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Plot twist: Remember when everyone not so long ago declared that short-term rental investing was over because the market was saturated? Well, that appears to have changed, according to new data. High interest rates have been good for one thing as far as existing STR owners are concerned: eliminating the competition.
According to the new midyear outlook from short-term rental analytics site AirDNA, high interest rates have kept potential investors from buying properties, boosting profits for owners who got in before the post-COVID-19 pandemic rate hike, as nightly rates continue to edge up.
From Saturated to Emancipated
The narrative in recent years was that short-term rentals were a bad investment, in part because the market was saturated. Owners who stuck it out must be feeling emancipated as profits rise.
Jamie Lane, AirDNA’s chief economist, said in a press release:
“Investors want clarity on whether STRs remain a strong opportunity. The data points to a clear yes. The STR Premium (how STR earnings stack against investment costs) has climbed to its highest level since 2022, and revenue indicators return to more stable growth. Coastal, mountain/lake destinations, and suburban areas of major U.S. cities show some of the most favorable conditions for investors heading into 2026.”
According to AirDNA’s 2026 Midyear Outlook, the math has definitely shifted, as mortgage rates above 6% have slowed new investment, with expected occupancy expected to rise to a pre-COVID average of 57%.
Bram Gallagher, director of economics and forecasting at AirDNA, said in a press release:
“At the beginning of the year, we expected lower borrowing costs to bring more new supply to market. Instead, renewed inflation driven by the war in Iran and the resulting energy shock pushed mortgage rates back above 6%, delaying investment. That slower supply growth, combined with healthy travel demand, has supported occupancy while creating stronger pricing conditions for established operators. As inflation eases, we expect demand and investment activity to strengthen further in 2027.”
Things Small Investors Need to Consider
For small landlords who can avoid taking out a loan to buy a rental property, it’s a good time to consider a short-term rental.
“First-time booker growth also accelerated to 10%—the highest growth since early 2022,” Airbnb’s leadership told investors in its Q1 call, underscoring that guest demand has remained robust even as the broader housing market cooled.
Can an STR Outperform a 12-Month Lease?
The answer appears to be “yes”—with some caveats.
A recent analysis of 15 U.S. markets by STR analytics firm AirROI found the following:
“Airbnb is profitable in 10 of 15 U.S. markets we analyzed when you account for all costs, including mortgage on a median-priced home. Without a mortgage, every U.S. market produces positive net operating income. The gap between the best and worst markets approaches $50,000 per year—Broken Bow, OK, generates $29,446 in annual net profit, while Denver, CO, loses $19,939. The question is not whether Airbnb is profitable. The question is where.”
The article goes on to state that “the mortgage is the profitability killer in expensive markets” and that “home prices below $500,000, strong leisure demand driven by outdoor recreation, and limited hotel inventory that forces visitors toward vacation rentals” enjoy strong positive cash flow.
Regarding the 12-month lease comparison, the rental price for each side-by-side market would need to be taken into account, with high-performing vacation markets clearing high profit margins in certain cities.
How to Get Into Short-Term Rentals Without Taking on New Loans
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Small investors considering switching from long- to short-term leases or purchasing new properties with the express intention of running a vacation rental business should consider these strategies to do it without crippling cash flow by incurring high-interest debt.
Liquidate assets: Although this could also be utilized to buy a 12-month rental, if the STR profits are much higher (because of the location or lack of competition), selling stocks or underperforming rentals might make sense to fund an STR operation.
Convert part of a personal residence into an STR: Options include a garage or basement.
Use a second/vacation home as an STR: This is perhaps one of the easiest methods to take advantage of the lack of competition in the STR space. If you already have a second home for family getaways, using it as an STR will still let you enjoy it with your family while generating income.
Utilize rooms in your personal residence: If you have extra bedrooms, this is another no-brainer if you don’t mind sharing the hallway/living room and possibly a bathroom with your guests.
Convert existing 12-month rentals into STRs: This is not as simple as changing the lease terms. Owning an STR means a considerable investment in furnishings, kitchen/cookware, bedding/linens, security cameras, lighting, entry keypads, and a reliable cleaning crew. You’ll also need a dedicated management company familiar with the labor-intensive nature of STRs, or, if you plan to self-manage, you will need to bring yourself up to speed on what’s expected.
Rental Arbitrage
If the labor intensity of running your own STR rental business doesn’t appeal to you, you might want to consider handing over the reins to a company specialized in rental arbitrage. This is often a controversial undertaking because, despite the social media hype, there are many risks involved for both you as the owner and the renter.
First, under conventional RA procedures, the tenant (rental arbitrage tenant/sublessor) has to invest quite a bit of their own money in furnishing and equipping the property into an STR while paying rent to you, the landlord, so they must have deep pockets and a track record of success.
If they don’t get bookings, they still have to pay the rent. They have to feel confident that the location warrants taking on this risk, with the profit returned in excess of these expenses.
An alternative proposal many RA companies use is a profit-sharing split with the owner. They manage and lease your building to STR guests for a share of the profits. However, many landlords figure they might as well go the regular route with year-round tenants and a management company.
Profit sharing only makes sense in an extremely high-demand neighborhood—such as a World Cup venue—where, even with a split, the property owner would make far more than with a year-round lease.
Final Thoughts
Short-term rentals can be extremely advantageous in some markets where 12-month leases are heavily skewed in the tenant’s favor due to landlord-tenant laws that make evictions difficult. For example, although New York City laws have largely outlawed short-term rentals, they are allowed under certain circumstances.
Because STR tenants pay upfront and are only there for a fixed amount of time, STRs make great sense for landlords in NYC or certain vacation/high-traffic areas. If the competition is stymied by high interest rates, going the extra mile to make your STR work is well worth it.
