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When it comes to the short-term rental vs long-term rental debate, short-term rentals offer two to three times more monthly income than long-term rentals, making them a compelling option for property investors. But higher returns come with a more complex landscape.
This guide examines the key differences between short-term and long-term rental strategies. We'll look at short-term rental income potential, day-to-day operational demands, and the latest regulatory shifts that might influence your decision in 2025.
When looking at rental income between these strategies, the numbers speak volumes. The short-term rental market is set to reach USD 138.10 billion in 2025, showing robust growth from 2024. Let's break down the key financial differences between Airbnb vs long-term rental options.
The earnings gap between short-term and long-term rentals is substantial. Short-term rental owners frequently report tripling the amount they'd make with traditional renting. This higher earning potential doesn't come without trade-offs, though.
Short-term rental income gives you flexibility to adjust pricing almost daily based on demand, seasons, and local events. Long-term leases, by comparison, lock in a fixed monthly income for 6-12 months, delivering consistent revenue. This predictability simplifies financial planning but might leave money on the table during high-demand periods.
Occupancy rates directly affect your rental income. For 2025, short-term rental occupancy rates should stabilize around 54.9% by year-end. These rates show significant regional variation:
Long-term rentals essentially eliminate vacancy concerns with year-long leases. Short-term rentals, however, must factor in seasonal demand - a reality that can significantly impact your annual returns.
The hidden costs behind rental properties often determine their true profitability. The higher income potential of short-term rentals comes with a corresponding increase in expenses that can significantly impact your bottom line.
Setting up a short-term rental property requires substantial upfront investment. Furnishing costs typically range from $15,000 to $25,000 for standard properties and can exceed $50,000 for larger or luxury accommodations. Hosts must also provide essentials like sheets, towels, toilet paper, and kitchen supplies.
Long-term rentals require minimal furnishing since tenants typically bring their own furniture and household items. This fundamental difference creates a significant initial cost disparity between the two strategies.
Short-term rentals need thorough cleaning after each guest departure, costing between $50 and $200 per turnover. These frequent turnovers require regular inspection and maintenance to preserve guest experience and satisfaction.
Long-term rentals generally undergo cleaning and maintenance only during tenant transitions—typically once annually or less frequently. This operational difference translates to maintenance costs averaging only 1-2% of property value annually for long-term rentals compared to much higher maintenance expenses for short-term properties.
Management costs show perhaps the starkest contrast between strategies. For short-term rentals, professional management services typically command 15-25% of revenue in standard markets and up to 30-40% in high-demand areas or for luxury properties.
Long-term rental management fees are substantially lower, averaging between 8-12% of monthly rent. This difference exists because short-term rentals require more intensive management—handling bookings, guest communications, frequent cleanings, and constant property readiness.
Overall operating expenses for short-term rentals can consume approximately 50% of revenue. These higher costs directly offset the income advantage of short-term rentals, making the net profitability comparison less dramatic than the revenue comparison alone might suggest.
Short-term rental regulations have tightened significantly in recent years—and 2025 is no exception. Over 220 cities across the U.S. now enforce STR-specific ordinances, including:
Many local governments have adopted digital enforcement tools to track listings and collect occupancy taxes, which often range between 7% and 15% of gross income.
In contrast, long-term rentals remain governed by traditional landlord-tenant law—more predictable and generally friendlier to compliance. However, investors should still pay attention to evolving tenant protections, rent control measures, and eviction moratoriums, particularly in California, Oregon, and New York.
The IRS treats STR and LTR income differently, and the differences can have a major impact on your tax liability.
Short-Term Rentals:
Long-Term Rentals:
STRs can produce higher income, but they also carry heavier tax and compliance burdens. LTRs offer more straightforward tax treatment, making them ideal for passive investors seeking long-term equity growth.
Financial institutions view short-term and long-term rentals through distinctly different risk lenses, affecting everything from mortgage approvals to insurance coverage in 2025.
Securing financing for short-term rental properties has become increasingly challenging. Lenders typically view the unpredictable income streams from Airbnb as higher-risk investments compared to traditional renting. Properties with long-term leases often qualify for more attractive interest rates and favorable financing terms due to their consistent monthly income. Many mortgage providers demand comprehensive documentation of seasonal occupancy rates and average nightly rates when evaluating short-term rental applications.
Alternatively, long-term rental properties with fixed lease agreements provide lenders with predictable cash flow projections, subsequently leading to easier loan approvals. First-time investors should note that variable income from short-term rentals may require larger down payments or result in stricter lending criteria.
Insurance costs create another significant financial divide between rental strategies. Short-term rental properties require specialized insurance policies with premiums averaging USD 2,000-3,000 annually. These policies must address unique exposures including:
Traditional landlord insurance for long-term rentals typically costs less, focusing primarily on property damage, tenant liability, and loss of rent. Standard homeowners insurance policies seldom cover short-term rental activities, necessitating specific endorsements or separate policies.
Short-term rentals offer compelling income potential, generating up to three times the revenue of traditional leases in 2025. But does this higher income automatically make them the better choice? Not necessarily.
While the short-term rental market is projected to reach $138.10 billion, that revenue comes at a cost. STRs typically carry operating expenses of up to 50% of gross income—compared to 35% for long-term rentals. In high-demand markets, management fees alone can reach 40%, quickly eroding your margins if not carefully controlled.
Ultimately, neither strategy is objectively better—each serves a different investment profile.
The right choice depends on your investment goals, time commitment, location, and financial capacity. Before committing capital, take time to assess local laws, tax implications, property management options, dynamic pricing strategies, and long-term market trends.
No matter your strategy, one thing is clear: successful real estate investing in 2025 requires more than intuition—it demands data, clarity, and smart tools.
That’s where 8FIGURES comes in.
Our AI Portfolio Analyst helps investors optimize financial decisions based on real-time market intelligence. Whether you're aiming for passive income or aggressive growth, 8FIGURES equips you with the insight you need to build wealth confidently—and avoid costly mistakes.
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Managing your investments has never been easier!
