Short-term rentals can bring in far more gross income than a traditional lease. They also come with higher costs, more work, more regulation, and much more variable income. The only fair way to decide is to run both scenarios side by side, then stress-test the short-term numbers.
Step 1: Check the Rules First
Before you run a single number, confirm that short-term rentals are allowed. Many cities now require registration, permits, or taxes for short-term rentals, and many HOAs restrict or ban them. If the property can't legally operate as a short-term rental, the analysis stops here.
Step 2: Estimate Short-Term Rental Income
Annual gross revenue = Nights available × Occupancy rate × Average nightly rate
Use seasonal estimates if your market has busy and slow periods. Base occupancy and rates on comparable listings in the same area, not the best-performing property you can find.
Step 3: Account for the Extra Costs
Short-term rentals typically carry costs a long-term rental doesn't: cleaning between guests, platform fees, supplies, furnishings, utilities and internet, higher insurance, lodging taxes where they apply, and often professional management at a higher percentage than long-term management.
A Side-by-Side Example
Short-term rental:
- 365 nights × 60% occupancy × $180 average rate = $39,420 gross
- Operating expenses: $18,000
- NOI: $21,420
Long-term rental:
- $2,000/month, less 5% vacancy = $22,800 gross
- Operating expenses: $7,500
- NOI: $15,300
On these assumptions, the short-term rental earns about $6,100 more per year before debt service.
Step 4: Stress-Test It
Now lower short-term occupancy by 20%, from 60% to 48%. Gross revenue drops to about $31,536. Even if cleaning and other per-stay costs fall to around $16,000, NOI is about $15,500, roughly the same as the long-term rental, with far more work and risk. That's why the stress test matters: a short-term advantage can shrink quickly in a slow season or a crowded market.
Other Questions to Ask
- Will you self-manage, and do you have the time?
- Does the deal still work as a long-term rental if short-term rules change?
- How much will furnishing and setup cost upfront?
Run Both Scenarios
The Short-Term Rental Cash Flow Workbook models seasonal revenue, runs the 20% occupancy and 15% rate stress tests, and compares the result against a long-term rental. New to rental math? Read How to Analyze a Rental Property.
Written by Marchelle Cook, a Realtor for 26 years and a real estate investor and property manager since 2012. This article is for educational purposes only and is not financial, tax, or legal advice. Confirm local short-term rental rules before buying.
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