Real estate investors often find themselves standing at a fork in the road.
On one side lies the steady, predictable path of long-term rentals (LTRs). On the other, the high-octane, hospitality-driven world of short-term rentals (STRs). While both roads lead to wealth, the vehicle you choose determines how fast you get there and how bumpy the ride might be.
The question of which strategy "makes more money" isn't just about comparing monthly rent checks against Airbnb nightly rates. It requires a deeper look into operational demands, vacancy risks, and, perhaps most significantly, the tax code.
The Case for Stability: Long-Term Rentals
For decades, the standard rental model has been the bedrock of passive income. You buy a property, find a tenant who signs a 12-month lease, and collect a check on the first of the month. The appeal here is simplicity. Once a tenant is settled, the day-to-day management is minimal. You aren't coordinating cleaning crews every three days or responding to inquiries about Wi-Fi passwords at midnight.
Financially, LTRs offer consistency. You can forecast your cash flow with a high degree of accuracy, making it easier to secure financing. However, this stability often comes with a ceiling on income. You are locked into a market rate for a year or more, unable to capitalize on peak seasons or sudden spikes in local demand. Furthermore, the tax benefits, while present, are generally slower to realize. Depreciation is typically spread out over 27.5 years, offering a steady drip of deductions rather than a flood.
The High-Yield Contender: Short-Term Rentals
Short-term rentals have fundamentally disrupted the investment landscape. By operating more like a hotel than a landlord, investors can often generate two to three times the gross revenue of a traditional lease. A beach house that rents for $2,500 a month on a long-term lease might pull in $6,000 during a busy summer month as an STR.
But that extra revenue isn't free. It comes at the cost of active involvement. To succeed, you are essentially running a hospitality business. This means managing dynamic pricing, ensuring five-star guest experiences, and handling a higher rate of wear and tear on the property.
However, the financial upside of STRs extends beyond just cash flow. The tax code treats these properties differently, provided the average guest stay is seven days or less. This distinction is where the profit potential truly accelerates.
The Tax Advantage That Tips the Scale
While gross revenue is important, net profit after taxes is what actually lands in your bank account. This is where the short-term rental strategy often leaves long-term rentals in the dust, thanks to recent legislative changes.
The "Big Beautiful Bill" has revived a massive incentive for investors by bringing back 100% bonus depreciation. This provision allows STR owners to write off a significant portion of the property's purchase price in the very first year, rather than waiting decades.
Here is how the math works in practice. If you buy a traditional rental, you are generally stuck with that slow, 27.5-year depreciation schedule. But with an STR, you can utilize cost segregation studies to reclassify parts of the building like appliances, flooring, and landscaping into shorter recovery periods (5, 7, or 15 years). Because of the bonus depreciation rules, you can deduct the entire value of those reclassified assets immediately.
Active Participation Matters
This requirement reinforces the reality of the STR model: it is an active business. If you are looking for truly passive income where you can park your money and forget about it, long-term rentals remain the superior choice. But if you are willing to trade time and effort for higher cash flow and massive upfront tax savings, the short-term rental strategy offers a financial ceiling that is much harder to hit.
The strategy that makes the most money depends on your resources. If you have time to spare and a high tax bill to offset, the STR route is the clear winner. If you prefer steady, low-stress compounding, the LTR path will still get you to the finish line, just a little later.
Photo source: depositphotos.com
