Short-Term Rentals vs. Long-Term Rentals— What is The Best Buy and Hold Strategy for Investors?

Profitability is the name of the game in the real estate industry. Most investors choose to ‘buy and hold’ their investment properties, renting them out to generate passive income and long-term appreciation. Rental properties can be divided into two categories: short-term rentals (STR’s) and long-term rentals (LTR’s). The right strategy depends on your investment goals, location, and market conditions.

While short-term rentals often generate higher income per stay, they come with greater management demands, regulatory challenges, and fluctuating occupancy rates. In contrast, long-term rentals provide consistent monthly cash flow with lower turnover costs and fewer operational demands. Savvy investors often diversify their portfolios with a mix of both, depending on the market.

At Privy, we empower investors with real-time on-market and off-market investment data, investor comps, automated deal analysis, and rental calculators to help you make informed decisions on your buy-and-hold strategy.

Understanding Short-Term Rentals (STR)

Short-term rentals (STRs) have become a popular investment strategy, especially in high-demand markets and tourist destinations. Platforms like Airbnb and Vrbo have made STRs accessible, but investors must be mindful of local regulations, zoning restrictions, and tax implications before diving in.

It’s important to note that STR properties are facing increased regulations as companies seek to balance housing concerns with economic growth. The rules around STR will vary between regions and include license requirements, health and safety requirements, and limits on the number of guests per rental or the number of rental nights per calendar year. As an investor, it’s crucial to do your research and due diligence to understand what the rules are for your properties. 

Advantages of Short-Term Rentals

Advantages of Short-Term Rentals for Investors

• Higher Potential Income – STRs can generate significantly more revenue than LTRs, especially in prime locations. A property that rents for $2,000/month as an LTR might generate $150 per night as an STR, bringing in $4,500/month at 80% occupancy.
• Flexible Use – Investors can block out dates for personal use, making STRs appealing for those who also want a vacation home.
• Dynamic Pricing & Tax Benefits – Nightly and seasonal pricing maximizes revenue, and STRs can qualify for unique tax advantages, depending on how often they’re rented.

Short-term rentals aren’t for every investor, but they’re an ideal way for first-time investors to start generating revenue. An STR can be a great choice for a first investment property if you also want a property that you can use personally without the paperwork or commitment of long-term tenants. 

There are several advantages to structuring your property as a short-term rental vs. long-term rental. You’ll have more flexibility in pricing and availability with the potential to generate higher rental income and cash flow. While this cash flow will not be as consistent as having a full-time tenant, you may generate more income in peak seasons. Short-term rentals are priced at a nightly or weekly rate, creating the potential for investors to earn more than they would with a monthly lease. Properties located in popular tourist destinations, whether it’s city centers or by the beach, have enough demand to sustain them as short-term rentals. 

It may also make more financial sense to rent your property out on a short-term basis, depending on the tax deductions available. Choosing the option of a short-term rental may be the best way to create a tax strategy that maximizes your cash flow. 

Short-term rentals mean that you are not tied to the same tenant, You’ll also have the flexibility to choose to sell your property without having to move a tenant out of your property first. As you’ll have a revolving door of tenants, it’s easier to stay on top of repairs as you – or a property management service – will inspect the property and prepare it between guests. 

Challenges of Short-Term Rentals

• Higher Vacancy Rates & Seasonality – STR demand fluctuates based on seasonal trends and local events, impacting occupancy.
• Increased Management Costs – STRs require constant maintenance, cleaning, guest communication, and property management. Many investors hire a property manager, typically taking 20-30% of gross revenue.
• Legal & Regulatory Risks – Cities like New York, Los Angeles, and Miami have strict STR regulations—including licensing, occupancy limits, and bans on non-owner-occupied rentals. Investors must research local rules before investing.

Short-term rentals aren’t a walk in the park. Investors face a variety of challenges from increased management expenses and the need for ongoing maintenance. By its nature, a short-term rental faces higher vacancy rates and turnover. Depending on the location, you can expect to experience seasonal fluctuations in demand for your property. This changing demand can translate into different rental rates, making it difficult to budget accurately or correctly forecast your income. 

Legal restrictions can be a major hurdle for short-term rentals with many locations facing increased restrictions. It’s important to stay away and be flexible enough to respond to potential changes. This challenge is just one reason why it’s important to diversify your investment portfolio. 

A major difference between short-term vs. long-term rentals is that guests will expect our property to be fully furnished. You’ll need to invest in providing appliances, furniture, and fixtures throughout all the rooms in the property.

Who Should Invest in Short-Term Rentals?

STRs work best for investors seeking high cash flow, flexible property use, and access to short-term tax benefits. They require active management or outsourcing to property managers. Investors should also analyze market saturation—high-density STR areas may lead to declining occupancy and lower nightly rates over time. Privy’s Comparative Search Technology helps investors track real-time STR performance in high-demand locations to maximize returns.

Understanding Long-Term Rentals (LTR)

Long-term rentals (LTRs) are a proven, lower-risk investment strategy, offering steady, predictable income through lease agreements. Most LTR leases last 6 to 12 months, reducing turnover and management costs.

Examples of LTRs include townhouses, apartments, and residential properties, usually rented to a family, individual, or group. Unlike a short-term rental situation, these properties have a lease contract that sets out the terms and responsibilities of both the tenant and landlord, setting the expectations for everyone involved. 

While demand for STRs fluctuates, there is consistent demand for long-term property rentals with different demographics. It’s important to consider the type of tenants you’re trying to appeal to, whether its students looking for term-time accommodation or professionals seeking easy transport links for commuting. Understanding the rental market in the local area is crucial to attracting the right tenants and setting a competitive rental price. 

Most investors prefer LTRs as they provide more stability and reliability with predictable cash flow. Investors can keep the same tenants long-term, potentially increasing the rental amount as the market fluctuates. 

Advantages of Long-Term Rentals for Investors

• Consistent, Predictable Income – LTRs provide monthly cash flow, making them ideal for investors focused on passive income and long-term appreciation.
• Lower Turnover & Management Costs – Tenants typically sign year-long leases, reducing vacancy risk and maintenance expenses. No need for frequent cleanings or constant guest turnover.
• Easier Financing & Tax Benefits – LTRs are easier to finance than STRs because lenders view them as lower risk. Investors may also qualify for depreciation, mortgage interest, and expense deductions.

Why do most investors choose to focus on long-term rentals? While it’s a good idea to have a mixture of buy and hold strategies in your portfolio, LTRs typically have lower vacancy rates with fewer management responsibilities. This type of property is usually easier to finance and is considered to have a lower risk for lenders. LTRs provide stable and predictable cash flow for investors. 

Long-term rentals have reduced turnover costs as there are fewer expenses. Unlike a short-term rental, there’s no need to budget for cleaning, repairs, or general maintenance. While a landlord has responsibility to their tenant, these maintenance costs are less frequent and generally lower.

Investors can take advantage of separate tax benefits when leasing a property long-term. They may be able to deduct property taxes, mortgage interest, and other expenses. Investors should work with an accountant or real estate expert to determine the most tax-efficient way to structure their rental property. 

LTRs have fewer expenses for investors as, unlike short-term rentals, the tenant is responsible for utility payments. Electricity, water, and other major utilities are usually paid by the tenant. Comparatively, short-term rentals tend to have higher utility bills as guests are not as conscious of their energy use as they are at home. 

Similarly, the tenants in an LTR will take care of most of the basic maintenance of the property, including minor repairs, general cleaning, and yard work. 

Challenges of Long-Term Rentals

• Lower Earning Potential in High-Demand Areas – In tourist-heavy markets, STRs can earn 2-3x more revenue than LTRs.
• Less Flexibility – Investors cannot use an LTR property for personal stays unless a lease term ends.
• Tenant Risk & Eviction Laws – Some states have strict tenant protection laws, making it harder for landlords to evict non-paying tenants.

LTRs aren’t without their challenges, regardless of what market your property is located in. Ultimately, they may generate lower income than if the property was used as a STR. This consideration is mainly applicable to properties in high-demand areas where investors can charge a high per-night or weekly rate. If you’re in an area with consistent demand, it’s possible to earn the same monthly revenue in a shorter time frame as a STR. 

Landlords have less flexibility with the terms and pricing of LTRs. It’s important to determine the reasonable asking price for your property, by comparing it to similar rental properties in the same area. In some markets, there may also be market saturation and rent control laws that can limit how much you can charge your tenants. 

One of the biggest challenges with LTRs is potential tenant issues. While you can do your due diligence by screening tenants, there’s always the potential for issues like late payments and property damage. 

What to Consider When Choosing Between STR vs LTR

When you’re considering buying an investment property, you’ll want to calculate your potential income and expenses if you choose to lease it as an STR or LTR. It’s always possible to change the functionality of your property, but it’s a good idea to know how you’ll lease it initially. 

Here are 5 things to consider when deciding if a property is better suited for being a short-term or long-term rental:

1. Location

STRs thrive in high-traffic, tourist-driven markets, while LTRs work well in suburban, workforce, and student-heavy areas.

Location is always one of the deciding factors in real estate. If your property is in a primarily residential area, you’ll want to consider making it an LTR. In touristy areas with consistent year-round demand, you’re more likely to generate more income as an STR than an LTR. Places like Texas and Florida are great options for an STR as they have pleasant weather year-round. 

2. Market Conditions

Analyze local rental demand, home appreciation trends, and economic growth before deciding.

The rental market is constantly evolving and it’s important to understand the impact of different conditions on your rental property. Don’t just focus on the national picture. The local socio-economic situation is just as important. New infrastructure and developments can be a positive sign for LTRs as new people come into the area, increasing demand for rental properties. 

3. Financial Goals: Cash Flow vs. Equity

STRs generate high cash flow, while LTRs build equity and long-term appreciation with fewer expenses.

Every investor will approach a property with their own goals and cash flow needs in mind. An LTR will provide a steady income, ideal for investors who want to grow their portfolios and re-invest their income. Although an STR provides variable income, it can offer a short-term gain and a way to quickly generate revenue.  

4. Property Management 

STRs require hands-on management or a property manager, while LTRs are more passive.

The way properties are managed differs between STRs and LTRs. Short-term rentals require a more hands-on approach, either from the investors themselves or a third-party property management company. By comparison, long-term rentals allow investors to have a more hands-off approach, generating passive income with fewer expenses. In both scenarios, investors can choose to self-manage their properties or use property managers. 

STRs are particularly expensive due to the high turnover of guests, requiring frequent cleaning, along with additional operational elements. Guest communication and booking handling will be part of the property management for an STR.

5. Legal, Regulatory, and Tax Considerations 

STRs face zoning restrictions, higher taxes, and more regulations, while LTRs have stable tax benefits and financing options.

Local regulations, including taxes and zoning policies, impact both STRs and LTRs. It’s important that a short-term rental is structured correctly with the required licenses and insurance to be compliant with state regulations. Investors should also consider the tax implications. 

It’s advisable to speak to an accountant with experience in real estate to determine if one option is more tax efficient. Income from STRs is typically taxed as self-employed income. However, LTR income can be structured to utilize several tax benefits to reduce your tax liability.