STR Market Exploration and Tax Efficiency

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STR Market Exploration and Tax Efficiency

Member since 2024 · 9 posts · 3 votes

I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.

What's your advice? Should I be serious for it?

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Ryan MoyerBusiness Member

Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 993 posts · 1k+ votes

8mo

If tax help is your primary concern you would want to focus on markets with low land value, as the percentage of your purchase that is attributed to the land is not depreciable like the rest of the house is.

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
8mo
Quote from @Sam Mishra:

I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.

What's your advice? Should I be serious for it?

You need to be cautious and run your numbers with a buffer before jumping into any new investment property. Do that and you should be fine.
I once took 2 years to find a new STR based on my criteria of what I wanted.
Don't rush into anything.
2 Reply
Ryan MoyerBusiness Member
Property Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 993 posts · 1k+ votes
8mo
If tax help is your primary concern you would want to focus on markets with low land value, as the percentage of your purchase that is attributed to the land is not depreciable like the rest of the house is.
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- Sam Mishra
  OP
  Member since 2024 · 9 posts · 3 votes
  8mo
  Quote from @Ryan Moyer:
  
  If tax help is your primary concern you would want to focus on markets with low land value, as the percentage of your purchase that is attributed to the land is not depreciable like the rest of the house is.
  Great tips.
  0 Reply
Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
8mo
There's no easy money or secret market. Everyone on the internet is looking for a $400-600k property that will do 80-100k in gross rents without a lot of work or renovation.
I'm of the opinion that you have to solve a serious problem or take on a big project (ie parcel off lots, build an ADU, add a bedroom or bathroom, etc.) to get returns to make it worth the hassle.
3 Reply
Mike GrudzienPro Member
Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
8mo
I feel for you. Do your homework. 10 years ago, you almost could do no wrong. Now, you really, really need to do your homework on: location, property, ordinances, market, etc. Even if it takes 2 years!
1 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
8mo
Quote from @Sam Mishra:

I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.

What's your advice? Should I be serious for it?

Do you understand that the tax efficiency is present only if you show a loss on the property? My goal is to make money on my investment properties, not to show a loss (actually my goal may be to show a loss, but (fortunately/unfortunately) I make money on my rental properties in spite of that goal).

if you want short term loss, you can use accelerate depreciation. Note that moves the depreciation forward, it does not increase the depreciable amount. Note without cost seg, the depreciation is only 3.7% (residential) of the depreciable value (typically structure value). Note it is non trivial on good RE investment purchases to realize a loss after 5 years of ownership. I use to accomplish this with cash out finances, but since the rate increases of 2022 that has been a less favorable option.

i have enclosed my last cost seg estimate. Ignore the first year savings as it is BS and I wish the provider did not provide any estimate or maybe a table of estimates based on taxable income.

the first year depreciation should be close. This is a condo, so land value is minimum.

good luck

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- Sam Mishra
  OP
  Member since 2024 · 9 posts · 3 votes
  8mo
  Quote from @Dan H.:
  
  Quote from @Sam Mishra:
  
  I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.
  
  What's your advice? Should I be serious for it?
  
  Do you understand that the tax efficiency is present only if you show a loss on the property? My goal is to make money on my investment properties, not to show a loss (actually my goal may be to show a loss, but (fortunately/unfortunately) I make money on my rental properties in spite of that goal).
  
  if you want short term loss, you can use accelerate depreciation. Note that moves the depreciation forward, it does not increase the depreciable amount. Note without cost seg, the depreciation is only 3.7% (residential) of the depreciable value (typically structure value). Note it is non trivial on good RE investment purchases to realize a loss after 5 years of ownership. I use to accomplish this with cash out finances, but since the rate increases of 2022 that has been a less favorable option.
  
  i have enclosed my last cost seg estimate. Ignore the first year savings as it is BS and I wish the provider did not provide any estimate or maybe a table of estimates based on taxable income.
  
  the first year depreciation should be close. This is a condo, so land value is minimum.
  
  good luck
  
  Thank you, Dan. I appreciate you sharing that calculation. My immediate goal is to build working capital for long-term appreciation. While I am looking to reduce a significant tax burden, I don't want to do so at the expense of building actual wealth. If there is a strategy to generate returns that doesn't rely entirely on property appreciation or high interest costs, I am all ears
  0 Reply
- Dan H.Pro Member
  Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
  8mo
  Quote from @Sam Mishra:
  
  Quote from @Dan H.:
  
  Quote from @Sam Mishra:
  
  I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.
  
  What's your advice? Should I be serious for it?
  
  Do you understand that the tax efficiency is present only if you show a loss on the property? My goal is to make money on my investment properties, not to show a loss (actually my goal may be to show a loss, but (fortunately/unfortunately) I make money on my rental properties in spite of that goal).
  
  if you want short term loss, you can use accelerate depreciation. Note that moves the depreciation forward, it does not increase the depreciable amount. Note without cost seg, the depreciation is only 3.7% (residential) of the depreciable value (typically structure value). Note it is non trivial on good RE investment purchases to realize a loss after 5 years of ownership. I use to accomplish this with cash out finances, but since the rate increases of 2022 that has been a less favorable option.
  
  i have enclosed my last cost seg estimate. Ignore the first year savings as it is BS and I wish the provider did not provide any estimate or maybe a table of estimates based on taxable income.
  
  the first year depreciation should be close. This is a condo, so land value is minimum.
  
  good luck
  
  Thank you, Dan. I appreciate you sharing that calculation. My immediate goal is to build working capital for long-term appreciation. While I am looking to reduce a significant tax burden, I don't want to do so at the expense of building actual wealth. If there is a strategy to generate returns that doesn't rely entirely on property appreciation or high interest costs, I am all ears
  Property appreciation covers a lot of ground. Buy below value and you have instant equity above cost.
  
  then the various value adds the most common (and one I have used the most) is a smart rehab.
  
  My favorite value add is sophisticated value adds. What is a sophisticated value add? It is anticipating action that will result in excess of market appreciation. It is usually market specific.
  
  here is an extreme example that my most successful protege pulled off. The city had (notice the past tense) extreme bonus density ADU law that allowed an extra ADU for each income restricted ADU. My protege sold a SFH that had a value based on current comps below $1m that was on a lot that was particularly well suited for a lot of ADUs. He sold it as a targeted sale at $1.5m. Note he was not the developer; all he had to do for the value add is acquire a property exceptionally well suited for the ADU bonus density rules at a value based on current use comps and sell the same property for a different (or expanded) use. I suspect there are few easier ways to make $0.5m (he partnered with his sister so realized 50% of the profit)
  https://www.cbs8.com/article/news/local/working-for-you/new-....
  Currently in my jurisdiction both the city of San Diego and the county for unincorporated areas (county is detached only) are evaluating opting into Ab1033. Ab1033 allows by right condoizing ADUs. What do you think happens to the value of detached ADUs if this passes. I suspect in the fairly near term all detached small MF units in these 2 jurisdictions will be allowed to condoize by right. What do you think will happen to detached unit valuations.
  A few years ago the state passed a law protecting safe unpermitted units. What do you think this did to the values of safe unpermitted units?
  I suspect many jurisdictions have these type of laws (or proposed laws) that can be leveraged to achieve above market appreciation.
  Good luck
  0 Reply
Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
8mo
Quote from @Sam Mishra:

I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.

What's your advice? Should I be serious for it?

Hi Sam. Strategy plays a huge part. If you are attracting vacation type rentals exclusively that will be tough. On other hand investing in markets that will attract variety of clients will out preform mainly for the year round demand. Beach towns are limited and mountain retreats are saturated. The market the is in huge demand and will attract longer stay guest will be focusing on combinations of business professionals, remote workers, vacation guest and more that want access to NYC but do not want to stay in a hotel. This model works extremely well in in slow months like right now. Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset.
973-975-3895
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- Sam Mishra
  OP
  Member since 2024 · 9 posts · 3 votes
  8mo
  Quote from @Shawn Mcenteer:
  
  Quote from @Sam Mishra:
  
  I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.
  
  What's your advice? Should I be serious for it?
  
  Hi Sam. Strategy plays a huge part. If you are attracting vacation type rentals exclusively that will be tough. On other hand investing in markets that will attract variety of clients will out preform mainly for the year round demand. Beach towns are limited and mountain retreats are saturated. The market the is in huge demand and will attract longer stay guest will be focusing on combinations of business professionals, remote workers, vacation guest and more that want access to NYC but do not want to stay in a hotel. This model works extremely well in in slow months like right now. Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset.
  
  Thanks Shawn. I am in for this strategy. My search is to identify right locations. Do you have any recommendations?
  
  0 Reply
- Dan H.Pro Member
  Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
  8mo
  Quote from @Shawn Mcenteer:
  
  Quote from @Sam Mishra:
  
  I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.
  
  What's your advice? Should I be serious for it?
  
  Hi Sam. Strategy plays a huge part. If you are attracting vacation type rentals exclusively that will be tough. On other hand investing in markets that will attract variety of clients will out preform mainly for the year round demand. Beach towns are limited and mountain retreats are saturated. The market the is in huge demand and will attract longer stay guest will be focusing on combinations of business professionals, remote workers, vacation guest and more that want access to NYC but do not want to stay in a hotel. This model works extremely well in in slow months like right now. Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset.
  
  >Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset
  Have you ever experienced this? I suspect not because it is terrible. I have first hand experience with this. A location that I have STRs implemented an STR quota 2.5 years ago. On the same day over 200 STRs did not get their permit. Virtually all of them switched to MTR (including me). What do you think happened to the rents? The MTR rents were literally less than for long term rentals even though MTR include furnishings and usually utilities. I rented my unit for $200/month less than if I had placed a long term tenant into an unfinished unit with LTR tenant paying utilities. By the time utilities are included (WiFi, gas, electricity, water), my rent was ~$500 less than LTR rent.
  Curious if anyone, anywhere has experienced anything different when many STRs had to convert to MTR at the same time. If not, then my experience is the current edging experience.
  
  Best wishes
  0 Reply
- Shawn McenteerBusiness Member
  Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
  8mo
  Quote from @Dan H.:
  
  Quote from @Shawn Mcenteer:
  
  Quote from @Sam Mishra:
  
  I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.
  
  What's your advice? Should I be serious for it?
  
  Hi Sam. Strategy plays a huge part. If you are attracting vacation type rentals exclusively that will be tough. On other hand investing in markets that will attract variety of clients will out preform mainly for the year round demand. Beach towns are limited and mountain retreats are saturated. The market the is in huge demand and will attract longer stay guest will be focusing on combinations of business professionals, remote workers, vacation guest and more that want access to NYC but do not want to stay in a hotel. This model works extremely well in in slow months like right now. Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset.
  
  >Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset
  Have you ever experienced this? I suspect not because it is terrible. I have first hand experience with this. A location that I have STRs implemented an STR quota 2.5 years ago. On the same day over 200 STRs did not get their permit. Virtually all of them switched to MTR (including me). What do you think happened to the rents? The MTR rents were literally less than for long term rentals even though MTR include furnishings and usually utilities. I rented my unit for $200/month less than if I had placed a long term tenant into an unfinished unit with LTR tenant paying utilities. By the time utilities are included (WiFi, gas, electricity, water), my rent was ~$500 less than LTR rent.
  Curious if anyone, anywhere has experienced anything different when many STRs had to convert to MTR at the same time. If not, then my experience is the current edging experience.
  
  Best wishes
  
  I cannot speak for your market but I will say North Jersey MTR is very lucrative. I would avoid STR all together in markets that heavily rely on vacation stays. I would go after STR in markets that attract multiple client types so if there was change in laws MTR switch is possible.
  973-975-3895
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- Dan H.Pro Member
  Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
  8mo
  Quote from @Shawn Mcenteer:
  
  Quote from @Dan H.:
  
  Quote from @Shawn Mcenteer:
  
  Quote from @Sam Mishra:
  
  I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.
  
  What's your advice? Should I be serious for it?
  
  Hi Sam. Strategy plays a huge part. If you are attracting vacation type rentals exclusively that will be tough. On other hand investing in markets that will attract variety of clients will out preform mainly for the year round demand. Beach towns are limited and mountain retreats are saturated. The market the is in huge demand and will attract longer stay guest will be focusing on combinations of business professionals, remote workers, vacation guest and more that want access to NYC but do not want to stay in a hotel. This model works extremely well in in slow months like right now. Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset.
  
  >Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset
  Have you ever experienced this? I suspect not because it is terrible. I have first hand experience with this. A location that I have STRs implemented an STR quota 2.5 years ago. On the same day over 200 STRs did not get their permit. Virtually all of them switched to MTR (including me). What do you think happened to the rents? The MTR rents were literally less than for long term rentals even though MTR include furnishings and usually utilities. I rented my unit for $200/month less than if I had placed a long term tenant into an unfinished unit with LTR tenant paying utilities. By the time utilities are included (WiFi, gas, electricity, water), my rent was ~$500 less than LTR rent.
  Curious if anyone, anywhere has experienced anything different when many STRs had to convert to MTR at the same time. If not, then my experience is the current edging experience.
  
  Best wishes
  
  I cannot speak for your market but I will say North Jersey MTR is very lucrative. I would avoid STR all together in markets that heavily rely on vacation stays. I would go after STR in markets that attract multiple client types so if there was change in laws MTR switch is possible.
  
  >Best part is anything STR can get shut down relatively fast if town decided to change laws, if this becomes the case switching to a MTR model is very easy and protects your asset
  I asked if you ever experienced a jurisdiction shutting down STRs and MTRs doing OK. 2.5 years ago I experienced this in mission beach and MTRs did not do OK. Over 200 MTRs were added to the MTR market in fairly small mission beach greatly increasing the supply. MTR furnished rents were below unfurnished LTR rents. I question if there has ever been a case where a large number of STRs were shutdown and converted to MTRs that did ok? Do you know of any such place or where you suggesting a scenario that you did not know if it has ever happened?
  
  I am skeptical that a large number of STRs have ever been shutdown by a jurisdiction and converted to MTRs that did ok or better. Logically it seems unlikely because the MTR supply increases substantially over night.
  Here is my STR calendars in my local vacation market in the offseason. Note many of those vacancies will still book so my off season vacancy is likely to be much lower than the calendar because we get around 30% of booking no more than w weeks out. I will likely have less than 15% vacancy in the off season (but our weather today was mid 70s today so who would not want to leave their cold environment for mid 70 weather). Imagine my occupancy/rate in the high season. You can choose any market, but STRs in the right vacation market can still do well. Make sure to run accurate and conservative underwriting,
  
  btw the 2 units self booked were for my son’s girlfriends’s birthday. They and quite a few friends got to stay at the beach with great weather. Life is good.
  Best wishes
  
  0 Reply
Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
8mo
I will shoot you a DM so we can explore more in-depth.
973-975-3895
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
8mo
I don't think 2025 was a "terrible year for STR". I guess it depends on who you ask (where they are and how their property is positioned in their market). We had a good year in Tampa and projecting YoY rate growth for the suncoast.
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Nick Velez
Lender · Member since 2019 · 250 posts · 219 votes
8mo
@Sam Mishra

STR's are very local when it comes to performance, I know that mine have been performing better each year over the last few years. I did have clients in some markets like the smokies that had a dip, but their experience is not representative of that entire market.

I have clients in the Pinellas County market in Florida that have been crushing the returns, and its probably the highest COC return area I have had clients invest in. If you want to explore that area more, @Josh Green is a local resource that knows the STR market in and out over there.
1 Reply
Andrew Street
Member since 2019 · 1k+ posts · 292 votes
8mo
You’re hitting on the exact pivot point we’re seeing in the 2026 market. The reason 2025 felt 'terrible' for many was the market correcting from post-pandemic inflation. We’ve moved from an 'easy money' phase to an 'operator’s' phase.

If you're a high W-2 earner, the STR play isn't just about the nightly rate—it's about the tax alpha. Even with bonus depreciation at 20% this year, a cost segregation study combined with 'material participation' remains one of the most effective ways to shield your active income.

My advice: Don’t look for 'rentals,' look for 'hospitality assets.' If the property doesn't have a unique 'moat' (location, amenities, or design), it’s a commodity. In 2026, commodities fail, but curated experiences are still seeing strong ADRs. Are you looking at specific markets, or are you strictly focused on the tax shield?
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Josh GreenBusiness Member
Realtor · Tampa/St Pete/Clearwater/Bradenton · Member since 2020 · 396 posts · 353 votes
8mo
Quote from @Sam Mishra:

I am a W-2 earner currently house-hacking a multi-family property in Jersey City, NJ. I am actively looking for my next investment and considering a Short-Term Rental (STR) specifically for the potential tax efficiency. I heard that 2025 was a terrible year for STR and many predict the same expectation for 2026.

What's your advice? Should I be serious for it?

Generalities are simply that! If you believe every generality then you would only invest in an index fund.

I helped over 40 clients buy STRs in 2025 and closed on 2 more personally. STRs when done correctly are one of the MOST powerful assets for middle and upper middle class people when leveraging the tax benefit.

The biggest barrier of entry for success are two things: 1) knowledge , 2) cash position. I helped people solve #1 but #2 is on you. What cash position are you in to potentially do an STR?
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Jose OrtizBusiness Member
Accountant · South Florida · Member since 2026 · 47 posts · 18 votes
8mo
I work with a lot of W-2 earners in a similar spot - house hacking, building momentum, and starting to look at STRs because they’ve heard about the tax upside.

The first thing I usually tell clients is to be careful not to lead with taxes. STRs can be tax-efficient if the underlying operation works. If the deal doesn’t cash flow cleanly or is overly sensitive to occupancy swings, the tax benefits won’t save it ... they’ll just delay the pain.

It's true that 2025 was rough in a lot of STR markets, and 2026 will likely continue to reward operators who are disciplined. That's not necessarily bad news, but it does mean the bar is higher. Market selection, regulations, seasonality, and pricing matter more now than they did a few years ago.

For W-2 earners specifically, I usually suggest getting very clear on a few things before pursuing an STR. How volatile can your cash flow be without creating stress? Are you planning to self-manage or outsource? Does the deal still work if you underwrite conservatively and assume professional management? And are you doing this primarily to build a business, or to solve a tax problem?

On the tax side, STRs can create powerful outcomes under the right facts, but those outcomes are highly dependent on how the property is operated, how much time is actually spent, and how the rest of your financial picture looks. It’s not a plug-and-play strategy.

My general advice is to consider STRs seriously only if you’re serious about the operation itself. Treat it like a business first, a tax strategy second. If you do that, the tax efficiency tends to follow naturally. If you reverse the order, that’s when people get burned.

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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
5mo
Do not buy a STR if you are just looking for the tax savings.
Buy a STR if you plan to be a long-term operator in STR's.

STR's are getting more saturated year by year and a lot of investors / companies have professionalized the space. You will not compete with others who do this 24/7

best of luck
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