The short term rental boom promised easy passive income, but 2025 reality is more nuanced. Regulations tightened, markets saturated, and many hosts discovered Airbnb isn't as passive as promised. Here's the real comparison between vacation rentals and traditional long term leases.
The Real Numbers: $400K Property in Austin
Let's start with a concrete example. You purchase a 3 bedroom house in Austin for $400,000 with 20% down. Here's how the numbers shake out for each strategy:
Airbnb (Short Term Rental) Scenario
Revenue:
- Nightly rate: $150
- Occupancy rate: 65% (237 nights booked)
- Annual gross revenue: $35,550
Expenses:
- Mortgage (P&I): $25,536/year
- Property tax (1.75%): $7,000
- Insurance: $2,000
- Cleaning (237 turnovers @ $100): $23,700
- Utilities: $3,600
- Supplies/toiletries: $1,800
- Platform fees (3% host): $1,067
- Maintenance/repairs: $4,000
- Vacancy/downtime buffer: Included in 65% occupancy
- Total annual expenses: $68,703
Net operating income: $33,153 (negative cash flow!)
Wait, what? Yes, this Airbnb loses money after expenses. But there's more to the story...
Long Term Rental Scenario
Revenue:
- Monthly rent: $2,500
- Vacancy (1 month): $2,500
- Annual gross revenue: $30,000
Expenses:
- Mortgage (P&I): $25,536/year
- Property tax (1.75%): $7,000
- Insurance: $1,500
- Maintenance/repairs: $2,000
- Property management (10%): $3,000
- Total annual expenses: $39,036
Net operating income: $9,036
The long term rental also has negative cash flow, but it's $24,117 better than the Airbnb!
So why would anyone do Airbnb? Two reasons: 1) Most hosts drastically underestimate cleaning and turnover costs (I've used realistic numbers), and 2) Mortgage principal paydown and property appreciation aren't included in cash flow. Both strategies build equity, but Airbnb doesn't justify the extra hassle in this scenario.
When Airbnb Actually Wins
The previous example showed Airbnb performing poorly, but there ARE scenarios where it dominates. Here's what needs to be true:
Scenario: Beach House in Charleston, SC
- Property cost: $500K
- Airbnb nightly rate: $250 (premium beach location)
- Occupancy: 75% (tourist destination)
- Annual Airbnb revenue: $68,438
- Annual Airbnb expenses: $58,000 (including all costs)
- Airbnb net income: $10,438
Compare to:
- Long term rental income: $36,000/year ($3,000/mo)
- Long term expenses: $41,000
- Long term net income: $5,000
Airbnb wins by $15,438/year in this scenario.
What Makes This Different?
- Premium location: Beach property commands $250/night vs. $150
- Higher occupancy: 75% vs. 65% due to consistent tourist demand
- Better rent ratio: Airbnb revenue is 90% higher than long term rent, vs. only 19% in Austin
Use the Airbnb ROI calculator and Long Term Rental calculator to model your specific market.
The Hidden Costs Everyone Underestimates
Airbnb Costs You Can't Ignore
1. Furnishing and Setup ($15,000 $30,000)
- Furniture for all rooms
- Kitchenware, dishes, utensils
- Linens, towels (multiple sets for quick turnovers)
- TVs, WiFi equipment, smart locks
- Decor to make property "Instagram worthy"
2. Cleaning ($80 150 per turnover)
This is the BIGGEST underestimated cost. At 65% occupancy with average 3 night stays, you have 80 90 turnovers per year. At $100 each, that's $8,000 9,000 annually just for cleaning. Many hosts think they'll clean themselves to save money, but after a few months of scrubbing toilets between full time jobs, they hire it out.
3. Utilities (Guest Usage is High)
Guests use more utilities than long term tenants. They keep AC/heat at extreme settings, take long showers, leave lights on. Budget $300 400/month vs. $100 150 for long term tenants (who pay their own utilities).
4. Platform Fees
Airbnb takes 3% from hosts. Guests pay 14 16% in service fees (which reduces how much they're willing to pay for nightly rate). VRBO has different structures but similar total costs.
5. Regulation Compliance
- Business licenses: $100 500/year
- Occupancy taxes: 5 15% of revenue in many cities
- Annual inspections in some cities: $200 400
- Legal fees if you get cited for violations: $2,000+
Long Term Rental Hidden Costs
Long term rentals have fewer surprises, but don't forget:
- Tenant screening: $30 50 per applicant
- Turnover costs: Painting, cleaning, repairs between tenants ($1,000 2,000 every 2 3 years)
- Legal fees: Evictions can cost $2,000 5,000 if you get a bad tenant
- Property management: 8 12% of rent if you hire it out
However, these are infrequent compared to the constant costs of Airbnb turnover.
Regulation Risk: The Airbnb Wildcard
This is the factor that scares away sophisticated investors. Cities are cracking down on short term rentals, and the rules change quickly.
Cities with Severe Airbnb Restrictions
New York City:
- Short term rentals under 30 days are illegal in most buildings
- Owner must be present during rental in remaining cases
- Fines up to $7,500 per violation
- Result: Airbnb essentially banned in NYC
San Francisco:
- Must be your primary residence
- Limited to 90 days/year if not present
- Registration required with city
- Result: Difficult to run as pure investment property
Santa Monica / Los Angeles:
- Host must be present (home sharing only)
- Investment Airbnbs banned
- Result: Can't use it as passive income property
The problem: You buy a $500K property for Airbnb, and 2 years later the city bans it. Now you're forced to convert to long term rental at lower income, but you've already invested $25K in furnishings and optimized for STR. This has happened to thousands of hosts.
Due Diligence Checklist
Before buying for Airbnb:
- Check current city/county STR regulations
- Read HOA bylaws (many ban short term rentals)
- Research pending legislation (cities often have bans in progress)
- Have a backup plan if STRs get banned (can you afford it as long term rental?)
Management Time: The Real Difference
Airbnb Time Investment
Weekly tasks (5 10 hours):
- Responding to guest inquiries and bookings
- Coordinating with cleaners for turnovers
- Restocking supplies (toilet paper, soap, coffee)
- Handling guest issues (WiFi problems, noise complaints)
- Updating calendar and pricing
- Managing reviews and responding to feedback
Monthly/periodic tasks:
- Maintenance and repairs (more frequent due to higher turnover)
- Updating photos and listing description
- Analyzing pricing and competition
- Handling disputes or property damage
Annual time investment: 250 500 hours (essentially a part time job)
Many hosts hire property managers at 20 30% of revenue to avoid this time commitment, which significantly reduces profitability.
Long Term Rental Time Investment
Initial setup (one time):
- Screening tenants: 5 10 hours
- Lease signing and move in: 2 3 hours
Ongoing (per year):
- Handling maintenance requests: 10 20 hours
- Rent collection (if not automated): 1 hour/month = 12 hours
- Periodic inspections: 2 4 hours
Annual time investment: 25 40 hours (truly passive)
Property managers charge 8 12% for long term rentals, much more affordable than Airbnb management.
Decision Framework: Which Strategy is Right for You?
Choose Airbnb If:
- Property is in a strong tourist destination (beach, mountain resort, major city)
- You can charge $200+/night and achieve 70%+ occupancy
- Short term rentals are clearly legal and unlikely to be banned
- You enjoy hospitality and guest interaction (or can afford 25 30% management fee)
- You have time to actively manage or live nearby
- You're comfortable with income volatility (great months and terrible months)
- You can afford to furnish the property upfront ($20K 30K)
Choose Long Term Rental If:
- You want truly passive income
- Property is in a residential area without strong tourist appeal
- You value predictable monthly cash flow
- You don't have time for active management
- STR regulations in your area are unclear or restrictive
- You're investing long distance
- You want to minimize tenant turnover and hassle
The Hybrid Approach
Some savvy investors do both:
- Seasonal Airbnb: Rent on Airbnb during peak season (summer for beach, winter for ski), convert to long term lease for off season
- Portfolio mix: Own some Airbnbs in tourist markets for higher returns, and some long term rentals for stable cash flow
- Test and convert: Start as Airbnb to test the market, then convert to long term if it doesn't perform or regulations tighten
How to Run Your Own Analysis
- Research your market thoroughly. Check actual Airbnb listings in your area, what do they charge, what's their occupancy (look at calendar availability), how many reviews do they have? For long term, check Zillow rentals for comparable properties.
- Use realistic numbers. Don't assume 100% occupancy or lowball cleaning costs. Use the Airbnb ROI calculator with conservative assumptions: 60 65% occupancy, $100 120 cleaning per turnover, all utilities paid by you.
- Account for ALL costs. Furnishings, linens, cleaning supplies, platform fees, higher utilities, occupancy taxes, business licenses. Most failed Airbnb investors underestimated costs by 30 40%.
- Verify regulations. Call your city's planning department. Check HOA rules. Search for recent news about STR bans in your area. Don't just assume it's legal because you see other listings.
- Calculate both scenarios. Run the numbers for both Airbnb and long term rental using the calculators. If Airbnb only wins by 10 15%, the extra hassle and risk probably isn't worth it.
- Have a backup plan. If STRs get banned, can you afford the property as a long term rental? If not, you're taking on significant risk.
Frequently Asked Questions
Is Airbnb more profitable than long term rental?
Airbnb can generate 15 30% more revenue than long term rentals in ideal markets, but this comes with higher costs, more management time, and greater risk. A $400K property in Austin might earn $35,550/year as an Airbnb versus $30,000/year as a long term rental. However, Airbnb has furnishing costs, higher turnover expenses, seasonal fluctuations, and regulation risks that can eliminate the profit advantage.
What are the hidden costs of running an Airbnb?
Airbnb costs beyond mortgage include: furnishings and decor ($15,000 $30,000 upfront), cleaning after each guest ($80 150 per turnover), higher utilities (guests use more than long term tenants), platform fees (3% host + 14 16% guest), increased maintenance from higher turnover, property management (20 30% of revenue if you hire out), and occupancy taxes (varies by city). These can consume 30 50% of gross revenue.
Where are short term rentals banned?
Major cities with Airbnb bans or severe restrictions include: New York City (illegal in most cases), San Francisco (heavily regulated, owner must be present), Santa Monica (effectively banned), Los Angeles (requires permit, many areas prohibited), Boston (owner occupied only in most areas), and Miami Beach (restricted in many zones). Always check local laws before purchasing a property for Airbnb use.
How much time does managing an Airbnb take?
Self managing an Airbnb typically requires 5 10 hours per week including: guest communication, booking management, coordinating cleaning, restocking supplies, handling maintenance issues, updating listings, and managing reviews. During high season or with multiple properties, this can increase to 15 20 hours/week. Many hosts hire property managers (20 30% of revenue) to reduce time commitment.
What occupancy rate should I expect for Airbnb?
Realistic Airbnb occupancy rates vary by location and season: Tourist destinations average 60 75% annually, Urban areas average 55 70%, Seasonal markets see 80%+ in peak season but 30 40% off season, averaging 60 65% annually. Don't use 100% occupancy in your projections, that's unrealistic. Factor in cleaning days between guests, seasonal fluctuations, and competition from other listings.