In 2025, almost 2 billion Americans are expected to travel by road, air or rail in search of unique cultural experiences or natural encounters. The interest in domestic leisure travel supports the growing popularity of investing in short-term rentals.
Renting to guests for a day, a weekend or a month has grown in popularity because of the potential for higher income, more flexibility and increased market reach. Booking platforms like Airbnb and Vrbo have helped spur growth, making it easier for property owners to connect with guests.
If you want to know how to invest in short-term rentals, we’ll step you through getting started, what to consider before buying a property and how to manage your short-term rental business.
What Are Short-Term Rentals?
Short-term rentals are furnished rooms, houses, apartments and other living quarters rented to guests typically for less than 30 days, although that can vary based on state and local regulations. Short-term rentals are alternatives to hotels.
Short-term and long-term rentals can both generate income, but the length of stay and target clientele set them apart. Known more commonly as vacation rentals, short-term rentals have been around for decades but have exploded in popularity with the rise of Airbnb, Vrbo, Booking.com, Oliver’s Travels, Homestay and other services.
The U.S. market for short-term rentals was estimated to be $68.64 billion in 2024, and it’s expected to hit $72 billion in 2025, with a compound average growth rate (CAGR) of 7.4% from 2025 to 2030.
Why Invest in Short-Term Rentals?
Short-term rental investing has grown as a real estate strategy because it can provide several benefits:
- Flexibility in pricing: Charging a daily rate, you can command a higher rent and raise or lower the rent for weekends, events, holidays and seasons.
- Higher potential income: Charging more per day for a stay can lead to higher income than you might be able to attain with long-term rentals.
- Cash flow: More frequent payouts from home-stay platforms can mean quicker access to your money.
- Global reach: Sites like Airbnb and Vrbo can put your property in front of people around the world, especially for tourist areas and major events.
- Potential for personal use: If you’re not renting your property or a portion of it, you can take advantage of it for you and your family.
A vacation rental can also provide a tax benefit through deductions for mortgage interest, maintenance, utilities, property management fees and even travel expenses. You can also depreciate the value of your property over time, which can reduce your taxable income.
How to Choose the Right Market
Before you buy a property as a short-term rental, you must consider several factors to ensure you’ve chosen the best area for your investment. Location still reigns. Look for properties with high tourist traffic, festivals and sports. Also look for areas with high demand for short-term rentals from college students or business travelers.
Research local regulations and seasonality, and study occupancy rates, average daily rates, and revenue per available rental. Market analysis tools like AirDNA, Airbtics and Mashvisor provide key data to help drive your decisions.
Understanding Local Laws and Regulations
Look up state law and city and county ordinances on short-term and vacation rentals. Check zoning codes, city regulations and homeowner association rules. Some locations impose restrictions on short-term rentals, and some don’t even allow them.
If rules and regulations require permits or licenses, obtain all that are necessary, and register to collect and pay taxes, such as transient occupancy taxes, which are often required for stays of less than a month. Non-compliance can result in fines or being shut down.
Financing and Budgeting Your Investment
Financing your vacation rental can be done in several ways to help you find the method that best fits your goals and financial situation. Your most common choices include:
- Conventional mortgages: These may have stricter requirements for an investment property.
- Debt service coverage ratio (DSCR) loans: You qualify based on projected rental income instead of your income.
- Home equity loans or home equity line of credit (HELOC): You can borrow against the equity in your home.
- Hard money loans: Loans based on the value of the property but typically with a higher interest rate.
- Portfolio loans: A mortgage lender keeps these loans in-house instead of selling them on the secondary market.
A range of costs can influence your profitability, so you must budget for furnishings, cleaning, insurance and slow periods with no guests. You can use online calculators, such as one from the Short-Term Shop, to analyze your short-term rental ROI.
Setting Up Your Short-Term Rental Property
Properly staging your short-term rental requires more than just furnishing it or making it look nice. You want to turn a house into a home, encouraging guests, good reviews and rebookings. Consider your target audience, choose comfortable and quality furniture and stylish decor, and create a cohesive design.
Include thoughtful amenities, such as Wi-Fi, a well-stocked kitchen, comfortable bedding and smart locks. Once you have your place together, prepare the listing. Take high-quality photos to showcase what stands out about your property. Write an engaging description and post the listing to several booking sites, social media or your website.
Managing Your Property Efficiently
A significant point in your vacation rental strategy will be whether to manage the short-term rental yourself or hire a property manager. With self-management, you have greater control, and you potentially can save money. However, this can require a lot of time and effort. A property manager can handle day-to-day operations, but at a cost that cuts into your profit.
Whichever direction you choose to go, consider deploying software tools that can streamline your operation by automating pricing, handling reservations, synchronizing listings and calendars, communicating with guests and managing and tracking finances and expenses. Some of the most popular options include Guesty, Lodgify, Hostaway and OwnerRez.
Find Your Short-Term Rental
After reading about how to invest in short-term rentals, you know they can be lucrative but hands-on investments. Before jumping in, it’s crucial to conduct due diligence on location, laws and regulations, and key metrics. Consider starting small to test the real estate strategy before scaling.
Frequently Asked Questions
Is short-term rental investing profitable?
Short-term rental investing can generate meaningful profits, but your success depends on several factors: location, amenities, seasonality, demand, competition, daily pricing, your pricing strategy and your income compared to what you paid for the property. You must assess your risk tolerance, conduct thorough research and align your investment strategy with your financial goals.
Can I invest in short-term rentals without owning property?
Yes, several avenues can help you build a short-term rental business without owning property. You can do a rental arbitrage, where you rent a property and sublet it to someone else. You can partner with a property owner to manage their properties for a share of the profits. You can manage the rentals of several owners as a property manager, or you can buy into a real estate investment trust (REIT) that owns short-term rentals.
What are the best cities to buy a short-term rental in 2025?
To find the short-term rental investment that works for you, evaluate potential revenue, demand, regulations and affordability. Here are several of the top U.S. markets to consider: Savannah, Georgia; Anaheim, California; Nashville, Tennessee; Charleston, South Carolina; Flagstaff, Arizona; Peoria, Illinois; Akron, Ohio; and Fairbanks, Alaska.
