Investing in Short-Term & Vacation Rental Property
As travelers seek flexible travel options, the market for investing in short-term rental ownership has grown. The flexibility to use the property for personal use during off-peak seasons and the potential to generate rental income during peak periods make these properties attractive to investors.
There are two distinct clientele that seek these specific rental property types:
- Short-term rental – Typically rented to individuals or groups of individuals with travel positions, such as healthcare or construction, for a set period. The rental period may span months but is under a year.
- Vacation rental – Rented to individuals on vacation; timeline varies but is typically less than one month.
Additionally, online rental platforms make it easy for investors by enabling clients to book, screen, collect deposits, and accept guest payments electronically. Some of the more well-known platforms include:
- VRBO (Vacation Rental by Owner) – Specializes in entire-home rentals, providing a platform for homeowners to list their properties and manage bookings. Its inventory includes coastal condos, cabin rentals, and beach houses, among others.
- Airbnb – In addition to entire-home rentals, condos, and apartments, it includes arrangements where the homeowner may be present during the guest's stay (hostel or room rental).
- Furnished Finder – Specializes in monthly furnished rentals for corporate travelers, travel nurses, relocating families, and more. These properties may include apartments, homes, or other short-term housing options.
Other platforms, such as Booking.com, HomeAway, FlipKey, and TripAdvisor Rentals, also offer similar services for property owners and guests.
Considerations Before Purchasing a Rental Property
Before investing in a short-term or vacation rental property, it's essential to evaluate key factors, including the local market, maintenance costs, and other considerations.
Rental income is typically subject to tax. However, expenses related to the property's upkeep, improvements, and management are often deductible, reducing overall tax liability. It's essential to consult a tax professional to understand the nuances, including the potential to leverage tax advantages such as depreciation.
Sales and lodging taxes may apply, and some municipalities collect both. The investor must understand which taxes apply at the time of rental and when they are due.
Additionally, tax obligations may differ depending on whether the property is classified as a personal residence or a rental property, which in turn depends on the number of days it's rented out versus used for personal purposes.
Standard homeowners' insurance policies may not provide adequate coverage for risks associated with renting property to guests. Specialized vacation rental insurance policies can cover property damage, liability claims, and even loss of rental income in specific scenarios.
Investors should consider working with an insurance professional and carefully review policy options to understand the coverage levels and exclusions based on the property's type.
Certain jurisdictions may have zoning laws that restrict the use of residential properties for commercial purposes. Other locations may require obtaining a business license and having the property inspected to ensure compliance with safety standards.
A realtor, city, or county administrator may be a reliable source of information about rental properties in their area. It's essential to understand how a rental property will be affected before purchasing it.
Investors must work with financial and real estate professionals to conduct thorough research and perform profit-and-loss modeling to understand potential returns and the timeline to profitability.
Remember, there are always pros and cons to owning a short-term or vacation rental property.
Pros:
- High income potential: Vacation rentals often command higher rents than long-term rentals.
- Flexibility: Owners can block out dates for their personal use.
- Tax benefits: Certain expenses, such as mortgage interest, property taxes, and maintenance costs, may be deductible.
- Management-intensive: Owners or their management company are responsible for booking, cleaning, check-in, and check-out, all of which incur costs.
- Seasonality: Income might be inconsistent due to seasonal demand fluctuations.
- Regulatory environment: Potentially strict, constantly changing regulations can affect the investment's feasibility.
Hidden costs
Beyond the purchase price, there are several hidden costs to consider with vacation rental properties, which can add up:
- Furnishing costs: Vacation rentals need to be fully furnished, unlike long-term rentals.
- Utility and other bills: Unlike long-term rentals, owners are typically responsible for all utilities and related expenses, including internet and streaming services.
- Property management: This cost arises when using a local rental company or an online platform like Airbnb to manage bookings.
- Maintenance and repairs: Regular 'wear and tear' may be higher due to frequent guest rotation.
- Marketing: Investment in professional photos, property descriptions, or paid advertising may be required to market the property.
Let's Team Up
Investing in short-term rentals and vacation properties can be a profitable venture. However, it's essential to understand the market dynamics, tax implications, profitability timeline, regulations, and insurance considerations. By consulting with financial and real estate professionals, investors can make informed decisions and work toward maximizing their return on investment.
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Global markets have been volatile in 2026, but few assets have been on as wild a ride as oil. Just last week, WTI crude oil traded in a $43 dollar range, reaching as high as ~$119 per barrel in intra-day trading and as low as ~$76 as the conflict in the Middle East continued to develop. Prices steadily climbed late in the week after an IEA decision to release 400mn barrels of oil failed to temper supply concerns, ultimately closing just below $99. On average in March, oil prices are up over 30% m/m and 25% from their average in March 2025. If higher prices are sustained, there could be meaningful implications for inflation.
A simple regression on data back to the 80s suggests that every 10% y/y increase in the average price of oil boosts energy inflation by 2.7% in the following month. This increases headline inflation directly by 17bps after considering energy’s ~6.3% weight in the index. However, higher oil prices don’t only impact the energy bucket – they indirectly feed through other components, such as core goods and transportation services. A regression on headline CPI shows that a 10% y/y rise in oil prices more generally boosts headline inflation by 25bps in the following month.
It is all but guaranteed the FOMC will hold rates steady at this week’s meeting. But with upside inflation risks stemming from fiscal stimulus, tariff pass-through and now the conflict in the Middle East, nearly 40bps of rate cuts for 2026 have been priced out of markets since the end of February. In our view, inflation should still fade later this year. But the Fed’s updated summary of economic projections this week should provide perspective on how recent events have changed its view of the world, and the path forward for inflation.
Chart of the Week: Source: BLS, FactSet, NYMEX, J.P. Morgan Asset Management. March 2026 figure for WTI crude represents the y/y % change calculated using the month-to-date average crude oil price.
Thought of the Week: Source: Bloomberg, BLS, FactSet, NYMEX, J.P. Morgan Asset Management.
Abbreviations: Cons. Sent.: University of Michigan Consumer Sentiment Index; CPI: Consumer Price Index; EIA: Energy Information Agency; FHFA HPI: - Federal Housing Finance Authority House Price Index; FOMC: Federal Open Market Committee; GDP: gross domestic product; HPI: Home Price Index; HMI: Housing Market Index; ISM Mfg. Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally Adjusted Annual Rate
Index: Institute for Supply Management Manufacturing Index; PCE: Personal consumption expenditures; Philly Fed Survey: Philadelphia Fed Business Outlook Survey; PMI: Purchasing Managers' Manufacturing Index; PPI: Producer Price Index; SAAR: Seasonally
Adjusted Annual Rate
MSCI EAFE is a Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East.
Bond Returns: All returns represent total return. Index: Bloomberg US Aggregate; provided by: Bloomberg Capital. Index: Bloomberg Investment Grade Credit; provided by: Bloomberg Capital. Index: Bloomberg Municipal Bond 10 Yr; provided by: Blomberg Capital. Index: Bloomberg Capital High Yield Index; provided by: Bloomberg Capital.
Key Interest Rates: 2 Year Treasury, FactSet; 10 Year Treasury, FactSet; 30 Year Treasury, FactSet; 10 Year German Bund, FactSet. 3 Month LIBOR, British Bankers’ Association; 3 Month EURIBOR, European Banking Federation; 6 Month CD, Federal Reserve; 30 Year Mortgage, Mortgage Bankers Association (MBA); Prime Rate: Federal Reserve.
Commodities: Gold, FactSet; Crude Oil (WTI), FactSet; Gasoline, FactSet; Natural Gas, FactSet; Silver, FactSet; Copper, FactSet; Corn, FactSet. Bloomberg Commodity Index (BBG Idx), Bloomberg Finance L.P.
information from FactSet's Pricing database as provided by MSCI. Russell 1000 Value Index,
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