental deal?
Use 75th percentile revenue as your base case, not 90th percentile or average. In the Smoky Mountains, for example, 75th percentile annual revenue is about $81,641 while the 25th percentile is $33,055. If your deal only works at the very top of the market, it’s too risky. Building your projections around the 75th percentile gives you a realistic target with room for error.
Ready to invest in a short term rental market? The Short Term Shop has a dedicated agent who lives in your target market and works exclusively with short term rental investors. Find your agent →
Disclaimer: Revenue figures cited in this article are based on market-wide data from third-party analytics platforms and reflect ranges across all properties in the market. They are not projections or guarantees for any specific property. Individual property performance varies significantly based on location, condition, amenities, management quality, and market conditions. Always conduct your own due diligence before making an investment decision.