WHAT’S THE ROI ON SHORT-TERM RENTAL INVESTMENTS IN 2025? |...

WHAT’S THE ROI ON SHORT-TERM RENTAL INVESTMENTS IN 2025?

Posted 2025-06-30 09:23:11

Short-term rentals have become one of the hottest segments in real estate investing over the past few years. Platforms like Airbnb, Vrbo, and Booking.com have transformed the way travelers book accommodations — and created a powerful income opportunity for property owners.

But with rising interest rates, shifting travel patterns, and increasing regulation, many investors are asking: what is the actual return on investment (ROI) on short-term rental properties in 2025? And is it still worth getting into this space?

This article breaks down ROI benchmarks, key factors influencing returns, and tips to help you make the most of your STR investment in today’s market.

What Is ROI in Short-Term Rental Investing?

ROI (Return on Investment) in short-term rentals refers to how much profit you make from your property relative to the total amount you’ve invested. It's typically calculated as:

ROI = (Annual Net Profit ÷ Total Investment) × 100

What counts as “net profit”?

Total income from nightly bookings
Minus operating expenses (cleaning, maintenance, property management)
Minus mortgage payments, insurance, utilities, taxes, and platform fees

Short-term rental ROI can be significantly higher than long-term rentals — but it also comes with more work, seasonal fluctuation, and regulation risks.

What’s the Average ROI on Short-Term Rentals in 2025?

In 2025, the average gross return on short-term rental properties globally ranges between 8% and 20%, depending on location, property type, and operating costs.

Here’s a breakdown by category:

Location Type	Gross ROI Range (2025)
Urban City Centers	7% to 12%
Coastal/Tourist Areas	10% to 20%
Suburban Properties	8% to 14%
Remote/Nature Escapes	9% to 16%
Luxury Vacation Homes	6% to 12%

Note: Gross ROI does not account for mortgage, taxes, or property management costs. Net ROI may be lower by 2% to 5% depending on your structure.

Key Factors That Influence ROI in 2025

1. Occupancy Rate

Higher occupancy = higher income. But this varies by location, time of year, and local competition.

Top cities (e.g., Lisbon, Bali, Nashville) can reach 70–90%
Average performing markets may hit 50–65%
ROI dips if your property stays empty too often

2. Average Daily Rate (ADR)

What you can charge per night depends on:

Location
Seasonality
Property size and quality
Unique features (view, pool, proximity to attractions)

In 2025, ADR is up slightly in most markets due to inflation, but competition is also growing, pushing some hosts to lower prices or offer discounts.

3. Operating Costs

STRs come with higher maintenance and service expenses:

Cleaning fees (after every guest)
Utilities (electricity, water, internet)
Platform commissions (Airbnb takes ~3%, Vrbo ~8%)
Insurance tailored for short-term rentals
Furnishing and ongoing replacements

Efficient management and automation (smart locks, dynamic pricing) can increase ROI by reducing overhead.

4. Regulations

This is the biggest wildcard. In 2025, more cities are tightening short-term rental laws, limiting ROI potential:

Night caps (e.g., 90–180 days per year)
Licensing requirements
Higher property taxes or tourist levies
Restrictions on non-owner-occupied STRs

Before investing, check your local laws carefully — a great property in a restricted zone can quickly become unprofitable.

Where Are the Best ROI Markets for STRs in 2025?

Here are a few high-potential STR markets as of mid-2025:

International:

Tbilisi, Georgia – Low property prices, high tourist demand, strong yields
Bali, Indonesia – Excellent ADR, booming post-pandemic travel, strong returns (up to 15%)
Lisbon, Portugal – Regulated, but still offers 8–12% ROI in legal zones
Medellín, Colombia – Growing expat and digital nomad market

United States:

Smoky Mountains, TN – High occupancy and ADR for cabins
Orlando, FL – Year-round demand from theme parks, strong ROI
Phoenix, AZ – Low purchase prices, growing rental demand
Joshua Tree, CA – Niche market for design-forward rentals

Singapore / Asia Focus:

Singapore itself has strict STR regulations, making Airbnb-style rentals difficult unless it’s a serviced apartment or legally zoned property.

Alternative areas for ROI in Asia:

Kuala Lumpur, Malaysia – More lenient STR laws, great city-center condos
Bangkok, Thailand – Still popular with tourists and investors (check strata rules)
Chiang Mai – High yield from digital nomad population

Tips to Maximize ROI on Your Short-Term Rental

Use Dynamic Pricing Tools – Tools like PriceLabs or BeyondPricing adjust your rates based on market demand.
Furnish Smartly – Invest in quality, but don’t overspend. Comfort and cleanliness beat designer decor.
Automate Guest Management – Smart locks, automated messaging, and digital check-ins save time and money.
Get Good Reviews Early – Strong early reviews help boost your listing's visibility.
Consider Co-Hosting or Property Managers – Outsourcing operations can reduce ROI slightly but save you time and hassle.

Final Thoughts

Short-term rental investing in 2025 can still deliver excellent returns, but it’s no longer as easy or unregulated as it once was. The best opportunities exist where high occupancy and ADR intersect with low costs and legal clarity.

If you’re considering entering the market: