Short-Term Rental Income: Airbnb, VRBO, and the Real Numbers
STR vs. LTR income comparison, permit requirements, furnishing costs, management options, occupancy rates, taxes, and realistic first-year operations for Airbnb and VRBO.
Short-Term Rental Income: Airbnb, VRBO, and the Real Numbers
I've managed short-term rentals alongside my contracting work. The income is real, but so are the surprises. Here's what actually happens in year one.
Short-Term Rental vs. Long-Term Rental Income
Let's compare a $400,000 property in a decent market with realistic assumptions:
Long-Term Rental (LTR) Model
- Monthly rent: $2,000
- Annual gross: $24,000
- Vacancy: 5% = -$1,200
- Operating expenses (35%): -$8,400
- Annual NOI: $14,400
- ROI (on 20% down): $14,400 ÷ $80,000 = 18%
Short-Term Rental (STR) Model
- Nightly rate: $120
- Annual nights booked: 365 × 55% occupancy = 200 nights
- Annual gross: $24,000
- Airbnb/VRBO fees (15%): -$3,600
- Cleaning & turnover (12%): -$2,880
- Operating expenses (25%): -$6,000 (property tax, insurance, utilities, maintenance)
- Furnishing replacement (5%): -$1,200
- Annual NOI: $10,320
- ROI (on 20% down): $10,320 ÷ $80,000 = 12.9%
Verdict: On paper, LTR looks better. BUT—STR income grows faster if you increase nightly rates, hit higher occupancy, and manage costs. LTR is more passive; STR requires active management and marketing.
Furnishing and Equipment Costs
Furnishing matters. A bare, ugly STR sits empty. A charming, Instagram-worthy one books.
1-Bedroom STR Startup Costs
| Item | Budget |
|---|---|
| Bed frame & mattress | $800–$1,200 |
| Sofa/seating | $600–$1,000 |
| Kitchen table & chairs | $400–$700 |
| Linens (3 sets) | $200–$400 |
| Kitchen equipment (pots, pans, utensils, small appliances) | $600–$1,000 |
| Bathroom fixtures (towels, bath mat, accessories) | $200–$300 |
| Decor (art, mirrors, throw pillows) | $400–$800 |
| Cleaning supplies & checkout items | $100–$200 |
| Total Furnishing | $3,300–$5,600 |
2-Bedroom STR Startup Costs
| Item | Budget |
|---|---|
| Bed frames & mattresses (2) | $1,600–$2,400 |
| Sofa/seating | $800–$1,200 |
| Dining table & chairs | $500–$900 |
| Linens (3 sets per bed) | $300–$600 |
| Kitchen equipment | $700–$1,200 |
| Bathroom fixtures (2 bathrooms) | $300–$500 |
| Decor | $500–$1,000 |
| Total Furnishing | $5,100–$7,800 |
Coastal and high-demand markets expect fancier furnishings—add 30–50% for these.
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Platform Fees and Management Costs
Airbnb takes 3% service fee from you (host), plus 14–16% guest service fee (included in guest price). Net cost: 3% of your nightly rate.
VRBO takes 5–12% commission depending on your tier, plus payment processing (2.2% + 30 cents). Net cost: 5–12% of your nightly rate.
Your total platform cost: 10–15% of gross booking revenue.
Management Options:
| Option | Cost | Your Role |
|---|---|---|
| Self-manage (Airbnb/VRBO only) | None | Handle inquiries, guest comms, turnover scheduling, check-ins, problem-solving |
| Co-host (guest book, you handle) | 10–15% | Answer guest messages only; co-host handles check-in, keys, turnover |
| Property manager | 20–30% | They do everything except major repairs; you're hands-off |
| Dynamic pricing service | 1–2% | Automatically adjusts nightly rate based on demand; paired with self-manage or PM |
Self-managing works for 1–2 properties if you're patient. Beyond that, a co-host or PM buys your sanity.
Occupancy Rates by Market Type
Beach towns (summer-driven): 70–80% summer, 30–40% winter. Average annual: 55–60%.
Mountains (ski season): 75–85% Dec–Mar, 30–40% other months. Average annual: 55–60%.
Urban/Business markets: 50–65% year-round with small seasonal variation.
Resort areas (Maui, Aspen): 75%+ year-round if managed well.
New properties: 30–50% year-round in year one as you build reviews.
Red flag: If comparable STRs in your market show 45% or lower occupancy, your returns will squeeze fast.
Permit and Licensing Requirements
Check your city's short-term rental ordinance before you buy. Surprises are costly:
Friendly Markets: Some cities welcome STRs with minimal restrictions. License costs $100–$300 annually.
Restricted Markets: Many urban areas cap STR licenses or require owner-occupancy (you must live in the property part-time). Licenses cost $300–$800.
Hostile Markets: Some cities ban STRs outright in residential zones or cap them severely. You can't legally operate.
Insurance Note: Standard landlord insurance usually excludes STR use. You'll need a commercial or STR-specific policy, which costs 25–50% more than LTR insurance.
First-Year Realistic Numbers: Example
Property: 2-bedroom house, purchased $400,000, financed with 20% down ($80,000).
Year One Income
- Nightly rate: $120 (market comparable)
- Nights booked: 200 (55% occupancy)
- Gross booking value: $24,000
- Airbnb/VRBO fees: -$3,600
- Net revenue: $20,400
Year One Expenses
- Mortgage (PITI): $2,200/month × 12 = $26,400
- Insurance (STR rate): $1,500
- Utilities: $1,800
- Maintenance & repairs: $2,000
- Cleaning & turnover: $2,400
- Furnishing replacement: $1,200
- Property manager (optional): $0 (self-managing)
- Total expenses: $35,300
Year One Cash Flow: -$14,900 (you subsidize the property).
But there's an offset:
- Mortgage principal paid down: ~$6,000 (equity building)
- Net loss after equity: -$8,900
By year 3, with better reviews and higher occupancy (65%), the property breaks even or modestly cash-flows.
Common STR Mistakes
Overestimating occupancy: Just because Airbnb's algorithm projects 60% doesn't mean you'll hit it year one. Budget 50% and celebrate if you beat it.
Underestimating turnover costs: Cleaning, laundry, repairs between guests add up. At high occupancy (70%+), turnover is constant.
Ignoring local ordinances: I've seen investors buy properties in STR-hostile cities, then discover they can't legally operate. Read the zoning code.
Furnishing for taste instead of demand: Your Victorian aesthetic might not match the beach-town market. Research what successful STRs in your area look like.
Forgetting taxes: Many new hosts don't set aside money for self-employment tax. At 55% occupancy, 25–30% of gross income goes to federal, state, and self-employment tax.
Tax and Insurance Considerations
Income Tax: Short-term rental income is fully taxable. Expect 25–40% effective tax rate depending on your total income and state.
Deductions: All operating expenses (cleaning, repairs, supplies, PM fees, depreciation on furnishings). Keep receipts.
Insurance: STR properties need commercial or STR-specific policies. Standard landlord insurance may deny claims if a guest is injured.
Liability: A guest falls and sues. Your insurance caps liability at your policy limit (typically $300,000–$500,000). Umbrella or excess liability insurance ($500,000–$1,000,000 coverage) costs $200–$400 annually.
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