The number that makes everyone want to convert
A house that rents for $1,800 a month brings in $21,600 a year. The same house listed at $150 a night and booked 60 percent of the time brings in $38,690. That gap is why every landlord I know has at least once opened a spreadsheet at midnight and started pricing lockboxes.
Here is where the $38,690 comes from, because the arithmetic matters more than the headline. There are 365 nights in a year. At 60 percent occupancy that is 219 booked nights. With an average stay of three nights, those 219 nights arrive as roughly 73 separate bookings, not one long one. Room revenue is 219 times $150, or $32,850. Add an $80 cleaning fee charged on each of the 73 stays and you collect another $5,840. Gross revenue is $38,690.
Against $21,600 of annual rent, that looks like a rout. It is not, and the reason is that almost nothing on the short term side stops at gross.
Where the $38,690 goes before it reaches you
Every one of those 73 bookings is a small operational event. Someone checks out, someone cleans, someone checks in. The platform takes a cut on the way through. None of that happens on a lease, so none of it appears in a landlord's mental model when they first run the comparison.
- Platform fee at 3 percent of the $38,690 gross: $1,161 a year.
- Cleaner paid $60 per turnover across 73 turnovers: $4,380 a year. You charge $80 and pay out $60, so the cleaning fee is not free money, it is a $20 margin repeated 73 times.
- Consumables at $50 a month, utilities at $200 a month and internet at $60 a month: $3,720 a year. On a lease most of that is the tenant's problem.
- Short term rental insurance at $1,800 a year, which is a different product from a standard landlord policy.
- Fixed costs together: $5,520 a year.
Net short term: $27,629
Take $38,690 and subtract $1,161 of platform fees, $4,380 of cleaning payouts and $5,520 of fixed costs. Net short term income is $27,629 before any mortgage payment.
That is still a strong number. It is just not the number people quote at each other. The revenue figure was 179 percent of the annual rent. The net figure is 192 percent of the long term net, which sounds similar until you notice that the long term net is a much smaller base. I ran a version of this comparison years ago on gross revenue against gross rent and told myself short term was worth triple. My actual mistake was subtler than laziness. I had modeled the cleaning fee as income and forgotten that the cleaner gets paid out of it, which quietly inflated my projection by more than $4,000 a year. The Airbnb calculator exists partly because I did not want anyone else making that specific error.
The same four walls on a lease
Rented long term at $1,800 a month, the property grosses $21,600. Assume $600 a month of operating expenses covering taxes, insurance, maintenance, a vacancy reserve and management. That is $7,200 a year, leaving $14,400 net.
Both figures are before debt service, which is the only fair way to compare them. If you want to layer a mortgage on top, do it once and apply it to both sides, because the loan does not care which strategy you pick. The rental property calculator handles the long term side, and the cap rate calculator turns either net figure into a yield you can compare against other deals. If cap rate is new to you, our guide on what is a good cap rate covers the ranges.
So the honest comparison is $27,629 against $14,400. Short term wins by $13,229 a year in this example. That is real money. Now let us talk about how fragile it is.
Break-even occupancy is the number I actually watch
The advantage is not $13,229. The advantage is $13,229 at 60 percent occupancy, which is a very different claim.
Run the same cost structure backward and ask what occupancy short term needs before it stops beating the lease. The answer in this example is 36.1 percent. Below that, all the extra work is producing less money than a tenant who signs once a year and pays on the first. Above it, you are ahead.
That gives 23.9 points of margin between the assumed 60 percent and the point where the strategy stops paying for itself. That margin is your entire safety cushion, and it is what a new hotel, a soft season, a cluster of one star reviews or a citywide supply increase eats into. Twenty four points sounds comfortable. It is roughly the difference between a good year and a mediocre one in a lot of markets.
None of this is financial advice. It is arithmetic performed on assumptions, and the assumptions are yours to defend. Change the nightly rate to $130 or the occupancy to 45 percent and the whole conclusion can flip while every formula stays identical.
One is a lease. The other is a hospitality business.
The financial comparison is only half of it. A long term rental is a contract. You screen once, sign once, and handle exceptions. A short term rental is 73 separate customer relationships a year, each with a check in, a set of questions, a review that determines your future pricing power, and a small chance of something breaking at 11pm.
You are also running a pricing desk. Rates move by season, day of week, local events and how far out the booking is. Set it and forget it costs real money on both ends, either through empty nights or through leaving rate on the table during a sold out weekend.
And you are managing a supply chain of one. When your cleaner takes a vacation in July, you clean. I priced my own labor at zero for the first year, which is a fine choice as long as you make it consciously rather than by accident. If you would need to pay a full service manager 20 percent of revenue to run this, that is roughly $7,700 a year off the top of the example, and the gap narrows to something much less exciting.
Regulation is the risk the spreadsheet cannot price
Every other risk in this model is a slider you can move. Regulation is a switch. A city can cap permits, require the host to live on site, restrict rentals under 30 nights, add registration and inspection requirements, or grandfather existing operators and freeze out new ones. An HOA can ban short term rentals with a majority vote at a Tuesday meeting. A lender or an insurer can have opinions too.
The asymmetry is what makes it dangerous. If regulation goes your way, nothing happens. If it goes against you, your $27,629 becomes $14,400 overnight, and you own a property you probably paid a short term premium for. I underwrite every short term deal so the long term number still services the debt, and I check the local ordinance before I check the comps.
Taxes are their own layer. IRS Publication 527 sets out how residential rental income and expenses are reported, how personal use of the property changes what you can deduct, and the rule that if you use a dwelling as a home and rent it fewer than 15 days in the year, you do not report that rental income and you do not deduct those rental expenses. Short term hosting also frequently triggers local occupancy or lodging taxes that have nothing to do with your federal return.
How I would run the comparison now
Start with the long term number, because it is the floor. Get a real rent comp, subtract real expenses, and write down the net. Then build the short term side with the same discipline: nightly rate from actual booked comps rather than list prices, occupancy on the conservative side, and every turnover cost multiplied by the number of stays rather than the number of months.
Then solve for break-even occupancy and ask yourself honestly whether the gap between it and your forecast is wide enough to sleep through a slow spring. If you are still deciding whether the property is worth buying at all, the rental deal screener is a faster first pass, and how to analyze a rental property walks the full process. The mistakes I see most often are collected in first rental property mistakes.
- Model the cleaning fee as revenue and the cleaner as an expense. They are two lines, not one.
- Multiply per stay costs by stays, never by months. Average stay length drives this more than occupancy does.
- Carry short term rental insurance in the model at its real price, not your current landlord policy price.
- Check the local ordinance and the HOA covenants before the inspection period ends.
- Confirm the deal still works as a plain rental if the permit rules change.
Questions people ask
No. In the worked example it wins by $13,229 a year, but only because occupancy holds at 60 percent. Break-even against the lease is 36.1 percent occupancy. Drop below that and the extra work is producing less income than a tenant on a twelve month lease. Markets with high seasonality or heavy new supply can spend months on the wrong side of that line.
Because turnover costs scale with the number of stays, not the number of nights. At 219 booked nights, a three night average produces about 73 turnovers and $4,380 of cleaning payouts. The same 219 nights arriving as two night stays would produce about 110 turnovers instead, and roughly $6,600 of cleaning cost, with no extra room revenue to cover it.
Compare both strategies before debt service first, because the loan payment is identical either way and including it only obscures which operating model is stronger. Once you have picked a strategy, add the mortgage to check cash flow and coverage. Just make sure you apply it to both columns if you keep it in.
IRS Publication 527 explains that if you use a dwelling unit as a home and rent it out fewer than 15 days during the year, you do not report the rental income and you cannot deduct the rental expenses for that activity. It is a genuine exception, not a loophole, and it rarely applies to anyone running a property as a real short term rental business. Check the personal use rules in the publication and talk to a tax professional about your own situation.
Usually yes. Many standard landlord policies are written around a long term tenant and can exclude or limit transient occupancy. The example carries $1,800 a year for short term coverage, which is a meaningful line item on its own. Get a real quote for your property and your city before you build the model around a guess.
