If You Need Airbnb Income to Make the Deal Work, Don’t Buy It

If You Need Airbnb Income to Make the Deal Work, Don’t Buy It

Adam TafelBusiness Member
Real Estate Agent · St. Paul, MN · Member since 2017 · 609 posts · 406 votes

Here is the problem with Airbnb investing.

When interest rates went up in early 2022, I noticed a huge influx of people coming to me wanting to invest in short-term rentals. Then all of a sudden, mid-term rentals were all the rage. I probably consulted with two people a week in 2022 and 2023 who wanted to start investing in mid-term rentals.

Why did this happen?

In early 2022, deals were looking worse and worse from a cash flow perspective. "I just can't make any of these numbers work." I heard that all day, every day. Side note—no one can ever make the numbers work. You need to write aggressive offers and add value to make deals work.

Anyways, in 2022 it got especially challenging because limited inventory was still propping up the values of a lot of these small multifamily deals. So instead of good old-fashioned hard work—construction and lowballing sellers with equity, a simple combination that works in every market—a lot of investors thought, "I'll just underwrite it as a short-term rental, and boom, cash flow." Mid-term? Even better. "It's the best of both worlds. I don't have to manage a tiny hotel, but I'll get all the extra cash flow. Sign me up."

It's not that simple. Underwriting any property that isn't sitting on a beach or a mountain as a short-term rental is a dumb idea.

I've been a mid-term rental guy since 2016. The term "mid-term rental" wasn't even really coined until around 2021, so I'm a fan of the strategy. But a smart investor doesn't count on mid-term or short-term income to make a deal work. We underwrite traditionally using long-term rents so we don't get burned, because short-term and mid-term income can be unpredictable. City ordinances can change, neighbors can get upset, and there are a host of unexpected ways for a deal to go south in that space.

If the deal works with long-term rents, great. If you can increase your returns with short-term or mid-term rentals, that's a bonus. It should never be the reason the deal works in the first place.

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2mo

When I see someone say Airbnb instead of STR I immediately question their credibility, just saying.

Please use the correct terminology. 

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    2mo

    When I see someone say Airbnb instead of STR I immediately question their credibility, just saying.

    Please use the correct terminology. 

    • Adam TafelBusiness Member
      OP
      Real Estate Agent · St. Paul, MN · Member since 2017 · 609 posts · 406 votes
      2mo
      Quote from @John Underwood:

      When I see someone say Airbnb instead of STR I immediately question their credibility, just saying.

      Please use the correct terminology. 


       11 year SuperHost here ! 

      Upside Property Sales 4.9113 Reviews
  • Rental Property Investor · Phoenix, AZ and Rehoboth Beach DE · Member since 2019 · 1k+ posts · 1k+ votes
    2mo

    I'm glad you put the qualifier "beach or mountain" in there, because my beach property (one mile from the ocean, purchased in April 2022) would never cash flow as a long term or medium term rental, but does as a short term.  I knew that before I purchased it.  And if the sky fell and short term demand disappeared, I could sell it at a healthy profit because it's a hot area for new residents and properties keep appreciating.  

  • Andrew SteffensBusiness Member
    Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
    2mo

    I've never seen a specific mid-term rental strategy work that is not within 1/2 mile of a major medical center - but Im only in 1 market.

    • Member since 2022 · 1k+ posts · 1k+ votes
      2mo
      Quote from @Andrew Steffens:

      I've never seen a specific mid-term rental strategy work that is not within 1/2 mile of a major medical center - but Im only in 1 market.

      I have 1 and am opening another in a market without a great hospital system and outside of the radius of the existing hospitals, although it does have a military presence. Very similar revenue as MTR to STR because it is based on prevailing hotel rates. Federally printed housing allowance dollars for the win.

    • Andrew SteffensBusiness Member
      Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
      2mo
      Quote from @Jon Martin:
      Quote from @Andrew Steffens:

      I've never seen a specific mid-term rental strategy work that is not within 1/2 mile of a major medical center - but Im only in 1 market.

      I have 1 and am opening another in a market without a great hospital system and outside of the radius of the existing hospitals, although it does have a military presence. Very similar revenue as MTR to STR because it is based on prevailing hotel rates. Federally printed housing allowance dollars for the win.


       Good point - I have seen some success here in Tampa near MacDill AFB as well.  My point does remain though that everyone thinks they can buy almost any place and do MTR when I would say it is a very small percentage that be a successful MTR.

  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    2mo

    Same as @Lauren Kormylo. Our lakehouse does just fine but if I had to long term rent it...no way.

  • Mike GrudzienPro Member
    Lender · Eugene, OR · Member since 2019 · 2k+ posts · 1k+ votes
    2mo

    Your numbers should work, in several scenarios, before you purchase.  It's no deal if you have to push yourself or push one "saving scenario" that hopefully makes the deal work...

  • Member since 2022 · 1k+ posts · 1k+ votes
    2mo

    This is nonsensical engagement bait. Most vacation destinations have minimal to zero viability as LTR/MTR, at least relative to the mortgage. These are also the markets with the most potential upside and established market performance as short term rentals, and in many places this history precedes the OTAs. 

    That said I am not against owning properties in markets where there are viable exit plans, although those often come with lower top end potential and regulatory constraints. 

  • Jorge VazquezBusiness Member
    Real Estate Broker · Tampa, FL · Member since 2017 · 1k+ posts · 701 votes
    2mo

    I have been investing for about 20 years and today I own 35 regular long term rentals and 2 short term rentals, so I look at this from both sides. I agree with having an exit strategy, but I think one of the biggest mistakes people make with STR or MTR is assuming they need to buy something expensive in a prime area and furnish it like a high end flip. I like looking from the ground up for opportunities in gentrifying areas, workforce housing, corporate rentals and traveling workers. I bought one property for around $75K and another for around $150K and people thought I was crazy trying them as short term rentals, but they have actually done very well. Nothing fancy, just clean, simple, functional and priced right. There is a big market for people who just want a clean place at a fair price. I have also tried properties that did not work as short term rentals and I simply moved them to long term. That is why buying right matters so much. You do not always need a beautiful flip quality property to make money. Sometimes the boring property bought at the right price ends up being the best one.

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  • Member since 2025 · 12 posts · 7 votes
    2mo
    How do people make short term rentals work with today’s interest rates and over saturated markets? Is there really that high of a demand for them that they stay filled up? I always thought it was an interesting investment!
    • Member since 2022 · 1k+ posts · 1k+ votes
      2mo
      Quote from @Zane Schartz:
      How do people make short term rentals work with today’s interest rates and over saturated markets? Is there really that high of a demand for them that they stay filled up? I always thought it was an interesting investment!
      By being better than your competition. If you go 1-3 notches above the better competitors who have strong numbers you will likely do well. Even small amenities like a used pool table can go a long way. 
  • Property Manager · Melbourne, FL · Member since 2019 · 561 posts · 196 votes
    2mo

    The risk point is right, but I would not use long term rent as the universal test. Some properties are good hospitality assets and poor long term rentals. The bigger problem is underwriting from a best case revenue screenshot. I want conservative occupancy and ADR, real cleaning and maintenance costs, seasonality, reserves and an exit plan if regulations change. If it only works with perfect months, it does not work.

  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    2mo

    Rarely does a leveraged vacation rental "make money" in the early years. There was a perfect storm when that was possible - 2018-2020 - but the window shut.  It was a temporary market imbalance.  

    • Member since 2022 · 1k+ posts · 1k+ votes
      2mo
      Quote from @Collin Hays:

      Rarely does a leveraged vacation rental "make money" in the early years. There was a perfect storm when that was possible - 2018-2020 - but the window shut.  It was a temporary market imbalance.  


       “Rarely” is hyperbolic. Many still do. It just doesn’t happen by accident like it did with properties purchased during the golden years that you mentioned. 

  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · Sarasota, FL · Member since 2017 · 5k+ posts · 3k+ votes
    2mo

    Adam, I agree with the core principle: the strategy should improve a good deal, not be the only thing keeping a bad deal alive.

    I like underwriting a conservative fallback case first. If the property can reasonably function as a long-term rental, that gives you another exit if STR demand softens, regulations change, or management becomes more difficult than expected. Then I'd separately model the STR/MTR upside rather than blending the two together.

    The one nuance I'd add is that some properties are deliberately purchased for vacation-rental demand where a traditional LTR comparison may not tell you much. In those cases, I'd want a much larger margin of safety and very strong evidence that the STR demand is durable rather than assuming an Airbnb projection is guaranteed income.

    From the tax side, STRs can also look much better on paper because of cost segregation and potentially different passive-activity treatment, but I wouldn’t let that rescue the acquisition either. Average guest stay and material participation matter, and you still need to determine whether the depreciation losses are actually usable in your situation.

    I'd rather own a property that works conservatively and have the STR strategy create upside than own one where the STR projection is the only thing standing between me and negative cash flow.

    Happy to connect!

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  • Property Manager · Melbourne, FL · Member since 2019 · 561 posts · 196 votes
    2mo

    I agree with not using aggressive STR income to rescue a weak deal, but I would not require every true vacation property to work as a long term rental. Some markets are built around vacation demand.

    My test is whether the deal survives realistic occupancy, lower rates, higher fees, a slow season, and one expensive repair.

    It also needs a legal exit if regulations change.

    If it only works on the best case projection, I am out.

  • Clifton HarrisBusiness Member
    Property Manager · Pigeon Forge, TN · Member since 2026 · 24 posts · 3 votes
    3d

    I agree with the core principle, although I think there's an important distinction when it comes to established vacation destinations.

    Some properties are much better suited to the vacation rental market than they are to traditional long-term rentals. In those cases, requiring the property to cash flow as a long-term rental isn't necessarily a realistic way to evaluate the investment.

    However, that doesn't mean investors should rely on optimistic STR projections to make the numbers work.

    I'd want to see realistic occupancy and nightly rates, account for seasonality, management fees, maintenance, insurance, utilities, and capital expenditures, and stress-test the numbers against a slower-than-expected year.

    I also think it's important to evaluate properties individually. Two cabins in the same market can have very different financial performance depending on location, amenities, condition, pricing, and operating efficiency.

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