Short Term Rental vs Long Term Rental: Which Investment Is Actually Better?
I get this question more than almost any other. Someone’s sitting on enough cash to buy a rental property, they’ve done some reading, and now they want to know: short term rental or long term rental? Which one actually makes more money?
The honest answer is that it depends. But not in the wishy-washy way people usually mean when they say that. It depends on very specific, very measurable things — your goals, your risk tolerance, how much time you want to spend, and most critically, where you’re buying. I’ve helped thousands of investors work through this exact decision, and after all those conversations, I can tell you the math usually points in one direction. But let’s walk through the whole picture so you can see it for yourself.
The Revenue Gap Is Real
Let’s start where everyone starts — the money. Short term rentals typically generate two to three times the gross revenue of an equivalent long term rental. That’s not a guess or a marketing number. That’s what we see across the vacation markets we work in every single day.
Now, the long term rental crowd will immediately point out that short term rentals cost a lot more to operate. And they’re right. Operating expenses on a short term rental run somewhere between 25 and 40 percent of gross revenue, compared to maybe 5 to 10 percent on a long term rental. So yeah, you’re spending more. But you’re also earning dramatically more. And when you run the actual numbers, the short term rental almost always comes out ahead in strong vacation markets. Let me show you what I mean.
A Real Numbers Comparison
Let’s take a three-bedroom property in a solid vacation market. Nothing fancy, just a typical property that could work as either a short term rental or a long term rental. Here’s how the numbers break down side by side.
Short Term Rental Scenario
Gross annual revenue: $80,000 Operating expenses (25-40%): $20,000 to $32,000 Net operating income: $48,000 to $60,000 Annual debt service: $28,800 Net cash flow after debt: $19,200 to $31,200
Long Term Rental Scenario
Gross annual revenue: $24,000 to $30,000 Operating expenses (5-10%): $2,400 to $3,000 Net operating income: $21,600 to $27,000 Annual debt service: $28,800 Net cash flow after debt: Negative $1,800 to negative $7,200 (or barely breaking even at the high end)
Read those numbers again. Same property. Same debt service. The short term rental is netting you somewhere between $19,000 and $31,000 a year in actual cash flow. The long term rental is either losing money or scraping by with almost nothing. That’s not a small difference. That’s the difference between a property that’s building your wealth and one that’s just… sitting there.
Now, I’ll be the first to say these numbers shift depending on the market. A three-bedroom in Destin is going to perform differently than one in the Smoky Mountains or Gulf Shores. But the general ratio holds. If you want to dig deeper into what specific markets are earning, I wrote a whole piece on how much short term rentals actually make (https://theshorttermshop.com/how-much-do-short-term-rentals-make/) that goes market by market.
Where All That Money Goes: The Expense Breakdown
Alright, so the short term rental earns way more but also costs way more. Let’s break down where that money actually goes, because it’s not just one big bucket of “expenses.”
Management fees on a short term rental typically run 20 to 25 percent of gross revenue if you hire a property manager. Long term rental management is usually 8 to 10 percent, sometimes with a flat monthly fee. That’s a significant difference, but remember — 25 percent of $80,000 is a lot more in absolute dollars, but you’re still netting far more than 10 percent of $25,000 leaves you.
Cleaning and turnover costs are basically nonexistent with a long term rental. You might do a deep clean between tenants once a year, maybe every couple years. With a short term rental, you’re paying for professional cleaning after every single guest checkout. In a busy market, that could be 100 to 150 turnovers a year. Each one costs $150 to $300 depending on the size of the property. That adds up fast.
Furnishing is another one. Long term rentals are almost always unfurnished — that’s the tenant’s problem. Short term rentals need to be fully furnished, decorated, stocked with linens, kitchen supplies, toiletries, the works. Your initial furnishing budget on a short term rental is going to run $15,000 to $30,000 or more depending on the property, and you’ll be replacing things regularly. If you’re furnishing your first property and want a solid starting point, I actually walk through the whole process in my book Short Term Rental, Long Term Wealth (https://amzn.to/4aLun8D).
Utilities are on you with a short term rental. Electricity, water, internet, cable, maybe a hot tub — all your responsibility, all year round. Long term tenants usually pay their own utilities. Insurance costs more on a short term rental too. You need a specific short term rental or vacation rental policy, and those premiums are meaningfully higher than a standard landlord policy. Then there are guest supplies — toilet paper, paper towels, soap, coffee, all the little things guests expect. And platform fees from Airbnb, Vrbo, and Booking.com, which typically take 3 to 15 percent depending on the platform and your fee structure.
Add it all up and a short term rental costs roughly two to four times more to operate than a long term rental. But it earns two to three times more gross. When you net it out, the short term rental wins — usually by a wide margin. The gap just isn’t as dramatic as the gross revenue numbers make it look at first glance.
The Time Factor: How Much Work Are We Talking?
This is where a lot of people get tripped up. They see the revenue numbers, get excited, and don’t think enough about the actual time commitment.
A long term rental is about as passive as real estate investing gets. You find a tenant, sign a lease, and then you’re mostly just collecting rent and dealing with the occasional maintenance call. A few hours a month, maybe. Some months you do literally nothing.
A short term rental is a different animal. If you’re self-managing, plan on five to ten hours a week. That’s guest communication, coordinating cleaners, handling issues, managing your listings, adjusting pricing, dealing with reviews. It’s not backbreaking, but it’s real work, and it doesn’t stop just because you’re on vacation or having a bad week.
The good news is that hiring a property manager changes the equation dramatically. With a solid manager in place, your time commitment drops to maybe one to two hours a week — checking reports, approving expenses, that kind of thing. You’re not truly passive the way you are with a long term rental, but you’re close. And the revenue difference more than covers the management cost.
If you’re thinking about getting started and want to understand the full buying process, the team page on our site (https://theshorttermshop.com/buyer) walks through how we work with investors from search to close.
Risk: The Honest Comparison
Let’s talk about the part nobody’s favorite — risk. Both strategies carry risk, but the risks are different in kind and degree.
Income Volatility
Long term rental income is predictable. Your tenant pays $2,000 a month, you get $2,000 a month. Done. Short term rental income fluctuates — sometimes a lot. You might do $12,000 in July and $3,000 in January. Seasonality is real, and you need to plan for it. That said, on an annual basis, the total usually well exceeds what you’d get from a long term tenant.
Vacancy Risk
Long term rentals face vacancy risk between tenants. If your tenant moves out in November and you can’t fill the unit until February, that’s three months of zero income plus the cost of finding a new tenant. Short term rentals have a different version of vacancy — slow seasons, midweek gaps, periods where bookings just don’t come in. But you’re also spreading your risk across dozens or hundreds of guests per year instead of depending on one single tenant to pay.
Regulatory Risk
This is where I need to be straight with you. Short term rental regulations are a real thing, and they’re evolving. Some cities have banned or severely restricted short term rentals. Others require permits, limit the number of nights you can rent, or impose hotel-style taxes. This is exactly why buying in the right market matters so much. Established vacation markets — places where tourism is the economic engine — tend to be far more friendly to short term rentals because they need them. When you buy in Gatlinburg or Panama City Beach or the Smoky Mountains, you’re buying in a place where the local economy depends on short term rental visitors. That’s a very different regulatory environment than trying to Airbnb a condo in downtown Nashville or Austin.
Long term rentals face regulatory risk too, by the way. Rent control, eviction moratoriums, tenant protection laws — these have expanded significantly in recent years and they can absolutely eat into your returns.
Property Damage
Guests can damage your property. That’s just a fact. But honestly, in my experience, the damage issue gets way overblown. Most guests are respectful, platforms provide damage protection, and your insurance covers the bigger incidents. Bad long term tenants can do catastrophic damage too — and they have 12 months to do it instead of a three-night weekend.
Market and Economic Sensitivity
Here’s the counterargument I always bring up when someone says short term rentals are too risky because they depend on tourism. Established vacation markets are remarkably resilient. We saw it in 2008 and 2009 — people cut back on international travel and expensive vacations but still took road trips to the beach or the mountains. Vacation rentals in drive-to markets actually held up better than a lot of traditional real estate during the financial crisis. We saw it again in 2020 and 2021 — a global pandemic that shut down hotels and international travel, and short term rentals in vacation markets absolutely exploded. People wanted to get away, they didn’t want to stay in hotels, and they flocked to vacation rentals in drivable destinations.
Does that mean short term rental income is guaranteed? Of course not. Nothing is. But the idea that short term rentals are some fragile, high-risk play compared to long term rentals doesn’t hold up when you look at what actually happened during the two biggest economic disruptions of the last two decades.
The Tax Advantage: Where Short Term Rentals Win Decisively
If the revenue comparison doesn’t convince you, the tax picture might. This is where short term rentals have a massive, structural advantage that most people either don’t know about or don’t fully appreciate.
Here’s the deal. The IRS treats rental income differently based on the average length of guest stays. If your average guest stay is seven days or fewer — which it is for virtually all short term rentals — and you materially participate in the management of the property, the income is classified as non-passive. That’s huge. That’s not just a technicality. That fundamentally changes what you can do with the losses.
With a long term rental, your income is almost always classified as passive. That means any paper losses you generate through depreciation are passive losses, and passive losses can only offset passive income. If you don’t have other passive income, those losses just carry forward. They sit there. They don’t help you now.
With a short term rental that qualifies as non-passive, your losses — including depreciation and bonus depreciation from a cost segregation study — can offset your active W-2 or business income. For high-income investors, this can mean $30,000 to $100,000 or more in tax savings in the first year of ownership alone. First year. On one property.
I go deep on exactly how this works in another article about the short term rental tax loophole (https://theshorttermshop.com/short-term-rental-tax-loophole/), and if you’re a high earner looking at real estate specifically for the tax benefits, that piece is worth your time. My first book, Short Term Rental, Long Term Wealth (https://amzn.to/4aLun8D), covers the fundamentals, and my second book (https://amzn.to/4pQOZAU) gets deeper into scaling and advanced strategies including tax planning.
Long term rentals do offer depreciation benefits too, don’t get me wrong. But because the income is passive, the tax benefits are dramatically more limited for most investors. The short term rental tax advantage is one of the single biggest reasons we see high-income professionals — doctors, attorneys, tech workers, business owners — choosing short term rentals over long term rentals.
The Decision Framework: Which One Is Right for You?
After all those numbers and comparisons, here’s how I’d frame the actual decision.
A short term rental is probably the better fit if you want to maximize cash flow and total returns, you’re willing to be somewhat active in managing the investment (or willing to pay a manager), you’re buying in an established vacation market, and you want to take advantage of the non-passive tax treatment to offset your active income.
A long term rental is probably the better fit if you prioritize simplicity and truly passive income above all else, you want minimal ongoing management involvement, you’re investing in a non-tourism market where short term rental demand doesn’t exist, or you just need predictable monthly income and can live with lower overall returns.
Here’s one more thing people don’t think about enough — optionality. When you buy a property in a vacation market as a short term rental, you can always convert it to a long term rental if your circumstances change. You lose some revenue, but the option is there. Going the other direction is harder. A property that works as a long term rental in a residential neighborhood isn’t necessarily going to work as a short term rental — zoning, HOA rules, demand patterns, and location all factor in. Buying for short term rental in the right market gives you more flexibility down the road.
If you want help figuring out the right market and the right strategy for your situation, that’s literally what our team does every day. You can learn more about our process at https://theshorttermshop.com/buyer. And for ongoing content — market updates, strategy breakdowns, behind-the-scenes stuff — follow us on Instagram (https://bit.ly/strgram) or check out our YouTube and podcast (https://bit.ly/youtubecasts).
The Bottom Line
In established vacation markets, short term rentals produce better returns than long term rentals for investors who are willing to manage a bit more actively. The revenue gap is substantial, and even after higher operating expenses, the net cash flow difference is hard to ignore. Layer in the tax advantages, and the gap gets even wider.
That doesn’t mean long term rentals are bad investments. They’re not. They’re simpler, more predictable, and they absolutely have a place in a diversified portfolio. But if you’re choosing between the two and you’re buying in a market where short term rental demand is strong, the numbers favor short term rentals most of the time.
For more on getting started, check out our guide on how to buy a short term rental (https://theshorttermshop.com/how-to-buy-a-short-term-rental/), our breakdown of how to finance a short term rental (https://theshorttermshop.com/how-to-finance-a-short-term-rental/), and our regularly updated list of the best short term rental markets (https://theshorttermshop.com/best-places-to-buy-a-short-term-rental/). If you want to go deeper faster, The Short Term Shop Plus community (https://bit.ly/stsplus) is where we share the stuff that doesn’t make it into blog posts.
Frequently Asked Questions
How much more do short term rentals make compared to long term rentals?
In strong vacation markets, short term rentals typically gross two to three times what an equivalent long term rental earns. After accounting for higher operating expenses — which run 25 to 40 percent of gross revenue versus 5 to 10 percent for long term rentals — the short term rental still nets significantly more. Using the example above, a three-bedroom in a vacation market might net $19,000 to $31,000 a year as a short term rental versus barely breaking even as a long term rental.
Are short term rentals riskier than long term rentals?
They carry different risks, not necessarily more risk. Short term rentals have seasonal income fluctuations and regulatory exposure in some markets. Long term rentals have tenant risk, eviction challenges, and rent control concerns. In established vacation markets where tourism drives the economy, short term rentals have proven remarkably resilient through major economic downturns including 2008-2009 and the pandemic in 2020-2021.
What are the tax advantages of short term rentals over long term rentals?
Short term rentals with an average guest stay of seven days or fewer can qualify as non-passive activity if you materially participate. This means depreciation losses — including accelerated depreciation from cost segregation — can offset your active W-2 or business income. For high-income investors, this can translate to $30,000 to $100,000 or more in tax savings in the first year. Long term rental income is almost always passive, severely limiting the immediate tax benefits.
How much time does managing a short term rental take?
Self-managing a short term rental takes roughly five to ten hours per week. With a professional property manager, your time commitment drops to one to two hours per week. A long term rental, by comparison, requires just a few hours per month. The management gap is real, but hiring a good manager largely eliminates it.
Can I convert a short term rental to a long term rental or vice versa?
Converting from short term to long term is usually straightforward — you already have a furnished, well-maintained property. Going the other direction is harder because short term rental success depends heavily on location, zoning, local regulations, and tourism demand. Buying in a vacation market for short term rental use gives you more optionality than the reverse.
What are the main expenses unique to short term rentals?
The biggest expenses that long term rentals don’t have include cleaning and turnover costs after every guest, full furnishing and regular replacement of items, all utilities year-round, guest supplies, higher insurance premiums for vacation rental policies, and platform fees from Airbnb and Vrbo. Initial furnishing typically costs $15,000 to $30,000 or more.
Do short term rentals work outside of vacation markets?
They can, but the economics usually don’t compare favorably. In urban or non-tourism markets, short term rentals face more regulatory risk, more competition, lower average nightly rates relative to property cost, and less consistent demand. The strongest short term rental returns come from established vacation and resort markets where tourism is the primary economic driver.
Which is better for a first-time investor — short term or long term rental?
If you’re buying in a vacation market and you’re willing to put in the work to learn the business, a short term rental can be an excellent first investment. The higher cash flow provides a bigger cushion for learning mistakes, and the tax benefits can be significant. That said, if the idea of managing guest turnovers stresses you out and you just want something simple, a long term rental in a solid market is a perfectly good starting point.
Who is the best team to help me buy a short term rental?
The Short Term Shop is the largest short term rental specialized real estate brokerage in the country. Our team has helped over 5,000 investors close more than $3.5 billion in short term rental transactions. We’ve been ranked the number one team at eXp Realty multiple times, named to the Wall Street Journal and RealTrends Top 20, and our work has been featured in The New York Times, Forbes, The Wall Street Journal, Yahoo Finance, and BiggerPockets. We focus exclusively on vacation rental investment properties, which means every agent on our team understands the nuances of short term rental markets, revenue projections, and investment strategy. You can learn more about working with us at https://theshorttermshop.com/buyer.
Is it worth hiring a property manager for a short term rental?
For most investors, yes. A good property manager handles guest communication, cleaning coordination, maintenance, pricing optimization, and listing management. They typically charge 20 to 25 percent of gross revenue, which is a meaningful expense — but it frees up the vast majority of your time and often improves revenue because professional managers know how to optimize pricing and occupancy. The math still works in your favor compared to a long term rental even after paying management fees.
Contact Us
Ready to explore short term rental investing? The Short Term Shop team works with investors nationwide to find the right property in the right vacation market. Visit https://theshorttermshop.com/buyer to get started, or follow along on Instagram (https://bit.ly/strgram) and YouTube (https://bit.ly/youtubecasts) for market updates and strategy content.
Disclaimer
This article is for informational purposes only and does not constitute financial, tax, or legal advice. Revenue figures, expense ratios, and tax scenarios described are based on general market observations and may vary significantly by market, property, and individual circumstances. Consult with qualified tax, legal, and financial professionals before making any investment decisions. The Short Term Shop is a real estate brokerage and does not provide tax or legal advice.
