Revenue Potential: Short-Term vs. Mid-Term Rentals

Mark Palmiere
Jun 1
11 min read

Updated: Jun 12

Short-term rentals (STRs) and mid-term rentals (MTRs) both offer ways to generate income, but they differ in revenue potential, management needs, and regulations. Here's a quick breakdown:

STRs: Rentals for less than 30 days, aimed at tourists and business travelers. They can earn up to 2–3x more than long-term leases, but require constant management, have higher expenses, and face strict regulations in cities like San Diego.
MTRs: Rentals for 1–6 months, appealing to remote workers, traveling professionals, and families. They offer more predictable income, lower operating costs, and fewer regulatory hurdles, with 20–30% higher revenue compared to long-term leases.

Quick Comparison:

Feature	Short-Term Rentals (STRs)	Mid-Term Rentals (MTRs)
Average Rate	$303/night	$155/night
Occupancy Rate	~38%	~51%
Management Effort	High (frequent turnovers)	Low (longer stays)
Regulations	Strict (licenses, taxes)	Minimal
Revenue Potential	Higher gross, lower net (due to costs)	Stable, predictable income

Key Takeaway: STRs offer higher earnings but come with more work and regulatory challenges. MTRs are easier to manage and provide steadier income. A hybrid strategy combining both can maximize revenue and minimize risks, especially in competitive markets like San Diego.

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Revenue Factors: STR vs MTR Comparison

Revenue factors are key to determining the profitability of short-term rentals (STRs) and mid-term rentals (MTRs). By understanding these elements, property owners can align their rental strategies with their financial goals and risk preferences. Let’s break down the differences in daily/monthly rates, occupancy consistency, and demand drivers to better understand these dynamics.

Daily Rates vs Monthly Rates

STRs often command significantly higher nightly rates compared to MTRs. For instance, the average nightly rate for STRs is approximately $303, while MTRs average around $155 - nearly half the rate. However, STRs’ shorter booking durations can limit their overall revenue potential. On the other hand, MTRs benefit from longer stays, reducing the time and cost associated with frequent guest turnover. A case study from Texas Corporate Homes' Owner Program illustrates this: one property earned $62,000 annually as an MTR, compared to $25,000 as a traditional long-term rental.

Guest expectations also play a role in pricing. STR guests typically book for a few nights and expect hotel-like amenities, while MTR guests - staying 30 days or more - value basic comforts and stability over luxury.

Occupancy Rates and Consistency

Occupancy rates highlight the trade-off between higher nightly rates and steady bookings. Nationally, STRs average about 38% occupancy, compared to 51% for MTRs. For context, the average Airbnb occupancy rate stands at roughly 54.3%, reflecting the seasonal fluctuations that often impact STRs. MTRs, on the other hand, convert inquiries into bookings at nearly double the rate of STRs, providing a more reliable income stream. This consistency becomes especially important during economic downturns or off-peak seasons. In 2023, nights sold for 30+ day bookings increased by 94% year-over-year, showcasing the growing dependability of MTRs.

Demand Sources for Each Strategy

The sources of demand for STRs and MTRs differ significantly, shaping their revenue patterns. STRs primarily cater to tourists, event attendees, and leisure travelers. In a city like San Diego, demand peaks during summer, Comic-Con, and major conferences, with quieter periods in between.

MTR demand, however, comes from steadier sources, such as corporate housing contracts, traveling healthcare workers, insurance claims for temporary housing, and professionals in transition. Partnerships with HR departments and hospitals often secure consistent MTR bookings. Unlike STRs, which rely heavily on last-minute reservations, MTR bookings are typically scheduled months in advance. This allows property owners to better forecast revenue and plan for maintenance.

"I believe property management companies will be looking to diversify their portfolio and allow mixed-use for short-term, mid-term and long-term stays to ensure their business model can withstand future, extreme circumstances and maintain revenue stability."
Vered Schwarz, COO of Guesty

While STRs may generate about 25% higher gross revenue, their increased operational costs and more intensive management requirements can significantly narrow the profitability gap compared to MTRs.

Operating Costs and Profit Analysis

When you dig into the cost structures of short-term rentals (STRs), it becomes clear that their higher nightly rates are often offset by increased operating expenses.

Turnover and Maintenance Expenses

STRs face frequent turnovers, which naturally lead to higher cleaning and maintenance bills. These constant turnovers mean more wear and tear, as well as the need for frequent upkeep. On the other hand, mid-term rentals (MTRs) enjoy longer stays, significantly cutting down on these expenses. As Gemma Smith, Content Strategist at Azibo.com, puts it:

"Vacation rentals have higher turnover and are typically more expensive to clean and maintain. Mid-term rentals experience less wear and tear throughout the year and often require less maintenance."

Additionally, STRs often require restocking of consumables like toiletries and basic household supplies. MTRs, however, largely avoid this recurring cost. Tenants in MTRs tend to treat the property more like their own home, which reduces wear and tear.

Management and Daily Operations

Managing STRs is a hands-on job. It involves constant guest communication, dynamic pricing adjustments, and frequent turnovers. Management fees for STRs can range from 15% to 40% of rental income, making it both time-intensive and expensive.

MTRs, by contrast, are simpler to manage. Once a tenant is in place, ongoing responsibilities are more akin to traditional long-term rentals. Tasks like collecting monthly rent, handling occasional maintenance, and conducting periodic inspections are far less demanding. To streamline operations further, landlords can use tools like automated messaging systems, negotiate better service rates, or install smart thermostats with occupancy sensors to save on costs.

Net Profit Comparison

While STRs often generate higher gross revenue, their operating costs can significantly eat into net profit margins. For example, platform fees alone can take up 3% to 15% of each booking. As Bailey Kramer, a Rental Property Investor, explains:

"While short term rentals typically provide higher cash flow, mid term rentals help to provide stability."

This stability becomes even more appealing when considering the seasonal fluctuations, regulatory challenges, and market saturation that can affect STR occupancy rates. Dynamic pricing strategies may boost STR revenue by 20% to 40%, but the additional time and software costs required to implement these strategies can further reduce net returns. Tyler Winget, Real Estate Consultant, highlights this balance:

"MTR has acted as a safety net in slow seasons (depending on the market). Otherwise I wouldn't suggest investing purely for MTR."

Given these factors, many property owners are turning to hybrid strategies. By alternating between STR and MTR approaches based on market conditions, managers - like those at West Coast Homestays - can optimize occupancy and operational efficiency. Ultimately, achieving the best net profits depends on understanding local market trends, operational bandwidth, and personal risk tolerance, rather than simply chasing the highest gross revenue. This analysis lays the groundwork for exploring how regulations and tax policies further shape profitability.

Regulations and Tax Impact

Regulations in San Diego play a significant role in shaping the profitability of Short-Term Rentals (STRs) and Mid-Term Rentals (MTRs).

STR Regulation Requirements

San Diego has implemented strict rules for STRs through its Short-Term Residential Occupancy (STRO) licensing system. If you’re renting a property for less than a month, you’ll need an STRO license.

The city uses a four-tier licensing structure, with fees and restrictions varying by tier. For instance, part-time hosts under Tier 1 pay an application fee of $33 and a license fee of $193. On the other hand, whole-home operators face much steeper costs. Tiers 3 and 4 require a $41 application fee and a $1,129 license fee.

License Tier	Application Fee	License Fee	Property Type
Tier 1	$33	$193	Part-Time
Tier 2	$33	$284	Home Sharing
Tier 3	$41	$1,129	Whole Home
Tier 4	$41	$1,129	Mission Beach Whole Home

Beyond licensing costs, STRs in San Diego are also subject to strict supply limits. For example, the city caps whole-home STRs at 1% of its total housing stock, allowing for roughly 5,400 rentals citywide. Mission Beach has an even tighter cap, with only 30% of its housing stock eligible for STRs - approximately 1,100 rentals. Currently, Tier 4 licenses in Mission Beach are fully allocated, and 55 applicants are on a waitlist.

STR operators must also comply with Transient Occupancy Tax (TOT) requirements. TOT rates in San Diego, effective May 1, 2025, range from 11.75% to 13.75%, depending on the tax zone. These taxes generate over $35 million annually for the city. Combined with licensing and supply restrictions, these rules make STR operations more complex compared to MTRs.

MTR Regulatory Benefits

Mid-term rentals, on the other hand, operate under a simpler regulatory framework. Since MTR leases typically last longer than 30 days, they are exempt from STRO licensing requirements and supply caps. This means no application fees, no licensing costs, and no compliance monitoring headaches.

In California, MTRs must comply with the Tenant Protection Act of 2019, which limits annual rent increases to 5% plus local inflation, up to a maximum of 10%. While this can restrict rent growth, it provides property owners with a predictable income stream and avoids the regulatory uncertainties that STRs face.

Additionally, MTRs are not subject to the same safety, noise, and parking regulations that apply to STRs, further simplifying their management.

Tax Differences Between STRs and MTRs

The tax obligations for STRs and MTRs also differ significantly. STR operators are required to collect and remit TOT, which can impact guest costs and overall booking competitiveness. Both STRs and MTRs, however, are subject to the Rental Unit Business Tax if the property is rented for more than six days a year.

For MTRs, the tax situation is less complex. They benefit from standard rental income tax treatment, allowing for typical deductions like maintenance, repairs, and management fees. Unlike STRs, MTRs are not burdened by transient tax layers. STR operators, on the other hand, must determine the appropriate TOT rate using the city’s tax zone lookup map.

As Councilmember Sean Elo-Rivera remarked on San Diego’s vacation rental policies:

"Tourism should work for San Diegans and not the other way around."

This philosophy drives the city’s regulatory approach, making MTRs an appealing option for property owners. With fewer regulatory hurdles and a more straightforward tax structure, MTRs offer a stable and compliant path to revenue generation. Companies like West Coast Homestays leverage these distinctions to create flexible rental strategies that maximize income while staying within the rules.

Hybrid Approach: Combining Both Strategies

Blending Short-Term Rentals (STRs) and Mid-Term Rentals (MTRs) into a hybrid strategy can help property owners maximize revenue while minimizing risks. In 2023, stays of 30 days or more contributed to 17% of Airbnb's total revenue. This shows that guests value flexibility, and property owners who offer both short and mid-term options can tap into this trend for greater income potential. By addressing the revenue and operational challenges discussed earlier, a hybrid model offers a well-rounded approach that adapts to changing market demands.

Seasonal Strategy Switching

One of the most effective ways to implement a hybrid approach is by adjusting rental strategies based on seasonal demand. During high-demand periods like summer or major local events, property owners can focus on STRs to capitalize on premium rates. In contrast, off-peak seasons are ideal for securing stable MTR bookings from groups like remote workers, healthcare professionals, or corporate relocations. Understanding local market trends - such as spikes in business travel, university schedules, or temporary employment booms - helps property owners time these shifts effectively.

For example, an investor named John successfully increased his occupancy rate from 75% to 90% throughout the year by switching between STRs and MTRs. This strategy also boosted his annual revenue by 30%.

Dynamic Pricing Methods

Combining seasonal strategy switching with smart pricing techniques can further enhance revenue. Dynamic pricing tools adjust STR rates to match peak demand while offering Length of Stay (LOS) discounts to encourage longer bookings. For instance, a 30% discount for stays of 28 nights or more can attract extended bookings while cutting down on turnover costs. For MTRs, competitive monthly rates - offering 30–40% off the standard daily rate - can reduce vacancies and ensure steady income during slower periods.

Using Property Management Systems (PMS) simplifies this process by automating pricing adjustments across multiple platforms. These systems can also implement gap specials and last-minute discounts to fill calendar openings efficiently.

Professional Management for Hybrid Models

To make a hybrid strategy work seamlessly, professional management is often necessary. Skilled managers and automation tools significantly reduce administrative workload and vacancy rates, offering expertise at 40–60% lower costs compared to traditional property management.

Take West Coast Homestays as an example. They excel at balancing STRs and MTRs by securing corporate, insurance, and government placements for mid-term stays while maximizing STR revenue during peak seasons. They handle the logistical challenges of switching between rental types, such as differing amenity requirements, guest communication, and pricing strategies. Their success hinges on tools like centralized booking systems, automated messaging, and maintenance scheduling. Additionally, building relationships with relocation firms, hospitals, construction companies, and corporate housing agencies ensures a steady stream of direct MTR bookings.

For property owners, adopting a hybrid approach offers a clear advantage. Diversifying rental strategies not only reduces reliance on a single market segment but also helps ensure consistent revenue throughout the year. In competitive markets like San Diego, a professionally managed hybrid strategy can be the key to steady and optimized rental income.

Conclusion: Selecting Your Rental Strategy

Main Points Summary

Deciding between short-term and mid-term rental strategies hinges on factors like your financial goals, risk tolerance, property location, and personal preferences. Short-term rentals (STRs) often promise higher returns, while mid-term rentals (MTRs) deliver more predictable income and stability. With extended stays growing in popularity, bookings for 30+ day stays have surged by 94% year-over-year, with the average stay now lasting 55 days.

Regulations also play a significant role. STRs are increasingly subject to stricter rules, which can complicate operations, while MTRs generally face fewer restrictions. For property owners, this makes MTRs a practical option to avoid the challenges of regulatory compliance. The level of management required also differs: STRs demand constant attention, from cleaning to guest communication, whereas MTRs involve less frequent but still essential management tasks, such as maintaining furnishings and coordinating utilities.

A hybrid approach - combining STRs and MTRs - can offer the best of both worlds, blending higher income potential with easier operations. This strategy allows property owners to adapt to their property's unique circumstances and market demands.

Action Steps for Property Owners

Start by conducting a thorough market analysis to understand demand, pricing, and competition in your area. Consider your property's location and its proximity to key demand drivers - tourist hotspots are ideal for STRs, while areas near business hubs, hospitals, or corporate relocation centers are better suited for MTRs.

Check local regulations carefully to avoid compliance issues or unexpected costs. If maximizing revenue is your goal, explore a hybrid rental strategy. This approach lets you take advantage of seasonal demand shifts while maintaining occupancy during slower periods. Companies like West Coast Homestays specialize in managing these complex setups, handling the transitions between rental types and optimizing revenue during peak times.

Use technology and professional services to simplify operations. Modern property management tools can automate tasks like pricing adjustments, guest communication, and booking coordination, reducing the time and effort required to manage your property.

The rental landscape is changing fast, driven by trends like remote work and evolving regulations. Staying informed and flexible will help you adapt to market shifts and ensure long-term success in this competitive industry.

FAQs

What’s the difference in management effort between short-term and mid-term rentals?

Managing short-term rentals (STRs) can be quite demanding. With guests coming and going frequently, property owners need to stay on top of regular cleaning, ongoing maintenance, and constant guest communication. On top of that, there’s the task of handling bookings, responding to inquiries promptly, and ensuring compliance with local rules and regulations.

On the flip side, mid-term rentals (MTRs) - where guests typically stay for one to twelve months - bring a sense of stability. With fewer turnovers, the need for frequent cleaning and guest coordination drops significantly. This makes MTRs a more low-maintenance option for property owners, all while providing steady income.

How do San Diego’s short-term rental regulations affect their profitability compared to mid-term rentals?

San Diego has implemented several regulations for short-term rentals, including licensing fees, strict occupancy limits, and zoning restrictions. While these rules aim to manage the rental market, they can also drive up operational costs and require extra effort to stay compliant, ultimately cutting into profits.

On the other hand, mid-term rentals usually encounter fewer regulatory challenges. With lower tenant turnover and steady demand, they provide a more reliable income stream. This consistency often translates into reduced expenses and better profitability for property owners over time.

How can property owners maximize revenue by combining short-term and mid-term rental strategies?

Property owners can boost their income by smartly combining short-term and mid-term rental strategies. A key step is to adjust rental rates dynamically, taking advantage of high-demand periods to secure premium pricing. By also offering flexible booking options, you can appeal to both short-term visitors and those seeking extended stays, ensuring your property stays booked more consistently.

Another way to increase revenue is through seasonal adjustments. For instance, during slower months when short-term demand drops, promoting mid-term rentals can help fill the gap. Additionally, including top-notch amenities that cater to both vacationers and business travelers can make your property stand out to a broader audience. Together, these strategies allow you to maintain steady bookings while maximizing your earnings throughout the year.