Short-Term vs Long-Term Rental: How to Calculate Which Earns More

The Core Question Is Not Which Earns More Gross Revenue

Short-term rentals almost always win on gross revenue. The decision turns on net operating income (NOI), not top-line receipts. A property generating $72,000 per year on Airbnb with $38,000 in operating costs produces $34,000 in NOI. The same property on a 12-month lease at $4,200 per month generates $50,400 gross, with $9,500 in operating costs, producing $40,900 in NOI. The long-term rental wins by $6,900, despite earning $21,600 less in revenue.

That inversion is common. It is also the exact calculation most property owners skip.

The Short-Term Rental NOI Formula

Short-term rental NOI equals gross potential revenue minus vacancy loss, minus platform fees, minus operating expenses, minus management fees.

Written as plain text:

NOI = (Nightly Rate x Available Nights) - (Available Nights x Vacancy Rate x Nightly Rate) - Platform Fee % - Operating Expenses - Management Fees

Every term matters. Airbnb and Vrbo charge hosts 3% to 5% on each transaction. If you use a local property manager, add another 20% to 35% of collected revenue on top of that. Operating expenses for short-term rentals include cleaning between every stay, consumables (toiletries, coffee, paper goods), higher utility costs, linen replacement, and accelerated furniture wear. The IRS treats these as deductible Schedule E expenses, but they still reduce your cash in hand.

Vacancy is the most underestimated variable. Markets like Scottsdale, Arizona, or Asheville, North Carolina see 60% to 75% occupancy for well-managed listings. Secondary markets often land at 45% to 55%. Use local data from AirDNA or Rabbu, not the optimistic projections from a VRBO listing calculator.

The Long-Term Rental NOI Formula

Long-term rental NOI equals gross annual rent minus vacancy allowance, minus property management fees, minus maintenance reserve, minus landlord-paid utilities or HOA fees.

NOI = (Monthly Rent x 12) - Vacancy Allowance - Management Fees - Maintenance Reserve - Fixed Expenses

Vacancy for long-term rentals averages 4% to 8% annually in most US markets, versus 25% to 50% for short-term rentals. Property management on a long-term lease runs 8% to 12% of collected rent. A standard maintenance reserve is 1% of property value per year. On a $450,000 home, that is $4,500 per year set aside for repairs and capital expenditures.

The structural advantage of long-term rental is predictability. Rent payments arrive on a fixed schedule. Tenant turnover costs, typically $1,200 to $3,500 including cleaning, minor repairs, and re-listing, occur once every 12 to 24 months rather than between every booking.

Worked Example 1: A $520,000 Home in a High-Tourism Market

A 3-bedroom home in Sedona, Arizona, purchased for $520,000. Monthly PITI (principal, interest, taxes, insurance) on a 30-year fixed mortgage at 6.85% with 20% down is approximately $3,810.

Short-Term Rental Scenario:

• Nightly rate: $285
• Occupancy: 68%
• Available nights: 365
• Gross revenue: $285 x 365 x 0.68 = $70,785
• Airbnb host fee (3%): $2,124
• Cleaning and consumables (estimated at $65 per stay, 89 stays): $5,785
• Utilities (short-term tenants use more): $4,800
• Property management (25% of collected revenue): $17,165
• Maintenance reserve (1% of value): $5,200
• Total operating costs: $35,074
• NOI: $70,785 - $35,074 = $35,711
• Annual mortgage cost: $45,720
• Annual cash flow: $35,711 - $45,720 = -$10,009

Long-Term Rental Scenario:

• Monthly rent (market rate for Sedona 3-bed): $3,400
• Gross annual rent: $40,800
• Vacancy allowance (5%): $2,040
• Property management (10%): $3,876
• Maintenance reserve (1% of value): $5,200
• Landlord-paid utilities: $0
• Total operating costs: $11,116
• NOI: $40,800 - $11,116 = $29,684
• Annual mortgage cost: $45,720
• Annual cash flow: $29,684 - $45,720 = -$16,036

In this Sedona example, the short-term rental produces $6,027 more in annual cash flow despite both strategies running negative. The short-term approach wins here, but only by that margin, and only with strong occupancy.

Worked Example 2: A $310,000 Condo in a Mid-Size City

A 2-bedroom condo in Columbus, Ohio, purchased for $310,000. Monthly PITI on a 30-year fixed at 6.85% with 20% down is approximately $2,275. The building HOA is $380 per month.

Short-Term Rental Scenario:

• Nightly rate: $145
• Occupancy: 52% (mid-market city)
• Gross revenue: $145 x 365 x 0.52 = $27,521
• Airbnb host fee (3%): $826
• Cleaning and consumables ($45 per stay, 68 stays): $3,060
• Utilities: $3,600
• HOA: $4,560
• Property management (28% of collected revenue): $7,706
• Maintenance reserve (1% of value): $3,100
• Total operating costs: $22,852
• NOI: $27,521 - $22,852 = $4,669

Long-Term Rental Scenario:

• Monthly rent (Columbus 2-bed market rate): $1,850
• Gross annual rent: $22,200
• Vacancy allowance (6%): $1,332
• Property management (10%): $2,087
• HOA: $4,560
• Maintenance reserve (1% of value): $3,100
• Total operating costs: $11,079
• NOI: $22,200 - $11,079 = $11,121

The long-term rental produces $6,452 more NOI annually on this Columbus condo. Short-term rental fails here because lower occupancy and higher operating costs overwhelm the nightly rate premium.

How to Compare the Two Numbers Correctly

Once you have NOI for both scenarios, calculate cash-on-cash return for each. Cash-on-cash return equals annual pre-tax cash flow divided by total cash invested.

If your down payment plus closing costs on the Columbus condo totaled $68,200, and your long-term NOI minus annual mortgage payments of $27,300 produces annual cash flow of -$16,179, your cash-on-cash return is -$16,179 / $68,200 = -23.7%. Both strategies may run negative in the current rate environment. The question is which runs less negative, or which reaches breakeven faster as rents rise.

Compare the two cash-on-cash figures side by side. The strategy with the less negative (or more positive) figure wins on pure return. Then factor in your time cost. Short-term rentals require active management equivalent to a part-time job unless you pay a manager, and that cost is already reflected in the NOI above.

Three Variables That Flip the Decision

The strategy winner changes based on three inputs more than any other.

Local occupancy rate for short-term rentals determines whether the revenue premium survives. Below 55% sustained occupancy, long-term rental wins in most US markets.

HOA rules frequently prohibit short-term rentals entirely. Verify this before running any numbers. Condo associations in particular have increased restrictions since 2022. Violating HOA rules exposes owners to fines of $100 to $500 per day.

Local STR licensing requirements add fixed costs. Cities including New York, San Francisco, and Phoenix require permits ranging from $100 to over $1,000 annually, plus compliance costs. Some cities cap the number of STR nights per year at 90 to 180, which renders the short-term strategy mathematically unviable.

Run Your Property Numbers Before Committing to a Strategy

The two worked examples above differ in outcome by more than $12,000 per year despite using similar cost structures. The only way to know which strategy works for a specific property is to input that property's actual numbers. Use market-specific nightly rates from AirDNA. Use your actual mortgage payment, not a rounded estimate. Use the 1% maintenance rule as a floor, not a ceiling, for older properties.

The CalcMoney Mortgage Calculator lets you model your exact PITI payment as the fixed cost anchor, then build both NOI scenarios around it. Run the short-term case first with conservative occupancy (not the market peak). Run the long-term case using current rental comps from Zillow or Apartments.com. The gap between those two NOI figures is your decision number.

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• Short-Term vs Long-Term Rental ROI: The Calculation Most Landlords Get Wrong
• How to Calculate Monthly Cash Flow on a Rental Property (The Right Way)
• How to Calculate Net Operating Income on Investment Property

Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.