One of the primary attractions of short-term rentals is the potential for significantly higher gross revenues compared to long-term rentals. STR properties can charge premium nightly rates, especially in desirable urban centers and vacation destinations. For example, properties located in popular markets like New York City, San Francisco, or tourist hubs such as Miami or Barcelona can generate revenues two to three times higher than comparable long-term leases.

In contrast, long-term rentals offer greater stability in cash flow. Tenants sign leases that usually last one year or more, ensuring consistent income streams and making it easier to forecast revenue for financial modeling and valuation purposes. This predictability can appeal to institutional investors and lenders, who prefer steady returns over volatile revenue streams.

Operational Costs and Management Complexity

While STRs can drive higher revenues, they typically come with significantly greater operational complexity and higher costs. Expenses such as cleaning, guest communication, advertising, and higher wear-and-tear often erode gross margins. Additionally, higher vacancy rates—common in off-peak seasons—can cause unpredictable revenue fluctuations.

Conversely, LTRs incur relatively predictable and lower operational costs. Tenant turnover is less frequent, reducing management burdens and maintenance costs associated with frequent occupant transitions. However, property owners must balance the lower operational intensity with potential risks such as tenant defaults, eviction costs, or extended vacancies between leases.

Regulatory and Legal Environment

STRs often face stringent and evolving regulatory challenges in many jurisdictions. Cities worldwide have introduced or tightened restrictions due to housing affordability issues, community disruptions, or market distortions caused by short-term rental proliferation. Regulatory measures include licensing requirements, occupancy limitations, zoning restrictions, and even outright bans in some municipalities, such as Amsterdam, Berlin, and several U.S. cities.

In contrast, long-term rentals typically enjoy a more stable and predictable regulatory framework. Nevertheless, they are subject to tenant protection laws, rent control, eviction moratoriums, and local housing ordinances, all of which significantly influence valuation analyses, particularly in high-regulation markets like New York City or California.

Challenges & Considerations

Volatility and Economic Sensitivity

Short-term rental income is highly sensitive to broader economic conditions, consumer spending power, and tourism trends. Market downturns, travel restrictions (as seen during the COVID-19 pandemic), or shifts in traveler preferences can dramatically affect occupancy rates and profitability, making accurate valuations challenging.

Financing and Lending Considerations

Investors often encounter hurdles obtaining favorable financing terms for STR properties, as lenders typically view these assets as riskier than traditional multifamily LTR properties. Lenders frequently require larger down payments, impose higher interest rates, or mandate stricter underwriting criteria. Conversely, long-term rentals generally benefit from more accessible financing options and attractive loan terms.

Community Relations and Reputation Risk

STR properties can encounter resistance from local communities due to noise complaints, transient occupancy issues, or impacts on neighborhood cohesion. Negative community sentiment can lead to restrictive legislation, creating uncertainty that impacts property valuations and investment exit strategies. In contrast, long-term rentals tend to foster more stable tenant-community relationships.

Best Practices & Strategies

Comprehensive Market and Regulatory Due Diligence

Investors and valuation professionals should conduct extensive market research and regulatory analysis to assess the suitability of short-term versus long-term rental strategies. Understanding local market dynamics, competition, seasonal trends, and regulatory forecasts can inform accurate valuations and reduce investment risks.

Diversification Strategies

A strategic mix of STR and LTR units within a single multifamily asset can diversify revenue streams, offsetting the volatility associated with STRs while maintaining opportunities for higher profitability. This balanced approach helps stabilize overall portfolio performance and facilitates more reliable property valuations.

Professional Management and Technology Solutions

Engaging specialized STR management firms or leveraging advanced property management technologies can significantly streamline operations, optimize pricing strategies, and enhance overall profitability. For long-term rentals, employing thorough tenant screening, lease enforcement, and proactive maintenance strategies mitigates vacancy risks and tenant-related losses, enhancing asset value and performance.

Case Studies & Scenarios

Hypothetical Scenario: Mixed-Use Multifamily Asset in Miami

Consider a 50-unit multifamily asset located in a tourist-rich area of Miami. Allocating 30 units to STR and 20 units to LTR could optimize cash flow, leveraging seasonal tourism while ensuring year-round stability. Valuation professionals assessing this property would incorporate higher gross income from STR units alongside increased operating expenses and regulatory compliance costs, while recognizing steady revenue and lower operating burdens associated with the LTR portion.

Conclusion

In the ongoing debate between short-term and long-term rentals, no universally optimal strategy exists. Investors and multifamily valuation professionals must carefully evaluate revenue potential, operational complexity, regulatory environments, economic sensitivity, and financing implications. Combining thorough market analysis, thoughtful diversification, and robust management practices will equip professionals with the insights necessary to optimize asset performance and valuation outcomes effectively.