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Aditya Kasturi | Realogics Sotheby's International Realty

Passive Income Through Short-Term Rentals: The Real Math

A well-bought short-term rental can out-earn a long-term rental two to three times over. Here is the full picture: revenue, costs, and what it takes to run one.

How the cash flow actually works

  1. 1. Revenue: occupancy × rate, honestly modeled

    We underwrite from comparable listing data — seasonality, weekday gaps, and realistic occupancy, not the listing screenshot's best month.

  2. 2. Costs most first-timers miss

    Cleaning turnover, supplies, utilities, platform fees, permits, and a real maintenance reserve. Expect 35–50% of gross before debt service.

  3. 3. Management: self, co-host, or full service

    Full-service management costs 15–25% of revenue but makes the income genuinely passive. Self-managing pays you a second job's wage — decide which you're buying.

  4. 4. The tax layer

    For qualifying owners, cost segregation and bonus depreciation may affect a tax return. See the short-term rental tax strategy guide for the mechanics.

Frequently Asked Questions

Clear answers first. If one question changes the deal, bring it into the review before you move money.

Q1Is short-term rental income really passive?+

Only if you place professional management — and note that hurts the tax angle, which requires material participation. Most of our clients self-manage year one for the tax benefit, then transition.

Q2What returns should I underwrite to?+

We look for 8%+ cash-on-cash before tax benefits in today's rate environment, with the depreciation benefit treated as upside rather than the reason the deal works.

See a real short-term rental underwrite

A live deal with revenue, costs, and after-tax return modeled line by line.

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Last updated: July 16, 2026

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