Short-term rental properties are as popular as ever. Between vacation rentals and short-term rental sites like Airbnb, property owners are enjoying a heyday in the short-term rental market. 

However, owning a vacation rental property isn’t all sandals and sunscreen. Turning your short-term rental into an amazing real estate investment requires local market knowledge and the right property management. 

In this guide, we’ll tell you everything you need to know to start as a short-term property investor, including:

• What is a short-term rental?
• Are short-term rentals profitable?
• The pros of short-term rental investments
• The cons of short-term rentals
• How to calculate your return on a short-term rental
• How to start a short-term rental business
• Common Challenges for Short-Term Rental and Airbnb Owners
• Other short-term rental options

Feel free to jump down to any section you’d like!

Let’s get started…

Page reviewed by Avery Carl – Founder and CEO of The Short Term Shop, short-term real estate investor, and co-author of Short-Term Rental, Long-Term Wealth.

What is a Short-Term Rental?

Are Short-Term Rentals Profitable?

The Pros of Short-Term Rental Properties

Watch now: Short-term rentals provide many of the same standard tax deductions that long-term rental properties grant you. But, they also allow you access to other types of tax deductions that can help lower your non-real estate-related income.

The Cons of Short-Term Rentals

How to Calculate Your Return on a Short-Term Rental

How to Start a Short-Term Rental Business

Buying a vacation property is a huge investment, so do your research and be prepared before purchasing:

Understand Daily Rates and Fees

You can’t predict the future, but studying average daily rates (ADR) and occupancy rates can give you an estimated guess of what your gross monthly income may be. 

ADRs can vary greatly from rental to rental, even in the same neighborhood! Even the same property on Airbnb may be $300 one night, and $400 the next. Luckily, there are several data sites you can use to hone in on an estimated ADR. These include:

• AirDNA
• AllTheRooms
• Mashvisor
• data.rabbu.com

These sites also provide valuable information on occupancy rates, such as the average occupancy rate for an area and even the occupancy rates for individual properties (usually you’ll have to pay for this feature). 

Unfortunately, information on occupancy rates is harder to calculate, because their numbers may be skewed by a number of factors:

• Blackout dates
• Owners listing their properties on multiple sites
• How far out in advance are bookings available?
• How long has the property been available?

Check the property’s booking schedule and compare it to the occupancy rates listed on the above sites. If it’s consistent, it’s likely a reliable source.

We’ll dive deeper into furnishing your short-term rental or Airbnb later on, but for now you need to estimate how much it will cost to furnish your rental. Pricing varies greatly depending on the size of your home and what items you’re including as furnishings. 

In general, for mid-grade, budget-friendly items, you can expect to pay:

• $5,000 – $10,000 for 1-2 bedrooms
• $12,000 – $20,000 for 3-4 bedrooms

Rehab fees also vary, depending on the condition of the property and what renovations and repairs you’re looking to put into it. 

A long-term rental’s operating expenses are comparable to a primary residence. Short-term rentals have a few more expenses to consider. Update operating expenses spreadsheet regularly. Your estimates will become more accurate over time. Create a spreadsheet with this list, and based on the size and location of your vacation property, estimate what each item will cost:

Research Common Laws and Regulations

Never buy a short-term rental without first knowing the law and regulations of your city and neighborhood. If a city has licensing requirements, you can find them on the planning and zoning of your city’s website. Since they’re common, there’s usually a link or section that outlines the ordinances and regulation requirements for short-term rentals.

It’s common for cities with regulations to require you or the property manager to obtain a license to run a vacation rental. You’ll also likely need a tax/business ID. 

While laws and regulations vary from city to city, here are the most common requirements you’ll encounter:

• Primary residence requirements – Many cities are adopting policies that require your short-term rental to also be a primary residence. In some cases, a property can be used as a short-term rental while the homeowner is away. In others, you can only rent portions of your home, such as an accessory dwelling unit (ADU), basement, or bedroom. 
• Property requirements – Some cities require your lot to be a specific size or have multiple off-street parking spots available. 
• Operation limits – Cities can limit the number of days you can rent out your home. 240-day maximums (approximately 20 days a month) are common, but sometimes they’re even less. 
• License fees – These fees are pretty standard and reasonable. For example, a one-year licensing fee in Seattle is $75. However, some destinations charge hundreds—or more—in licensing fees. 
• Lodgers tax – Certain cities and states require property owners and managers to pay a lodger’s tax for renting out a room or property. The tax rate varies from state to state. 
• Zoning laws – You must meet the zoning requirements of your city. 

Build Your Power Team

Entrepreneurs rarely operate alone. Running a short-term rental is a team effort, so even if you’re planning on doing most of the heavy lifting, you’re still going to be outsourcing some of the work. 

Here are a few key players in your power team:

Investor-friendly Real Estate Agent 

Find an agent who specializes in short-term rental properties. The right agent will save you a lot of the work and is well worth their commission. Your agent should know the short-term rental laws and regulations in your city and state, have keen knowledge of your local market, have connections to property management companies, and know the process from start to finish. 

Property Manager or Management Team

The right property manager can turn your high-stress rental into a low-maintenance breeze. Depending on how you work with, your property manager may do some or all of the following:

• Furnish your property or provide you with an itemized checklist
• Market your property on Airbnb/VRBO platforms
• Manage scheduling and customer service relations
• Manage invoicing and payment processing 
• Schedule cleaners, landscapers, and other maintenance professionals as needs
• Set up licensing and tax IDs for your rental 

In some cases, all you need to do is buy a property and get it ready to rent. The property manager handles the rest. 

Depending on your needs, the industry average for property managers is 25% – 30% of your gross rental income, depending on their fee structure. Airbnb property managers tend to charge between 25% – 50%, depending on where the rental is located and what services they’re offering. 

Maintenance Crew

Reliable handymen/handywomen and other vendors must be available to address functional issues with your property on short notice, should they arise. If your hot tub isn’t working or your heater malfunctions, speedy repairs can help you maintain a high property and experience ratings. 

Cleaning Crew

Reliable cleaners are in high demand and well worth their fee. You can find reliable short-term rental cleaners like TurnoverBNB. Even better, these cleaners can gain immediate access to your booking calendar, so they know exactly when they need to “turn” your rental. 

High-quality cleaners may also:

• Restock supplies
• Order/replace items and invoice you
• Wash and change linens
• Inform you if something is missing or broken

How to Choose the Best Locations for a Short-Term Rental

There are three main short-term rental markets: 

• Metro markets
• National fly-to vacation markets
• Regional drive-to vacation and leisure markets

Each of these markets have varying degrees of stability or volatility, attract different types of renters, and specific rules and regulations. 

Metro markets attract many visitors but aren’t dependent on tourism. You may experience busier or slower times, but it’s usually desirable year-round, as opposed to a beach house or ski resort. Short-term rentals in metro markets are a great alternative to hotels, especially for those staying more than a few days. Metro rentals tend to attract professionals on business trips, traveling medical professionals, and locals taking a “staycation.”

The metro market is high risk, high reward. Metro markets are very rewarding in terms of cash flow, but they’re also more regulated. In these markets, you’re also dealing with disgruntled neighbors, building or HOA rules, hotel lobbyists looking to limit zones where short-term rentals are allowed, and a lack of affordable housing due to Airbnb investors. 

National vacation markets depend on tourists, like Aspen or Hawaii. Short-term rentals are part of the very fabric of these markets, but some areas still experience pushback from permanent residents.

The national vacation market can be lucrative, but it’s also often tied to the economy. If there’s a recession, you may have a more difficult time getting renters. If there’s a boom, you can be booked out for months!

Regional vacation markets also depend on tourists, and they’re easier to drive to, like Big Bear Lake, California or Branson, Missouri. These markets are often smaller towns and more affordable than national markets, so they’re not as dependent on the economy as their national counterparts. They also usually have fewer permanent residents or others looking to make running a short-term rental difficult. 

In short: 

• Metro markets – potentially highest return, high risk
• National vacation markets – potentially high return, medium risk
• Regional vacation markets – modest return, low risk

Common Challenges for Short-Term Rental and Airbnb Owners

Congratulations! You’re now ready to run your business. Here are many of the common challenges you’ll face when running a rental or Airbnb, and how to address them:

Finding the optimal value of your rental property is always a challenge. For example, Milo just started renting his property on Airbnb. Here are his numbers for the first four months. For simplicity’s sake, let’s assume these are the only costs that matter:

Month #	Price	Days Booked	Gross Income
1	$100	30	$3,000
2	$125	24	$3,000
3	$150	22	$3,300
4	$200	10	$2,000

$150/night is his current optimal value. Pricing his rental at $200 scared potential renters away, while pricing it at $100 and $125 kept the property booked, but not at its best value. 

Some owners will start renting their property at a lower price to get more bookings and reviews. Once they have a few dozen reviews, then slowly raise their rates. However, be mindful of additional circumstances, like the economy and changing seasons.

Start analyzing your short-term rental property with the Airbnb Calculator.

Guest cancellations can greatly impact your operating income. Unfortunately, cancellations are an inevitable component of owning a vacation property. Luckily, there are plenty of cancellation policies you can include in the fine print of your booking. You just have to find the right one for you. If they’re too strict, you risk getting negative reviews. If they’re too relaxed, you could lose money. 

Here are a few common policies short-term rental owners should consider. Airbnb’s cancellation policies are very similar:

	Flexible	Moderate	Strict
Notice amount	24 hours	5 days	14 days
Canceling before the deadline	Full refund	Full refund	Full refund
Canceling after the deadline	Guest is charged the full amount for the first night	Guest is charged the full amount for the first night and refunded 50% for the remaining nights	If canceled between 7 and 14 days before arrival, the guest is refunded 50% for the bookingWithin 7 days, no refund is given
Canceling after check-in	Guest is charged the full amount of each night stayed plus one additional night	Guest is charged the full amount of each night stayed plus one additional night, and refunded 50% for the remaining nights	No refund is given.

Usually the flexible or moderate policies work best, but that depends on your location, season, and types of travelers you’re looking for.

The trick for short-term rental and Airbnb renovations is to make budget-friendly upgrades that add value. Kitchen makeovers and bathroom upgrades can get pricey, but when done well, they’ll make your rental worth every penny. 

Here are a few other renovations to consider:

• Paint your kitchen cabinets
• Install new flooring
• Add extra storage space
• Put in a coffee nook
• Freshen up your walls
• Install crown molding
• Add an accent wall
• Give the place some personality

Furnishing a rental or Airbnb is tricky: you’ve got to provide everything your guest may need without blowing your budget.

Here’s our four step guide for furnishing your rental:

Who is Staying There?

A couple’s romantic beach house getaway and a cabin for a family of eight will require very different items. Think about who’s going to use the space, and what types of furnishings will compel them to hit the ‘reserve’ button. 

Create a checklist

What does each room already have, and what does it need? For your inspiration, we started a list, but ideally, you’ll want to create a spreadsheet:

Room	Item	Desired Qualities
Bedroom	Bedframe	SturdyStorage optionsCan survive wear and tear
Bedroom	Mattress	Memory foamAt least 8 inches in height
Bedroom	Mirror	Full length
Kitchen	Coffee maker	Keurig
Kitchen	Serveware	Matching set of plates and bowls
Living Room	Sofa	Seats 6 comfortably
Dining Room	Table	Wooden table, 6 chairs
Bathroom	Bath and hand towels	Matching set

HGTV shows can lead you to believe that a house flip is easy and glamorous. It’s not. You have to do your research to know if you’re buying and selling at the right price. The repairs needed require physical labor, and you’ll need the right team of people to do aspects of the flip you can’t. Also, if things go wrong, you could lose money instead of turn a profit.

Create a Budget

Research each of the items listed on your checklist, and write down their estimated costs. Once you add everything up, you should roughly know how much getting everything will cost. If it’s more than you’ve budgeted for, consider using cheaper alternatives, at least for your first bookings. There’s nothing wrong with browsing Facebook marketplace or Craigslist to find items to furnish your property. 

Listen to Guest’s Feedback

Ask your guests how they enjoyed their stay, and if there’s anything they’d like to see change. If you start getting complaints about certain items, switch them out.

Also, don’t forget that you’re in the hospitality business now. Thank them for their input!

Before you do anything, hire a photographer to take high-quality photos. In the vacation rental world, visuals are everything. If your high-resolution photos make your rental look like $1,000,000, you can get away with charging a premium. If the photos look like they were taken with an iPhone 3, most prospective renters will scroll right past it. 

Here are a few more tips for short-term rentals:

• Build a website
• Post photos and videos on social media
• Reach out to your local tourism board
• Join an online short-term rental group 
• Respond to reviews—especially the bad ones

Marketing on Airbnb:

• Start by selecting “Become a Host” on the home page, then follow all the basic setup instructions and enter information about your location, home type, number of guests, etc. 
• Next, upload your high-quality photos. The first 3 are the most important. 
• Write short, quick descriptions. Bullet points go a long way.
• Fill out your booking setting and set up your calendar
• Consider using Airbnb’s Smart Pricing tool, at least to get yourself started. You may want to reduce your price a little to get bookings started.

Other Short-Term Rental Options