Short-Term vs. Long-Term Real Estate Investments in 2025 – How to Calculate Profits & ROI?

Short-term rentals have become popular real estate investments, offering high returns and flexibility. They cater to vacationers and business travelers, allowing owners to adjust pricing based on demand. Unlike long-term leases, they require active management, marketing, and maintenance. While they provide excellent income potential, challenges include fluctuating occupancy rates, local regulations, and competition.

Investors must consider location, property type, and market trends to maximize profitability. Understanding guest preferences, optimizing pricing strategies, and maintaining high-quality standards are crucial for success. This article explores the key benefits, risks, and strategies for making short-term real estate investments profitable and sustainable.

Definition of Short-Term Rentals

Seasonal rentals, or short-term rentals, refer to furnished accommodations. They are intended for vacationers, tourists, and business travelers who book accommodations for a period of a few days to a few months. To be considered a short-term rental, the accommodation must not be rented for more than 90 consecutive days by a single tenant.

Seasonal rentals have two major advantages: profitability and flexibility of use of the accommodation by the owner. Indeed, the latter can generate a higher rental yield than long-term rentals, as nightly rental prices are generally higher. Furthermore, short-term rentals are not subject to rent controls, even in high-demand areas.

Moreover, furnished rental owners can maximize their rental income and real estate investments during the high season and reclaim the property as a second home during the low season, offering much greater flexibility than a residential lease where the tenant stays year-round.

The evolution of short-term rentals

For over a decade, the seasonal rental market has rapidly developed around new platforms. Booking.com emerged in 2007, followed by Airbnb in 2010. The latter quickly established itself as the go-to platform for vacationers and vacation rental owners.

Airbnb’s success has been so significant that it has been a formidable competitor for the traditional hospitality sector for several years. Indeed, the platform offers attractive prices as well as a wide variety of accommodations and locations. It has great flexibility in stays, with more affordable dates and more comprehensive amenities. Hosts can offer local and personalized experiences, and the platform is particularly intuitive.

Short-term rentals – pros & cons

Like any type of financial activity, renting out your property for a short period has both advantages and disadvantages.

Additional money

First of all, renting out your property for a short period is a practical way to supplement your regular income. Indeed, this type of income allows those who have made investments in new or existing real estate to increase their monthly expenses, thanks to the property’s financial returns. However, it should be noted that short-term rentals are a solution with beneficial effects in the short term rather than over a long period of time.

Security of the financial contributions

Indeed, it has been proven that short-term rentals represent a much lower risk of non-payment than long-term rental investments. This is because tenants using short-term rentals are in the property for shorter periods, so life events that cause unpaid rent (layoff, illness, divorce, etc.) have much less impact. Furthermore, tenants move into the property for a fixed period, so they are very clear about the price and can generally even pay before moving in.

However, it should not be overlooked that the financial benefits of a short-term rental are less stable than those of a long-term one. Indeed, short-term rentals necessarily involve vacancy periods. These periods are much less frequent when a tenant rents a property for an indefinite period. Obviously, the location, season, and condition of the property will influence the length of vacancy periods.

Better condition – more reservations

A property in good condition, located in a tourist area, will have very few vacancy periods during the summer. However, in a more remote area or with a property in poor condition, these periods of vacancy can really dent the rental income.

Furthermore, keeping a property in good condition requires higher investments in rental management, and purchasing a real estate in a tourist area requires higher initial investments. Owners may seek to manage the property themselves, which can be time-consuming.

Many specialized platforms

Finally, the establishment of digital platforms such as the leading Airbnb has made it much easier to rent out properties for short periods. However, the success of short-term rental platforms has also had a negative impact on this business. Indeed, following the increase in the number of properties offered for short-term rentals, the government decided to implement new laws, tighten existing ones, and increase penalties for illegal activity.

Here is a summary of the advantages and disadvantages of short-term rental in 2025:

Short-Term Rentals
Profitability Factors

Whether it’s geographic location, property-related costs, or external events, the profitability of a short-term rental is influenced by various factors. Think twice regarding them before making investments in real estate.

Location of the property

Location is a determining factor in the profitability of a short-term rental. Most tourist residences are located in popular vacation spots. These can be in the mountains, the seaside, or even historic centers. Depending on the geographic area, seasonality (high and low seasons) can vary.

For example, a mountain chalet near ski resorts will tend to attract much higher rental demand in winter. Conversely, a furnished rental near the coast will be more popular in the summer. Other sectors may experience fairly constant demand depending on the season but are still in higher demand during school vacation periods.

Furthermore, the closer the furnished accommodation is to amenities and points of interest, the higher the demand, regardless of the season.

Maintenance and advertising costs

Renting a property as a seasonal rental allows for a comfortable rental yield, but expenses should not be overlooked. Indeed, even if the gross profitability of a short-term rental is higher than that of a long-term rental, the net profitability often shows a significant difference. This is explained by the fact that maintenance and communication costs are higher for a short-term rental.

A seasonal rental has a series of guests for short periods. Therefore, it must be constantly visible to attract consistent rental demand. This generates costs, particularly for boosting posts on social media and real estate directories. Additionally, platforms like Airbnb take a percentage commission on rentals.

The same applies to maintenance and rental management: more frequent cleaning requires a larger budget. For example, a cleaning team must come into the property between each tenant. In a long-term rental, on the other hand, the tenant, who has been in place for at least 1 to 3 years, is responsible for cleaning and routine maintenance.

Special occasions and events

One of the best examples was the Paris 2024 Olympic Games. This event led to an explosion in rental demand in the capital and its surrounding areas, particularly due to the millions of tourists in attendance. Owner-occupiers and traditional owners, therefore, wanted to take advantage of this opportunity to offer short-term rentals. The rent collected allowed them to generate very significant rental income in a short period of time.

Short-term rentals are, therefore, more profitable, but they require greater management efforts (cleaning, welcoming tenants, bookings, etc.). Furthermore, since the property is likely to deteriorate quickly, it is advisable to budget more for repairs.

Faced with these realities, many owners wonder how to maximize their property’s profitability without becoming overwhelmed by management. Complete Hospitality Management offers a turnkey rental management service that combines the advantages of furnished rentals with optimized management.

Long-Term Rentals:
Are These Investments Profitable?

Starting a rental business can be an excellent way to grow your real estate investments by generating additional income. This raises the question of the type of rental. Is long-term rental profitable? What are the advantages and factors that can influence the owner’s income? Let’s answer these questions.

What is long-term rental?

A long-term rental, or residential lease, is a type of contract signed between an owner and a tenant. This lease lasts between 1 and 3 years minimum, depending on the type of rental, and makes the property the tenant’s primary residence.

In most cases, lease renewal is automatic unless one of the parties expresses a desire to terminate the contract on the expiration date. In this case, a one-month notice period is required for furnished rentals and three months for unfurnished rentals.

The advantages of long-term rentals

Long-term rent has many advantages. Let’s highlight the most important ones:

Stable and predictable income

Long-term rentals allow owners to generate stable income over the long term. Unlike short-term rentals, long-term residential leases can last one or more years with the same tenant. This duration depends on the type of rental:

• Furnished rentals: minimum one-year lease
• Unfurnished rentals: minimum three-year lease

If the property is located in a city or neighborhood with high rental demand, owners can further secure their income by renting easily and limiting the risk of rental vacancies between two tenants. This provides them with significant financial security.

Reduced management fees

Long-term rentals result in a much lower turnover than short-term rentals. As a result, rental management is reduced, as the owner does not need to inspect and clean the property every few weeks or months, nor do they need to hire professionals to do so. This saves the owner time and money.

Land management for a long-term rental is also made easier if the owner uses a property management agency. Real estate professionals then handle all tasks related to the rental of the property, such as:

• Finding tenants
• Performing entry and exit inventories
• Drafting and having the rental agreement signed
• Collecting rent and service charges for payment to the owner
• Offering insurance to secure the owner’s business (unpaid rent insurance, damage insurance, etc.)
• Handling legal costs and procedures in the event of a rental dispute
• Collecting the security deposit

Factors That Influence
Long-Term Rental Profitability

If your goal is to get the most out of a long-term rental financially, you need a strategy that takes into account a large number of critical factors. From location and property type to pricing and rental management, each aspect plays a role in determining financial success of your investments in real estate.

Real estate area

The location of the property is a determining factor in the profitability of a long-term rental. Properties located in areas with a dynamic rental market are the most profitable for owners. To identify these, several points must be taken into account:

Cities

The volume of rental demand is an essential criterion that depends greatly on the location of the property. The most attractive cities for people are often large cities (mainly capitals) with a booming job market, medium-sized cities with a strong cultural heritage, and university towns. Of course, some cities combine all of these criteria.

Examples of cities with strong long-term rental demand

City type	Characteristics	Examples
Large cities (capitals & economic hubs)	– High job market demand – Strong economic growth – Well-developed public transport – Higher cost of living and rental prices	– New York, USA – London, UK – Paris, France – Tokyo, Japan
Medium-sized cities with cultural heritage	– Historical significance – Tourism and local events boost rental demand – Balanced lifestyle with lower costs than large cities	– Florence, Italy – Seville, Spain – Salzburg, Austria – Quebec City, Canada
University towns	– Large student population – Stable annual rental demand – Affordable housing is in high demand – Frequent tenant turnover	– Oxford, UK – Cambridge, UK – Heidelberg, Germany – Boston, USA
Cities that combine all criteria	– Economic strength – Rich cultural heritage – Strong academic institutions – Tourism appeal	– Berlin, Germany – Barcelona, Spain – Sydney, Australia – Vienna, Austria

Neighborhoods

Within a single municipality, the profitability of a long-term rental can vary considerably. Owners must choose the neighborhood and even the street carefully to maximize their rental income. Properties located in the most attractive areas, such as city centers, are the most sought after because they provide easier access to jobs, transportation, and urban infrastructure.

Property type and quality

The kind of accommodation rented plays a key role in the profitability of a long-term rental.

The quality of housing

The more recent and high-quality the property, the more comfortable it will be for guests. It is, therefore, likely to attract greater rental demand and benefit from a good occupancy rate.

To assess the quality of a property, the following factors must be taken into account:

• The year the property was built
• The building materials and property general condition
• The equipment (appliances, heating system, domestic hot water system, ventilation, etc.)
• The presence or absence of an outdoor space
• The number of rooms and the living area
• The quality of the insulation
• The energy performance (DPE rating)
• The characteristics of the environment
• The need for repairs and maintenance

Target audience

For long-term rentals to be as profitable as possible, the property must also be suitable for the target tenants. Here are some examples of houses and apartments that can be adapted to different audiences:

Students

• Studio to one-bedroom apartments
• Serviced residences (student residences)
• Flexible leases (furnished rental or mobility leases)
• Close to public transportation
• Close to universities and colleges
• Dynamic and youthful neighborhood
• Affordable rents
• Co-living spaces

Young professionals and couples

• One-bedroom to two-bedroom apartments
• Close to business districts and shops
• Close to public transportation
• Young and dynamic neighborhood

Families with children

• Two-bedroom to four-bedroom apartments
• Single-family homes
• Second bathroom
• Garden or terrace
• Quiet and secure residential neighborhood
• Close to schools, daycare centers, and parks
• Quick access to main roads and public transport
• Family-friendly amenities

Rent amount

Determining the rent payment is a necessary step in maximizing the profitability of a long-term rental. Rent determines the rental value of a property, as well as the owner’s gross income.

The best option for accurately assessing rent amounts is to have a rental appraisal conducted by a professional in the sector. Real estate agencies and independent real estate agents have more in-depth knowledge of the real estate market and access to more comprehensive databases. Hiring a professional allows for an accurate determination of the rental value of the property, allowing for a rent that is in line with the current local market.

The more closely the rent is aligned with market trends, the faster the property will be rented, without the risk of financial loss for the owner. An inaccurately estimated rent can actually hinder profitability. If it is too low, the owner’s income will be reduced, and if it is too high, tenants will be reluctant to rent.

Rental management

Entrusting your property to a rental management agency generates management fees. However, the involvement of competent professionals can represent a major financial advantage for the owner. Indeed, the services carried out by the rental management agency allow for optimized property management, maximizing income, and securing it. Proficient real estate experts can:

• Quickly find tenants for the property
• Accurately estimate the amount of rent and charges
• Minimize periods of vacancy
• Collect and pay rent and charges on a fixed schedule
• Secure income through various insurance policies
• Organize renovation work before significant damage occurs
• Manage unpaid rent to limit the risk of financial loss for the owner

Long-Term vs. Short-Term Rental:
What is More Profitable?

As we’ve seen in this article, rental profitability depends on many factors. It’s not necessarily better for long-term or short-term rentals. It all depends on the investors’ personal objectives, the location, and the management methods.

• Long-term rentals allow you to secure and stabilize rental income over the long term. However, rents are lower than those for short-term rentals, especially in high-demand areas subject to rent controls.
• Short-term rentals are generally more profitable at certain times of the year in tourist locations popular with vacationers. They are also important during special events, such as the Paris 2024 Olympic Games. In this context, seasonal rentals are much more profitable than long-term rentals, but they are only temporary.

Long-term vs. short-term rental

Criteria	Short-term rentals	Long-term rentals
Definition	Furnished accommodations rented for a few days to a few months, not exceeding 90 consecutive days per tenant.	Residential lease lasting between 1 to 3 years or more, serving as the tenant’s primary residence.
Target audience	Tourists, business travelers, vacationers.	Families, students, professionals seeking long-term stability.
Profitability	Higher rental income per night, especially in high-demand seasons.	Lower monthly rent, but steady and predictable income over time.
Income stability	Fluctuates based on seasonality, occupancy rates, and external events.	Stable monthly income with long-term tenants.
Vacancy rate	Higher vacancy periods between bookings, influenced by seasonality.	Lower vacancy rates due to long-term lease agreements.
Management effort	High: requires frequent cleaning, guest turnover, and property maintenance.	Low: tenant is responsible for cleaning and minor maintenance.
Regulations & restrictions	Often subject to city laws, taxes, and restrictions on short-term rentals.	Generally fewer legal restrictions, but subject to tenant protection laws.
Maintenance costs	High: frequent cleaning, repairs, and upkeep between guests.	Lower: tenants take responsibility for maintenance during their stay.
Marketing & advertising	Requires continuous marketing efforts on platforms like Airbnb, Booking.com, and social media.	Minimal marketing needed once a tenant is secured.
Property wear & tear	Higher due to frequent guest turnover and potential misuse.	Lower as tenants stay for extended periods and take care of the property.
Location influence	Best in tourist destinations, city centers, and event-driven locations.	Best in cities with strong job markets, universities, and growing populations.
Flexibility for owners	High: owners can use the property between rentals or adjust pricing seasonally.	Low: property is occupied long-term, limiting owner access.
Risk of Non-Payment	Low: guests usually pay in advance before their stay.	Moderate: tenants pay monthly, but there is a risk of unpaid rent or late payments.
External factors impact	High: affected by seasonality, tourism trends, major events (e.g., Olympics, festivals).	Low to moderate: rental demand remains stable unless affected by economic downturns or local real estate trends.
Example cities	Paris, Rome, Barcelona, New York (tourist-heavy areas).	London, Berlin, Toronto, Tokyo (strong job markets and universities).
Taxation & fees	Higher taxes and service fees from platforms like Airbnb; may require business registration.	Lower taxes, usually covered under standard rental income tax laws.
Suitability for investors	Best for investors who can handle active management and market fluctuations.	Best for investors seeking passive income with minimal hands-on management.

How to Calculate the Return on
Real Estate Investments?

The success of a rental investment depends on the quality of the accommodation and its location, but also on realistic management of charges, risks and taxes. Profitability measures the performance of a rental investment. How is it calculated? How much does real estate yield? What is the true rental yield of real estate?

Gross profitability	Annual rent divided by the property’s purchase price, multiplied by 100. Initial indicative estimate.
Net profitability	Gross profitability with fewer expenses (property tax, management, non-recoverable co-ownership).
Adjusted net profitability	Includes taxes, renovations, insurance, deductions, and tax benefits.
Property Size	Small properties: high yield but more rental vacancies. Large properties: lower yield but rental stability.
Location impact	Expensive areas = low yield but long-term valuation (e.g., Paris, London, Tokio, Seoul, Washington).

An investment is meant to be profitable. For example, you invest $120. A year later, you have $127,20. The transaction, therefore, earns you 6% per year. When it comes to real estate investing, it’s all about knowing your rental yield. Roughly speaking, it’s the ratio between what the property you rent brings in and what it costs you. For you, as an investor, this question is crucially important since your real estate transaction must not cause you to lose money. But precisely: how is this rental profitability determined?

The basic calculation (gross return) takes into account rents and the price of the property, which gives the gross return. Adding expenses and income taxes gives the net return. Including tax benefits, we refer to it as net-net return. The question remains as to how exactly this works. And, more importantly, how much does the property actually earn?

Real estate investments: yield or profitability?

Words have meaning, especially when it comes to real estate investment. The idea is therefore to know precisely what we’re talking about in order to clearly differentiate between yield and profitability.

Rental yield	Income generated by renting a property as a proportion of its total cost.
Rental profitability	Rental income plus the change in property price, including resale and other financial flows.
Internal rate of return	A comprehensive measure of profitability, taking into account all financial flows related to the investment.

Gross yield of property investment

This is obtained by dividing the annual rent by the purchase price of the property and multiplying the result by 100. This is therefore the annual gross rental yield. A simple example: a studio apartment purchased for $200,000 and rented for $780 per month yields 4.68% gross (780 x 12 / 200,000 x 100 = 4.68).

This gross rental yield is a very useful initial indicator. It allows you to compare like with like: for each property, expenses and local taxes differ. That said, gross yield only provides an initial indication, and other factors must be taken into account for a more accurate calculation.

Return net of expenses

Repeat the previous calculation. From the annual rent, you subtract the property tax (paid by the investor owner, in other words, by you), the non-recoverable co-ownership fees from the tenant, and the management fees. For example, from the annual rent for our studio, you subtract $750 in property tax, 10% in management fees, and $425 in non-recoverable charges. New annual rent: $7,249. Profitability (or rental yield) net of charges: 3.62%.

This gives you a much more precise idea of ​​the rental yield. This approach takes into account cash inflows and outflows and allows you to better assess the ins and outs of your real estate investment. You will integrate these elements into the financial simulation that will allow you to build your financing plan. Please note: Taxes (social security contributions, transfer taxes (notary fees, etc.)) are not included in the net profitability after expenses.

Adjusted net profitability

This is the net profitability after expenses, plus taxes, income, and ancillary expenses. To determine it, you add transfer taxes (approximately 8% of the gross purchase price for existing properties) and any renovations to the property price. You include the rent, including charges by adding insurance and social security contributions. You take into account the fact that certain expenses (loan interest, renovations, insurance for unpaid rent, etc.) are deductible from rental income.

If applicable, you include tax exemption schemes for existing properties. The formula for calculating this is: rent including charges plus charges plus tax divided by the total investment amount, the All multiplied by 100.

The precise assessment of adjusted net profitability is a case-by-case process: it depends on the tax profile (particularly the tax rate) of each owner and each investment.

Larcher formula: how to calculate the rental profitability of a property?

To get a more precise idea of ​​the rental yield of your investment without doing heavy calculations, apply the Larcher method. It takes the gross profitability and calculates it over nine months of rent (not twelve). It is estimated that charges and other expenses, such as taxes, represent 25% of the rent, which is equivalent to three months of rent. Let’s take the example of our studio again.

Profitability using the Larcher method is calculated as follows: 780 x 9 / 200,000 x 100 = 3.51%. The net rental yield of this property is around 3.51%.

Rental Property: How Much Does It Bring In?

The net return on a real estate investment most often ranges from 2 to 7%, or even higher in some cases. Performance depends in particular on the type of property, with smaller properties yielding more income per square meter than larger ones. This requires some explanation to make an informed investment.

Comparison of rental property types: yield, stability, and costs

Property type	Yield per m²	Tenant stability	Turnover Rate	Maintenance Costs	Example
Studios & one-bedroom apartments	High	Low	High	High	Small city-center apartments for young professionals or students
Large apartments & houses	Lower	High	Low	Low	Suburban family homes with long-term tenants
Two- & three-room apartments	Moderate	Moderate	Moderate	Moderate	Mid-size city apartments appealing to couples and small families

The profitability of a property is lower in the most sought-after locations since they are the most expensive in terms of price. But these areas are safer in terms of valuation, which compensates for this. It’s no coincidence that real estate investments in many cities retains many fans despite a gross rental yield that is most often below 3%. The highly sought-after capital cities suffer from a housing shortage. Supply is lower than rental demand, which guarantees long-term property value.

Profitability rewards risk. The higher the risk, the higher the return. Thus, a property that yields little offers great security: it is more resistant to a potential downturn in the real estate market and a possible drop in prices. Objectively speaking, real estate investments currently offer a very good risk/return ratio. The latter, even when they are low-risk, are increasingly less profitable.

5 Tips for Good Real Estate Investments Returns

The elements that make up the net-net return on a rental investment must be as precise as possible so you can build a solid and secure financing plan. Here are five rules to follow to avoid unpleasant surprises.

1. Beware of overly optimistic simulations. Rent increase or resale price assumptions should not be overestimated. Be wary of rental yields that are too high.
2. Include property tax, charges, and renovations into your calculations. To calculate your net-net return, note that most of these items are deductible from rents when you declare them.
3. Take into account rental vacancy. This is the period during which the property is empty (you do not receive rent, which lowers the return). As a guide, allow for two months of rental vacancy per three-year period (vacancy rate of 5.50%).
4. Maintain financial flexibility. You should be able to accommodate a decrease of approximately 20% in your annual rent without jeopardizing your loan repayments. Note that banks will require residual savings and a small down payment to grant you the loan that finances your rental investment.
5. Consider tax benefits as bonuses, not ends in themselves. What matters is the property: the quality of the location and the property, the dynamic resale market, etc.

As a conclusion

The profitability of real estate investments is obviously important. But it shouldn’t be the sole selection criterion. The idea is first and foremost to build lasting wealth. You also need to define your objectives: renting out the property to collect income (the rent), housing a child, taking back the property to live in later, or reselling it to generate capital gains. In short, the idea is to know from the outset what you intend to do with the property after the rental phase.

These are all strategies that follow the same rules: choosing a quality property and a good address – the two key points for successfully renting and reselling when you want to.

Frequently Asked Questions on
Real Estate Investments

Updated on: 2025-03-18. Author: Karina

Tags: Property Management