Same house, two businesses
You find a 3-bedroom, 2-bathroom house listed at $375,000 in a secondary tourist market — think a lake town, a ski hill with 2-hour drive access to a city, or a college town with festival weekends. You can operate it as a short-term rental through Airbnb and Vrbo, or as a traditional long-term rental. The comparison table above runs both scenarios through a fair cost stack. The bottom-line finding: on cash-on-cash return, the two strategies are nearly identical once real operating costs are included. The difference is everywhere except return.
STR: higher revenue, much higher cost stack
STR revenue looks intoxicating. $328/night average daily rate times 65% occupancy is $78,000/year gross. Compared to $2,550/month LTR rent ($30,600/year), it looks like a 2.5x improvement. It's not, because the cost stack is completely different.
Concrete line-item costs on this property:
- Cleaning:$95 per turnover × 100 turnovers/year (65% occupancy ≈ 237 booked nights, 2.4-night avg stay = ~100 turnovers) = $9,500/year. Tenant-paid cleaning fee doesn't cover it all.
- Utilities: owner-paid (guests expect it). Electric, gas, water, internet, streaming subscriptions. $350/month = $4,200/year.
- Supplies: soap, paper products, coffee, small kitchen replacements. $200/month minimum = $2,400/year.
- Platform fees: Airbnb host fee 3%, Vrbo 5%. Blended roughly 3% of gross revenue = $2,340.
- Management:a reputable STR property manager charges 20–25% of gross revenue. Self-manage and it's 5–8 hours per week of calendar/guest/cleaning coordination.
- Insurance:a dedicated short-term rental policy (Proper, Obie, CBIZ) runs $2,500–$3,500 on this size property. Regular homeowner policies usually don't cover short-term rentals.
- Maintenance: STRs see 2–3x the wear of LTRs. Budget 2.5% of property value for ongoing maintenance ($9,375/year). The table uses a conservative $7,800.
- Furniture depreciation: not in the table but real. $28,000 furnishing budget on day one, full refresh every 5–7 years.
LTR: lower ceiling, much higher floor
The LTR scenario pays $2,550/month × 95% occupancy = $29,070. After 8% management, $1,400 insurance, $4,800 taxes, maintenance, and PITI, cash flow is $441/month. It's steady. It's boring. It's 25 hours/year of owner time with a property manager, and a 12-month lease locks in the revenue and eliminates the seasonal volatility that STRs live with.
Hidden risk: regulation
STR-friendly markets have been regulating rapidly. Nashville restricted non-owner-occupied STRs in 2017. Austin banned type-2 STRs in 2016 (though that was overturned in court). Asheville capped non-owner STRs. Portland, NYC, and Santa Monica have strict registration requirements. An HOA can amend its CC&Rs to prohibit rentals under 30 days with a majority vote and nothing you can do about it.
Before underwriting an STR, read the local ordinance in full, read the HOA bylaws, and stress-test your returns assuming the rules tighten in year 3. If the LTR backup scenario still cash flows, the deal is resilient. If it doesn't, you're one city council vote from a losing property.
When STR actually wins the math
STR produces meaningfully better returns than LTR in three specific cases:
- Tier-1 destination markets where ADR is $400+ and occupancy is 75%+. Think Aspen, Jackson Hole, destination beachfront. The revenue line scales while the cost line stays similar, and the delta flows through.
- Owner-occupied house hacks.Live in part of the property, Airbnb the rest. No PM fee, no dedicated insurance premium, much lower furniture cost because you're using shared space. Cash-on-cash returns can hit 15–25%.
- Arbitrage at scale.Lease 5–10 units in a market, systematize cleaning and guest comms, use dynamic pricing. Can produce $8K–$25K/month in profit with $50–$100K in capital. But it's a fragile business.
Which to choose for a specific property
Honest filter: if the LTR returns are within 20% of STR returns on the same property (as in this comparison), choose LTR. The STR's extra 250 hours of work, regulatory risk, and revenue volatility aren't worth a similar return. If the STR returns are 2x+ the LTR on a realistic pro forma (not best-case), and the regulatory environment is stable, STR can be worth the operational intensity. Most properties in most markets fall into the first category.
Related tools
Run STR revenue estimates on a specific property with our Airbnb income calculator. Model LTR returns with the rental yield calculator and the cash flow analyzer. For the full portfolio view, our cap rate calculator and cash-on-cash return calculator help benchmark against market returns.