Short-Term Rental: What is It and How It Works

landlords who follow short term rental regulations can have tax benefits

A ready-to-move-in home that is rented out for a couple of days to a few weeks at a time is known as a short-term rental. Vacation rentals are another name for short-term rentals, which are viewed as an alternative to hotels.

Many people with a second house or holiday properties earn extra money by renting out their property while they’re not occupying it.

Since short-term rentals are typically used by vacationers, durations can range from a couple of nights to a few weeks, some are even rented for up to a month. Short-term rentals are typically rented for less than six months.

The popularity of shared economy companies like VRBO, HomeAway, and Airbnb has skyrocketed during the past ten years. Due to the prevalence of short-term rentals, many employers permit staff to bill their stays in the same way as a hotel room.

In this article we will explain exactly what is a short term rental, and how it works in detail.

If you are thinking of buying a vacation rental property, consider applying for a full doc loan. Contact us to learn more.

What is a short-term rental?

For a period of 12 months or less, a rental is considered to be short-term. Although they do provide nightly rentals as well, most short-term accommodation is rented on a weekly or monthly basis. Sometimes called vacation rentals, they can be an alternative to hotels.

A short-term rental property might be anything from a multi-family house, condo, flat, townhome, or cabin, which makes it very different from a resort. They are fully equipped and designed to provide tenants the same amenities as staying with friends or family.

short term rental market stays profitable for short term rental property owners

Many homeowners who own second homes or vacation homes can earn extra money by renting out their properties while they’re not using them. Many landlords initially saw it as a side business, but as it gained popularity, many investors found it a fascinating opportunity to capitalize on their lifestyle and their wealth. An investor cash flow loan can help you purchase a vacation property for passive income.

Regulations and licensing for short term rentals

Generally, in order to rent out properties to people searching for shorter-term lodging options rather than longer ones, owners and/or property maintenance businesses must have a short term rental license. Some communities could even ask you to show evidence that your principal house is not being rented out.

Local governments have put these rules on short-term rentals in place to make sure that property owners, management firms, and anybody dealing with short-term visitors follow the basic guidelines and safety requirements established. This will guarantee that guests are staying in lodging that is secure, up to code, and has the required safety ratings.

short term vacation rentals are in high demand as always

You should be able to get local short-term licenses and permits from your local government. Management firms usually provide copies as well, since they must stay updated on the rules and short-term rental license requirements necessary for them to continue operating.

Different Types of Short term rentals

There are several distinct kinds of short-term rentals, including whole homes, accessory units, and individual rooms. A home is often regarded as owner-occupied if the owner uses it as their primary residence at least 51% of the time. If not, the house will be regarded as a non-owner occupied residence.

Accessory Dwellings

A short-term rental can also include leasing out a piece of a house that the owner lives in, such a garage apartment or a guest house.

It would similarly be regarded as a short-term rental if an absentee owner rented out comparable ancillary homes on a house they own but don’t reside in for a predetermined number of days each year.


Short-term rentals can be those where an owner leases out some or all of the rooms of their main residence for a certain amount of days each year.

Even if the owner is living elsewhere, the arrangement will still be regarded as a short-term rental.

homeowners with illegal short term rentals can face serious charges

Whole homes.

If the owner of a rental property lives in-house most of the time but periodically leases out the entire house for a few days or even weeks, up to a certain number of days each year, the property might be termed a short-term rental.

In addition, an absentee owner renting out a home for a limited number of days per year would also be regarded as short-term renting.

What licenses are required for a short-term rental business?

Short-term rentals may be required to register and get at least one license in order to operate. These may include the following:

  • General business license: Depending on the city you’re in, you may be required to get a general business license.
  • Temporary license: Obtaining a temporary license or permit may be required. For that, you’ll need to confirm the neighborhood is eligible. Next, you must submit an application with supporting documents (such as a certificate of property ownership or proof of property insurance), and pay a fee. 
  • A permit to occupy: This indicates your intended use for the property is legal.
  • Insurance: Insuring short-term rentals is another duty of property owners.
  • Property maintenance: This must be done safely and in accordance with the law.

Additional business criteria might be:

  • Becoming a Secretary of State registered citizen.
  • Getting a Tax Department Employer Identification Number (EIN).
  • Acquiring a sales tax license.

you can have a management company to manage your vacation property

Manage short-term rentals

If you want to rent a property for a short term to guests, short term rental maintenance is necessary. When this occurs, it’s usually your responsibility as the landlord to undertake the property maintenance. However, many landlords that live away from the property will engage a contractor or property management company to handle the work for them.

Property management companies are ideal for short-term holiday rentals that are rented for weeks or a month at a time. Reputed companies have robust systems in place to make sure that the property is consistently rented to respectable customers.

Insurance for short term rentals

In addition to the property manager, people staying in the rental property should also have short-term rental insurance. Some homeowner’s insurance plans will pay for damages incurred inside short-term rentals, particularly holiday homes. However, it is vital to consult with your insurance provider to ensure you’re properly covered.

Vacation rental insurance often covers both property damage and injuries that guests or visitors may experience while they are on the premises. This will cover every mishap that could occur while visitors are on the property. Guests often have their own insurance provider to protect themselves for the duration of their stay, however the owner or property managers need to provide this insurance through their carrier to the visitor. It’s crucial that everyone has the appropriate level of coverage.

short term rental properties can be a really good source of income for home owners

Final Thoughts

Because short-term rentals can offer a higher return than conventional long-term rentals, the market for them has experienced significant development among investors. Using well-known internet platforms, anybody may manage holiday rentals on their own. Alternatively, you can pay a management business to handle the details while you generate passive income.

When it comes to making an investment in short-term rentals, location is crucial. To try to prevent losses, it is necessary to understand the rental market before investing in a property.

Get the right loan for your short term rental property! Contact us today to get pre-approved. 

Brenna Carles

Brenna Carles

I help people who want a place to call their home, where memories can be made, and stories to be shared. Where i can help clients build generational wealth for years to come. I provide the perfect combination of southern hospitality and relentless knowledge and passion for mortgage lending as if you were family.