A Short-Term Rental is a residential property leased for nights or weeks at a time to travelers or short-stay guests, typically through platforms like Airbnb, Vrbo, or Booking.com. Short-Term Rentals generate more gross revenue per property than long-term rentals (LTRs) — sometimes 2–3× — but come with more operating overhead, higher expenses (cleaning, furnishing, management, dynamic pricing tools), and significantly more regulatory risk. Cities are increasingly restricting or banning Short-Term Rentals, and a single regulation change can turn a profitable Short-Term Rental into a break-even LTR overnight.
How Short-Term Rentals make money (and how they don't)
The core Short-Term Rental economics come down to two numbers: Average Daily Rate (ADR) and Occupancy Rate. Multiply them by 365 days and you get annualized gross revenue.
- ADR = average nightly rate the property earns. Varies by market (Nashville $220, Cleveland $110, Chicago downtown $180) and by property type/quality.
- Occupancy = percent of nights the property is booked. Long-term rental occupancy is 90–95%; Short-Term Rental occupancy is typically 55–75% in a healthy market.
Worked example
A Chicago 2-bedroom Short-Term Rental:
- ADR: $175/night
- Occupancy: 65%
- Nights booked/year: 365 × 0.65 = 237 nights
- Gross revenue: 237 × $175 = $41,475/year
Compare to same unit as LTR at $2,000/month:
- Gross revenue: $2,000 × 12 = $24,000/year
Short-Term Rental gross is 1.7× the LTR gross. But before you get excited: Short-Term Rental operating expenses are much higher too.
Where the Short-Term Rental premium goes
The $17k Short-Term Rental revenue advantage over LTR doesn't all fall to the bottom line. Short-Term Rental-specific expenses:
- Cleaning ($80–150 per turn × 90+ turns/year = $7k–$14k/year)
- Platform fees (Airbnb takes ~3% from host; Vrbo/Booking take more)
- Utilities (guest expects everything on; +$100–300/mo vs LTR)
- Consumables + linens (soap, coffee, toilet paper, replacement towels/sheets, dishware; +$150/mo)
- Dynamic pricing tools (PriceLabs, Wheelhouse, Beyond — $25–50/mo per listing)
- Furnishing (upfront $10k–30k for a 2-bedroom; amortize over 5 years)
- Property management (if not self-managing: 20–25% of revenue, MUCH higher than the 8–10% for LTR)
- Higher insurance (Short-Term Rental insurance is 30–50% more than LTR insurance)
- Higher maintenance (guests use everything harder; more frequent HVAC issues, appliance breakdowns, wear-and-tear repairs)
Once these expenses are netted out, Short-Term Rental cash flow is often only 20–40% higher than LTR — not the 70%+ the gross-revenue comparison suggests. Sometimes Short-Term Rental nets less than LTR after all the operating overhead.
The three flavors of Short-Term Rental
Whole-unit Short-Term Rental (most common)
Rent out the entire property. Owner doesn't live there. Highest revenue potential but also highest regulatory scrutiny (many cities specifically restrict this format).
Owner-occupied Short-Term Rental / house hack Short-Term Rental
Owner lives in the property and rents out a bedroom, basement, or ADU on nightly basis. Often allowed under regulations that ban whole-unit Short-Term Rentals, because the owner is present. Lower revenue but much lower regulatory risk.
Corporate rental / mid-term rental (MTR)
Leased for 30+ nights (usually 1–6 months) to traveling professionals, insurance-displacement guests, or medical workers. Higher ADR than LTR, lower turnover than Short-Term Rental, and often exempt from Short-Term Rental regulations. Growing category.
The regulatory risk — the biggest Short-Term Rental-killer
The single biggest risk to an Short-Term Rental investment isn't market softness or slow bookings — it's regulation. Cities have been progressively restricting Short-Term Rentals since ~2018, and the trend accelerated post-2023:
- New York City — Local Law 18 (2023) effectively banned whole-unit Short-Term Rentals shorter than 30 days.
- Chicago — the Short-Term Rental ordinance limits number of units per building, requires registration, imposes taxes, and bans Short-Term Rentals in certain wards.
- San Francisco, LA, Portland — owner-occupancy requirements + rental caps.
- Small vacation towns (Sedona, Park City, Nashville neighborhoods, coastal Florida) — moratoriums and permit caps.
An Short-Term Rental that pencils today can become illegal (or economically unviable via new taxes) with a single city council vote. Before buying a property planning Short-Term Rental use, check current regulations AND read city council agendas for pending Short-Term Rental restrictions.
How Prop-Folio handles Short-Term Rental analysis
Short-Term Rental is one of the four native strategies in Prop-Folio. Short-Term Rental mode pulls per-unit nightly rate and occupancy data via AirROI (an Airbnb-focused data provider) and models the building's Short-Term Rental revenue by unit configuration — a 2-bed and a 3-bed in the same building are priced and booked differently, so they are estimated separately rather than averaged — then spreads the year's revenue across its twelve months so a seasonal market reads as seasonal rather than as a flat monthly figure.
For Chicago specifically, Prop-Folio surfaces the Chicago Short-Term Rental ordinance warning when you flag a property as Short-Term Rental — a reminder of the regulatory constraints before you commit capital.
Short-Term Rental analysis is a Full-Access feature (Starter, Mid, or Top tiers) since it requires AirTokens — each Short-Term Rental analysis consumes 1 AirToken to pull the fresh nightly-rate and occupancy data.
Model your first Short-Term Rental →
Related: Chicago Short-Term Rental ordinance · What is a Deal Score? · What is BRRRR?