The same 3-bedroom property produces wildly different net returns as an STR vs. LTR depending on location. Here's how the math actually breaks down across five U.S. markets.
Most owners ask the wrong question first. The debate between short-term and long-term rentals isn't about which strategy is better — it's about which one the math supports in your specific market. Run the same 3-bedroom property through both models in five different cities and the spread between outcomes is significant enough to change the entire investment thesis.
This is that comparison.
Every market comparison below uses the same hypothetical property: a 3-bedroom, 2-bathroom home with a market value of approximately $400,000 and roughly 1,400 square feet of rentable space. The goal isn't to produce projections you can take to the bank — it's to isolate how market conditions, platform performance, and operating cost structures change the net income outcome.
For each market, long-term rental income is modeled at the current median 3-bedroom rent. Operating expenses are standardized at 35% of gross rent — covering property management (typically 8–10% of gross), maintenance reserves, insurance, and vacancy buffer. Net income is gross rent minus that blended expense rate.
STR gross revenue is modeled using market-level ADR (average daily rate) and occupancy benchmarks drawn from AirDNA's published data. Operating expenses for STRs are higher — typically 45–55% of gross revenue — because they include platform fees (Airbnb/VRBO take 3–5%), cleaning and turnover costs, supplies, dynamic pricing tools, and active management. The model uses 50% as the blended expense rate for comparability across markets.
Net operating income is gross revenue minus the applicable expense rate. No mortgage, no depreciation, no tax treatment is included — this is an operating income comparison, not a full investment analysis.
Houston's STR market benefits from a large, diversified demand base: energy sector relocations, Texas Medical Center visitors, convention traffic, and year-round domestic tourism. There are no citywide STR licensing bans, though some municipalities within the metro have their own rules.
Median 3-bedroom rent in Houston sits at approximately $1,850/month as of mid-2025. At a 35% expense ratio, net monthly income lands around $1,203, or roughly $14,430 annually.
A well-positioned 3-bedroom STR in Houston achieves an ADR of approximately $175/night at 68% occupancy, generating roughly $43,470 in annual gross revenue. After the 50% blended expense rate, net income is approximately $21,735.
Net return differential: STR outperforms LTR by approximately $7,300 annually in Houston — a meaningful gap, but dependent on maintaining occupancy above 65%.
Galveston operates as a pure leisure market — beach access and proximity to Houston make it one of the most consistent short-term rental performers in the Gulf Coast region. Galveston coastal STR properties have been outperforming inland markets throughout 2025, driven by compressed supply and persistent weekend demand.
Long-term rental demand in Galveston is thinner than in Houston — much of the housing stock is vacation-oriented and LTR inventory is limited. A 3-bedroom LTR commands approximately $1,650/month. At 35% expenses, net income is approximately $1,073/month, or $12,870 annually.
Galveston STRs show strong seasonal peaks but also meaningful off-season compression. At a blended ADR of $225/night and 72% annual occupancy, gross revenue reaches approximately $59,130. After 50% expenses, net income is approximately $29,565.
Net return differential: STR outperforms LTR by approximately $16,700 annually in Galveston — the widest gap in this comparison, and a reflection of the leisure market premium a well-managed coastal STR commands.
The tradeoff is operational intensity. Galveston properties require more active management, higher cleaning frequency, and tighter supply chain discipline during peak season. That's where the gap between a managed STR and a self-managed one materializes fastest.
Austin's STR regulatory environment has tightened meaningfully over the past three years. The city requires STR permits, caps Type 2 licenses (non-owner-occupied) in certain zones, and enforcement has increased. Operators need to underwrite regulatory risk before assuming Austin STR performance benchmarks apply to their specific address.
Austin's long-term rental market remains strong despite demand normalization from its 2021–2022 peak. Median 3-bedroom rents sit at approximately $2,100/month. At 35% expenses, net income is approximately $1,365/month, or $16,380 annually — the strongest LTR baseline in this comparison.
For properties that can obtain and hold an STR permit, Austin's ADR averages around $210/night at approximately 67% occupancy, generating roughly $51,320 in gross annual revenue. After 50% expenses, net STR income is approximately $25,660.
Net return differential: STR outperforms LTR by approximately $9,280 annually in Austin — but the regulatory friction narrows the effective advantage once permitting costs, compliance overhead, and license renewal risk are factored in.
For a direct operator-level breakdown of how these two Texas markets compare at the asset level, the Austin vs. Houston STR investment comparison covers the licensing and zoning picture in more detail.
Nashville has emerged as one of the most in-demand STR markets in the country, driven by bachelorette tourism, convention traffic, and a growing permanent population base. The city has also enacted some of the most restrictive STR ordinances in the South — owner-occupied STR licenses are available; non-owner-occupied licenses are no longer issued in most residential zones.
Median 3-bedroom rent in Nashville is approximately $1,950/month. At 35% expenses, net income is approximately $1,268/month, or $15,210 annually.
For owner-occupied properties — or grandfathered non-owner licenses — Nashville STRs perform well. ADR averages approximately $235/night at roughly 70% occupancy, generating approximately $60,078 in gross annual revenue. At 50% expenses, net income is approximately $30,039.
Net return differential: STR outperforms LTR by approximately $14,800 annually in Nashville — but the regulatory caveat is material. This comparison only holds for properties that can legally operate as non-owner-occupied STRs. Buyers underwriting a Nashville acquisition for STR purposes without confirming license availability are running a flawed pro forma.
According to NAR's research on short-term rental restrictions, municipal STR ordinances are tightening across major metros — and Nashville is one of the most-cited examples. The math is strong; the licensing risk is real.
Phoenix and Scottsdale operate as a single demand zone for STR purposes. The Scottsdale submarket captures premium leisure, golf, and conference demand; Phoenix proper captures more workforce and domestic travel. Arizona's STR regulatory environment has been relatively permissive at the state level — Arizona law limits local municipalities from banning STRs outright — which provides more operating certainty than markets like Nashville or parts of Austin.
Median 3-bedroom rent in the Phoenix metro sits at approximately $1,875/month. At 35% expenses, net income is approximately $1,219/month, or $14,625 annually.
In Scottsdale-adjacent submarkets, a 3-bedroom STR commands an ADR of approximately $250/night at 65% occupancy, generating approximately $59,375 in gross annual revenue. After 50% expenses, net income is approximately $29,688.
Net return differential: STR outperforms LTR by approximately $15,000 annually in Phoenix/Scottsdale — with lower regulatory risk than Nashville and stronger ADR than Houston. The seasonal compression risk (summer heat drives occupancy down in June–August) should be modeled into any underwriting, but a competent dynamic pricing strategy smooths much of that exposure.
AirDNA's STR tax and income data provides a useful tool for stress-testing gross revenue assumptions at the property level before finalizing any underwriting.
| Market | LTR Annual Net | STR Annual Net | STR Advantage |
|---|---|---|---|
| Houston, TX | $14,430 | $21,735 | +$7,305 |
| Galveston, TX | $12,870 | $29,565 | +$16,695 |
| Austin, TX | $16,380 | $25,660 | +$9,280 |
| Nashville, TN | $15,210 | $30,039 | +$14,829 |
| Phoenix/Scottsdale, AZ | $14,625 | $29,688 | +$15,063 |
Across all five markets, the managed STR outperforms the long-term rental on a net operating income basis. The spread ranges from $7,300 in Houston to $16,700 in Galveston. But those numbers come with conditions.
Net income comparisons are necessary but not sufficient. Three factors close the gap between modeled returns and actual performance:
Nashville's STR advantage evaporates if you can't obtain a license. Austin's permitting costs and renewal uncertainty add a real friction layer. Phoenix has better regulatory stability — but even permissive states can tighten. Before any STR underwriting is finalized, the regulatory environment for that specific parcel needs to be confirmed, not assumed.
Short-term rental regulations by state is a useful reference for understanding the current landscape market-by-market.
The 50% expense ratio above assumes a competently managed STR — professional photography, dynamic pricing calibrated to the local event calendar, sub-one-hour guest response, and a cleaning operation that holds ratings above 4.7. Self-managed properties routinely underperform the modeled occupancy by 8–15 points, which in a market like Galveston can erase the entire STR advantage.
At Selly's full-service Airbnb property management, the 2025 portfolio average sits at 78.4% occupancy — meaningfully above the market-level assumptions used in this comparison. That gap is where institutional-grade management earns its fee.
STR income is higher in every market modeled here, but it has more volatility. LTR income is predictable, requires less operational attention, and doesn't expose the owner to platform policy changes, negative review spirals, or permitting disruptions. For owners who are actively managing multiple asset classes or who have limited bandwidth for operational complexity, the LTR's lower ceiling comes with a lower risk floor.
The National Association of Realtors has tracked STR investor performance across markets and consistently identifies three factors that separate outperforming STR assets from underperforming ones: location-specific demand analysis, professional management, and regulatory clarity before acquisition. NAR's guidance for STR investors reinforces what the numbers in this comparison demonstrate — the market and the operator matter more than the strategy label.
The STR advantage over LTR is real across every market in this comparison. But the numbers in a model are not the numbers in your bank account — the gap between the two is determined almost entirely by how the property is managed. Location establishes the ceiling. Operations determine whether you hit it.
If you own a property in Houston, Galveston, Austin, or another Texas market and want to know what the math looks like for your specific asset, Selly runs that analysis before any engagement begins. If the STR model supports your goals, Selly's full-service Airbnb property management handles everything from listing optimization to monthly owner reporting.
