STR in Real Estate: Definition and Guide for Investors

A short-term rental (STR) is one of the important concepts that new real estate investors should be familiar with. This refers to rental property leased for short stays, typically under 30 days. In practice, STRs are your vacation rental properties or Airbnb investment homes that travelers rent by the night. 

Many investors prefer STR real estate because it can offer a higher monthly income than a traditional lease, especially in tourist-friendly areas. However, like any other real estate strategy, investing in STR properties has its challenges to be aware of.

This guide will explain what STR real estate investing is, its pros and cons, as well as how it compares with its opposite (long-term rental).

What is STR in Real Estate?

In real estate, short-term rental (STR) refers to a rental unit (house, condo, apartment, etc.) offered to travelers or business visitors for short stays, often days or weeks. 

A classic example of a STR would be an Airbnb listing: a furnished home or room that a guest can book for a vacation. This contrasts with fixed-term leases, where tenants sign leases for six months or more. 

Because guests pay by the night or week, landlords can potentially earn more than with a fixed-term lease. However, it’s important to note that STRs also come with more managerial responsibilities and higher operational costs (like furnishing, marketing, guest communication, and cleaning) compared to fixed-term leases. 

But with platforms like Airbnb or VRBO providing easy listing, payment, and guest management systems, the barriers to investing in short-term rentals have lowered.

Pros of STRs in Real Estate

Investing in STR real estate can be lucrative when done right. Some of the main benefits include:

• Booming travel demand: Millions of tourists and business travelers seek alternatives to hotels. In the United States alone, travel and tourism is a nearly $2 trillion industry. This large customer base fuels demand for vacation rental properties year-round. Major cities and resort towns see steady guest flow.
• Higher-income potential: Because nightly rates often exceed prorated long-term rates, STRs can generate more revenue if you achieve high enough occupancy rates. 
• Pricing flexibility: You can dynamically adjust rates based on demand, occupancy, and local events. During high season, weekends, or local festivals, you raise prices; during slow periods, you lower them to attract bookings. This flexibility (unavailable in fixed long leases) gives you more control over your potential ROI.
• Control and branding: You become your own hospitality business. You can offer a high-quality experience (nice decor, extra amenities) to earn positive reviews, which further drive occupancy. Even if your property is vacant, you retain full control – you can even use it for family vacations between bookings.
• Marketing advantages: Airbnb and similar platforms are effectively free advertising. A well-rated listing can stay booked with minimal active marketing from you.

Related: 11 Real Estate Investing Metrics that Investors Need to Know

Cons of STRs in Real Estate

While a successful STR investment offers many benefits to investors, it also brings increased operational requirements and costs, which, if you’re unaware of, can present significant risks to your cash flow and overall profitability.

• Regulation and compliance: Many cities have introduced strict STR rules. You may need a business license, safety inspections, or limits on short leases. These laws (often to protect neighborhood quality) vary widely, so it’s crucial to research local STR regulations as non-compliance can lead to hefty fines.
• Seasonality and volatility: Guest demand often peaks in high seasons (summer, holidays) and plunges in off-peak times. Your STR income stream can swing from high in June–August to very low in winter. Global data shows STR occupancy can drop well below 50% in slow regions. You must be prepared for these swings and budget for lean months.
• High operating costs: Furnishing an STR property requires upfront investment (furniture, decor, kitchenware, TVs, etc.). There are also ongoing costs: professional cleaning after each stay, laundry, guest amenities, and utility usage. Over the long term, more wear and tear on furnishings and appliances means extra maintenance costs.
• Active management: STRs need much more hands-on work than fixed-term rentals. You must handle guest inquiries, bookings, check-ins and check-outs, and resolve guest issues promptly (or risk a negative review that could see your bookings plummet).
• Taxes and lodging fees: Short-term rental income is fully taxable, and many cities/states impose a hotel or occupancy tax on short stays. For example, Texas mandates a 6% occupancy tax on STR bookings. Failing to collect and remit these taxes can be costly.

Related article: 15 Most Landlord-Friendly States 2025

Short-Term Rental vs Fixed-Term Rental: Which is Right for You?

When it comes to renting out a property, landlords typically choose between short-term rentals and fixed-term leases, each offering distinct advantages and challenges.

Fixed-term rentals follow a traditional leasing model, usually spanning 6 to 12 months and governed by a written lease agreement. These rentals provide consistent monthly income, often slightly exceeding the property’s mortgage payment, and offer financial stability year-round, no seasonal dips or extended vacancy periods.

The biggest advantage? Predictability. Once a tenant signs the lease and moves in, your income becomes more reliable. There’s no need to constantly market the property or manage guest turnover. Most tenants furnish the unit themselves, saving you on upfront costs, and property management tends to be more hands-off, aside from routine maintenance and the occasional issue.

This consistent cash flow makes it easier to plan ahead, reinvest profits, and build long-term wealth with confidence.

However, there are trade-offs. If your property is in a prime location, you could be missing out on higher short-term profits. You also relinquish personal use of the property while it’s leased. And while rare, fixed-term leases aren’t immune to challenges, like late rent payments, problem tenants, or even the hassle of evictions.

Useful Read: Rental Property Tax Deductions Checklist: Maximizing Landlord Tax Deductions

How To Invest in STRs

If you decide to pursue STR real estate, following a strategic process is important. Here are key steps and considerations to maximize your chances of success:

Finding the Right Market

First, choose a location with a strong demand for short-term stays. This usually means tourist destinations (beach towns, ski resorts, historic cities) or business hubs with conferences and conventions. Look for areas with rising visitor numbers and limited new supply. 

For example, AirDNA data shows cities like New York and San Francisco benefit from tight regulations that keep supply low, helping hosts maintain occupancy. In any case, analyze metrics like local occupancy rates (the percentage of time rentals are booked), average daily rate (ADR), and expected return on investment (ROI) in each market. 

Evaluate Cap Rates

Calculate the property’s cap rate (capitalization rate), a standard real estate metric. Cap rate = (Net Operating Income) / (Purchase Price). It shows the annual profit as a percentage of price. In practice, you estimate your expected net annual STR income (after expenses) and divide by what you pay for the property. 

A good cap rate for STRs is typically in the 5%–10% range. If you find a cap rate in that bracket (higher is riskier, lower is more conservative), the investment could yield solid returns. (Remember, ROI in real estate is similarly about profitability; cap rate is only one way to gauge ROI.) 

Identify the Best Submarket

Within a promising city, drill down to the neighborhood or submarket with the strongest performance. Even if data shows that City X has high potential, some neighborhoods may be more vacation-worthy than others. 

For instance, if Miami ranks as an attractive STR market, find which parts of Miami draw the most tourists (e.g., South Beach vs. the outskirts). Sometimes, coastal zones or downtown cores command higher ADRs. 

Select the Optimal Property Type

STRs can be almost any type of home, from studios and condos to single-family houses or multi-unit buildings. However, different markets favor different types. In New York City, studio apartments might be ideal for business travelers, whereas in suburban areas or beachside properties, an entire house might do better for families. 

Research comparable listings in your chosen area

Are single-family homes getting booked more than condos? What about amenities (pool, waterfront, kitchen)? 

Use data or site filters to see what property types consistently have high occupancy and high nightly rates. Some markets even have demand for unique stays (tiny houses, cabins, houseboats, etc.). Choose a property type aligned with what guests want in that locale.

Read more: What Is A Comparative Market Analysis In Real Estate?

Determine Property Size

Finally, decide on the size (number of bedrooms) of your STR. More bedrooms usually allow charging higher overall rates, as groups will pay for extra space, but will also come with higher upfront and operational costs. Indeed, analysts predict that larger, group-friendly rental properties will drive ADR growth in 2025. 

By carefully vetting these factors – location, numbers, property features – you increase the chance that your STR will outperform. Think of STR investing as combining real estate analysis with a bit of hotel-like strategy.

Final Words: STR in Real Estate

Short-term rental real estate offers exciting potential in 2025, but long-term success depends on strategic planning and smart financial management. If you’ve done your market research and secured the right property, an STR can deliver strong returns. To keep growing, many investors leverage creative funding strategies like cash-out refinancing or HELOCs to reinvest without liquidating assets.

Tax strategy also plays a major role. With the right approach, you may be able to classify STR income as active (thanks to the so-called "short-term rental tax loophole") and take full advantage of depreciation and write-offs.

As your portfolio grows, tools like Landlord Studio become essential. Landlord Studio helps you track income and expenses, manage tax deductions, and monitor portfolio performance in real-time. With automated rent tracking, digital receipt storage, and detailed financial reporting, you can stay organized and make smarter investment decisions.

If you remain adaptive—continually optimizing pricing, occupancy, and financing—and use the right tools to manage your finances, your short-term rental can be a highly profitable and scalable part of your investment strategy.