Short Term Rental vs. Long Term Rental: Compare the Same Property Both Ways

I would run the same property as a long term rental before relying on the vacation rental projection. That does not mean the long term model must be the winner. It shows what the investor is paying for the extra complexity of nightly operations.

A fair comparison holds the acquisition and financing constant where possible, then changes the revenue, expenses, opening cash and labor to match each actual business. Comparing Airbnb gross revenue with lease rent alone does not answer the investment question.

First establish that both uses are real options

Verify the governing jurisdiction, association restrictions, insurance and financing conditions for each proposed use. A profitable spreadsheet cannot authorize a rental model the property does not permit.

A financing program may also use a different income method from the investor's operating forecast. Keep that qualification worksheet separate. If the loan terms change with the rental plan, show those changes explicitly rather than calling the financing identical.

The example below assumes both uses are permitted and the same financing can support the disclosed plan. Those are assumptions to isolate the operating decision, not a legal or loan approval for an address.

Keep the purchase fixed and change the business

Assume a hypothetical $360,000 purchase with 30% down and a $252,000 mortgage at 7.25% over 30 years. Principal and interest are approximately $1,719.08 monthly, or $20,629.01 annually. Rates and expenses here are illustrative.

The long term plan assumes $3,100 monthly scheduled rent and a 5% vacancy and collection allowance, producing $35,340 collected annually. Management is 10% of collections.

The STR plan assumes $85,000 of lodging receipts after discounts, refunds and unbooked nights. It therefore has no additional vacancy deduction. Cleaning collections are assumed to exactly cover the cleaner and all fees attributable to those collections; their net is zero in this simplified model. If that is not true in the real report, add the actual net result.

Assumed STR management is 22% of lodging receipts. Platform costs are modeled at 15.5% of lodging receipts. Neither percentage is a universal charge, and the manager's contract may define a different fee base. The platform arrangement must be verified for the actual bookings.

The STR column's listed expenses total $56,575, leaving $28,425 before debt and the separate capital reserve. The long term column's expenses total $19,234, leaving $16,106 before those items.

Subtracting the same $20,629.01 debt payments and assumed replacement reserves of $3,000 for STR or $2,500 for long term leaves approximately $4,796 and negative $7,023 respectively.

The higher STR revenue did not become a $49,660 cash advantage. After the stated expenses and reserves, the annual difference is approximately $11,819. These are models of one hypothetical property, not market averages.

Include the additional cash required to open

Assume common acquisition capital of $108,000 down, $10,000 costs and $8,000 repairs, totaling $126,000.

The long term version needs another $3,000 of launch spending and $10,000 of committed reserves: $139,000 total. The STR version adds $30,000 of furnishings, $4,000 of launch spending and $15,000 of committed reserves: $175,000 total.

Using those stated cash denominators, annual cash after replacement reserves is about negative 5.1% for long term and positive 2.7% for STR. Different reserve conventions can change the displayed percentage; they do not remove the cash commitment.

I would want a clear reason to accept the STR's workload and uncertainty for that modeled return. The comparison supports a stronger operating result than the lease plan, but it does not establish that buying this property is a strong use of capital.

Test the inputs that change with the owner

If the seller self managed but the buyer needs paid management, replace the seller's zero labor charge. If the proposed manager uses software or a channel arrangement that changes platform fees, use that arrangement. Do not assume a historical split fee is available to a new account.

Owner stays also have a cost. Removing premium rental dates can reduce annual receipts by more than the calendar share suggests. Keep planned owner blocks and maintenance downtime in the availability assumptions.

Long term tenancy has its own demands: leasing, renewal, collection risk, turnover and repair coordination. A lease can smooth monthly revenue without eliminating repairs or vacancy. The work is different, not absent.

Treat the losing model as information

In this illustration the long term model requires a subsidy. It should not be presented as a safe fallback that fully carries the loan. The buyer would need to know how long that subsidy is affordable and what conversion would cost.

The STR model wins the comparison but remains thin after the larger cash commitment. A lower purchase price, different property, stronger supported revenue or different costs could change the result. Raising the forecast without evidence is not a strategy.

I would choose the operating model only after deciding whether the purchase itself is worthwhile. Sometimes the most useful result of comparing both ways is recognizing that neither version meets the investor's objectives.