Renting a house by the night is a very popular these days — both for landlords looking to make some additional income and for guests looking for an experience beyond a traditional hotel. Usually called short-term rentals, travelers can easily find these opportunities through platforms such as Airbnb or VRBO.

The advantage of using sites like these is landlords can often earn more money per night renting for a few days at a time vs. a rental with a yearly lease. For example, it may be possible to rent a house for $100 a night as a short-term rental (or $3,000 a month) compared to a long-term rental that rents for $1,500 a month. Although the top-line numbers may seem to favor short-term rentals, it’s important to weight the risks and benefits before launching your business.

But, before you even crunch the numbers, make sure short-term rentals are even allowed in your area. Many homeowners associations ban the practice outright and some cities are looking for ways to curb the practice through additional restrictions and taxes. Read the deed restrictions for your property carefully before you proceed to make sure you don’t break any laws (the deed restrictions are generally in the jumble of 400 pages of papers you signed when buying a property that will say if there is anything specific that can and can’t be done on your land.) As an aside, deed restrictions can also be quite illuminating at just how racist our past is. On one home we didn’t end up buying, the deed restrictions made very clear that the property could only be sold to white people. Fortunately, that’s illegal now, but I still found it odd that the neighborhood covenants haven’t been updated to strip out the racist stuff.  

Thinking about the financial aspects of STR, here are a few things to consider:

  • Average number of nights rented. Short-term rentals are great, but they’re rarely rented every day of the month. Using our example above, if your rental has an average 50% occupancy at $100 a night, your return is $1,500 a month — the same as if you rented your property with a year lease. Considering short-term rentals come with additional risks and costs like utilities, cleaning and fees to services like Airbnb and VRBO (often 5% to 9% of the rental cost charged to guests), you may need to increase your per night charge to make it worthwhile to you. You may find you prefer the security of a monthly rent over the fluctuation that comes with short-term rentals or the risk of guests that may not take care of your property.
  • Costs paid by the host. With a monthly rental, the amenities provided by the landlord are usually minimal. Landlords almost always pay to the keep utilities in working order. Some go a little further to also include some utilities such as water or lawn service, but the tenant is typically expected to pay for everything with the home as if they owned it themselves. This would usually include all furniture, electronics, and recreational gear. However, with a short-term rental, your guests are expecting more of an experience that they would get in a hotel. This includes a furnishings, beddings, linens, window coverings, pots and pans, and basic cooking equipment like a toaster or a coffee maker. Hosts also have to pay for all utilities — not just electric, gas, and water, but also cable, Internet, lawn service, and cleaning service. If you own a property in a recreational area like a lake, the beach or in the woods, you may also want to provide some recreational equipment like a hammock, beach equipment, games, puzzles, bicycles, or boats.
  • Owner blocks. All that said, one of the big bonuses of a short-term rental is that you as the owner can often use the property for enjoyment. Unlike with a yearly rental, with a short-term rental, you may want to bring friends or family to enjoy the property yourself a few times a year. Be sure to check with your tax professional on the details though. Vacation home tax rules can be complicated, but the rule of thumb is owners can get away with using their rental 14 days or fewer per year or up to 10% of the total days you rent it out to others at a fair market price. Tax rules are always changing so be sure to keep up with the prevailing rules to avoid an expensive tax complication.
  • Deduct business expenses. One of the advantages of the vacation rental is the ability to deduct many of the expenses you must pay to maintain a short-term rental. Common deductions include taxes, repairs, utilities, cleaning, and property management fees (such as what you pay to VRBO and also what you pay to a property manager manages the entire rental process for you). Hosts can also deduct items like towels, sheets, furnishings, and other cleaning supplies. Landlords may also be able to deduct depreciation , taxes,and insurance on the property (again, ask your tax professional for the real details). As a business owner, you also may be able to deduct regular expenses such as your cell phone, computer equipment, and any specialized software necessary for your business.
  • Be prepared to be in the hospitality business. Unlike with a traditional rental, guests staying for a short-term expect their host to be prepared to tend to their more immediate needs, like getting an appliance to work. Hosts also have to respond to inquiries from potential guests asking questions about the property and/or anything they can do there. We have a lake house and are often asked by potential guests if they can host a (very small) wedding there — definitely more stress for the host than a monthly renter.
  • Manage yourself or hire a property manager? Because of the constant upkeep and correspondence with a short-term rental, landlords may choose to hire a property manager rather than managing the day to day process themselves. There are a few national companies that provide these services like Vacasa or Evolve. There are also many talented local property managers that specialize in certain areas. The great part about a property manager is they become the point of contact for your guests as they check in and out and do all the coordination with contractors, like cleaning crews and repair teams. You will get the bill in the end, but at least you won’t have to manage the daily headaches. Property managers can also help track pricing trends and adjust your rental fees accordingly. Similar to surge pricing with Uber or Lyft, property managers can monitor the market and adjust fees accordingly if a big event is coming to town. Your manager will still use the same platforms like Airbnb and VRBO, but they may have access to a few additional services. However, they will do all the management and send you a check at the end of the month. Costs for these services vary (I’ve seen some say it can cost between 10% to 50% of monthly income). However, one study in 2016 puts the industry average at 28%.

There are plenty of benefits to owning a short-term rental. The biggest is the ability to have a rental property that generates income while also giving you a place to visit it in small doses. The downside is there is a greater risk that the property will be unoccupied as guests are only planning to stay for a few days a time rather than a year or more.