Long-Term Rental vs. Short-Term Rental in San Diego: How to Calculate Which Is More Profitable

If you’re considering buying an investment property in San Diego, one of the biggest decisions you’ll make is whether to rent it out long-term or operate it as a short-term vacation rental through platforms like Airbnb or VRBO.

At first glance, the comparison seems simple. A short-term rental might generate significantly more revenue each month than a traditional long-term rental. But higher revenue doesn’t automatically mean higher profit.

To determine which strategy makes the most financial sense, you need to look beyond the rental income and calculate your actual expenses, occupancy, operating costs, and expected cash flow.

As a San Diego Realtor who also owns and operates a short-term rental, I believe understanding these numbers before purchasing a property is one of the most important steps an investor can take.

Here’s how to compare the two strategies and evaluate which may be the better investment for you.

1. Start With Realistic Rental Income

Your first step is estimating how much income the property could generate under each rental strategy.

For a long-term rental, research comparable properties in the same neighborhood with similar square footage, bedroom count, condition, parking, and amenities. Look at current rental listings, but remember that asking rents aren't necessarily the same as signed lease amounts.

For example, a two-bedroom property might rent for $3,500 per month, generating $42,000 annually before expenses.

For a short-term rental, you'll need to estimate both your nightly rate and occupancy. These figures can vary significantly depending on the property's location, seasonality, amenities, and local competition.

For example, a vacation rental averaging $250 per night at 65% occupancy would generate:

• Average nightly rate: $250
• Occupied nights per year: approximately 237
• Estimated annual rental revenue: $59,313

That is about $17,300 more in annual gross revenue than the long-term rental example.

However, this is only the starting point. Short-term rentals typically have higher operating expenses, and that difference can significantly affect your bottom line.

2. Calculate All Operating Expenses

One of the biggest mistakes investors make is comparing long-term rental income with short-term rental revenue without accounting for the different costs of operating each property.

Long-term rental expenses

Common expenses include:

• Property taxes
• Landlord insurance
• HOA dues, if applicable
• Property management fees
• Repairs and ongoing maintenance
• Vacancy between tenants
• Owner-paid utilities, if applicable
• Landscaping and other property services
• Capital reserves for larger repairs and replacements

Tenants generally pay their own utilities under many traditional leases, although this depends on the property and lease agreement.

Short-term rental expenses

Short-term rentals may have many of the same expenses, along with additional operating costs such as:

• Cleaning and laundry
• Utilities, including internet
• Furnishings, linens, and kitchen supplies
• Restocking and guest amenities
• Platform and payment processing fees
• Guest communication and reservation management
• Higher turnover-related maintenance
• Replacement of furniture and household items
• Additional insurance coverage
• Short-term rental management fees, if applicable

Cleaning fees collected from guests may offset cleaning expenses, but they should not automatically be treated as additional profit.

If you manage the property yourself, remember to account for the value of your time. Self-management can improve your financial return, but it also creates an ongoing operational responsibility.

3. Compare the Numbers: A Simple Example

Let's compare a hypothetical San Diego investment property using illustrative numbers. These figures are not current market estimates or a projection for a specific property.

In this example, the short-term rental generates more than $17,000 in additional gross revenue, but the estimated annual operating profit is nearly identical.

This is exactly why calculating the numbers matters.

The assumptions above are simplified: management is modeled at 8% of long-term rental revenue and 14% of short-term rental revenue, and the short-term rental includes an illustrative allowance for cleaning and supplies. Actual management contracts, guest-paid cleaning fees, platform charges, and other expenses will vary.

The example also excludes mortgage payments, income taxes, depreciation, major capital expenditures, and acquisition costs. Your actual cash flow could look very different depending on your financing and property-specific expenses.

4. Don't Forget Your Mortgage and Cash Flow

Operating profit is not the same as cash flow.

If you're financing your investment property, you'll also need to account for your mortgage payment, including principal and interest.

For a more complete comparison, calculate:

Annual cash flow = Annual rental revenue − Operating expenses − Annual debt service − Capital reserve contributions

For example, a property with $26,000 in annual operating profit and $24,000 in annual mortgage payments would produce approximately $2,000 in annual cash flow before any additional costs not already included.

This is particularly important in San Diego, where property acquisition prices can make positive cash flow challenging.

I also recommend comparing the total cash required to purchase the property, including your down payment, closing costs, initial repairs, furnishings, and any startup expenses. A property generating $10,000 in annual cash flow on a $200,000 cash investment produces a different return than one generating the same amount on a $400,000 cash investment.

5. Calculate Your Break-Even Occupancy for a Short-Term Rental

Short-term rental income can fluctuate throughout the year, making occupancy one of the most important variables in your analysis.

Using our example of a $250 average nightly rate, every additional occupied night generates $250 in gross revenue before variable expenses.

But what happens if occupancy drops from 65% to 50%?

That is a reduction of approximately $13,700 in annual gross revenue.

Your mortgage, property taxes, HOA dues, and insurance generally won't decrease just because you have fewer bookings. This makes conservative occupancy assumptions essential.

To calculate break-even occupancy, first determine your fixed annual costs. Then add variable costs that change with each booking or occupied night.

A simplified formula is:

Break-even occupied nights = (Annual fixed costs + annual debt service) ÷ (Average nightly rate − variable cost per occupied night)

This formula estimates the number of occupied nights required to cover the specified costs. If your model includes percentage-based management or platform fees, those should also be reflected in your contribution per night.

I recommend modeling several scenarios rather than relying on a single optimistic projection: conservative, expected, and strong performance.

6. Consider Seasonality and Location

San Diego is a great example of why location matters so much when evaluating rental strategies.

A property near the beach may attract vacationers during the summer, holidays, and other high-demand periods. But nightly rates and occupancy can vary throughout the year.

An inland property may have a completely different rental profile. In neighborhoods such as North Park or La Mesa, a traditional long-term rental may be worth comparing against a short-term rental only after researching actual demand, achievable nightly rates, operating expenses, and applicable restrictions.

For short-term rentals, investigate comparable properties with similar amenities and locations. A home with parking, outdoor space, air conditioning, or walkability to attractions may perform differently from a similar-sized property without those features.

For long-term rentals, research realistic market rents, tenant demand, vacancy, and the property's condition.

The key is to evaluate the specific property and neighborhood rather than assuming one rental strategy is always more profitable.

7. Understand San Diego's Short-Term Rental Rules Before You Buy

Before purchasing a property specifically for Airbnb or VRBO, verify that your intended rental strategy is permitted.

San Diego's short-term residential occupancy regulations may require a license, and requirements can vary based on the property and rental arrangement. Properties may also be subject to HOA restrictions, condominium rules, lender requirements, insurance conditions, and other applicable regulations.

If you're considering a property outside the City of San Diego, don't assume the same rules apply throughout the county. Each relevant city or jurisdiction may have different requirements.

Before relying on projected short-term rental income, confirm current licensing rules, any applicable occupancy limits, and the property's eligibility. Also account for any licensing costs, transient occupancy taxes, and other compliance expenses that apply.

A property that looks attractive financially on paper may not work for your intended use if short-term rentals are restricted or the required license isn't available.

8. Which Strategy Is Better for You?

There isn't one right answer for every investor.

A long-term rental may be a better fit if you:

• Prefer more predictable monthly income.
• Want fewer guest turnovers and less day-to-day involvement.
• Prefer a more straightforward operating model.
• Are focused on long-term ownership and rental demand.

A short-term rental may be a better fit if you:

• Can support the property's higher operating expenses.
• Have a realistic plan for occupancy and nightly rates.
• Are comfortable managing guest experience and property turnover.
• Want the possibility of using the property personally, where permitted.
• Have verified that the property's location and licensing eligibility support the strategy.

Short-term rentals can offer more revenue potential, but they also require more active management and may expose you to greater income volatility. Long-term rentals can provide more consistent income, but they still carry vacancy, maintenance, tenant, and regulatory risks.

The best investment is the one that aligns with your financial goals, available time, risk tolerance, and the property's actual performance potential.

9. Work the Numbers Before You Make an Offer

When evaluating an investment property in San Diego, I recommend preparing two separate projections: one for long-term rental income and another for short-term rental income.

Each should include realistic revenue assumptions, operating expenses, financing, capital reserves, and estimated annual cash flow. From there, you can compare cash-on-cash return, break-even occupancy, and how sensitive the investment is to changes in rent, nightly rates, or expenses.

As a San Diego Realtor specializing in residential real estate and short-term rental investments, I help buyers look beyond the purchase price to understand how a property might fit into their overall investment strategy.

I also own and operate a short-term rental, so I understand that projected revenue is only one piece of the equation. Operating costs, guest experience, local regulations, and the time required to manage a property all matter.

If you're considering buying an investment property in San Diego, whether it's a coastal vacation rental, an inland single-family home, or a multifamily property, I'd be happy to help you evaluate the options and compare the numbers before you buy.

Thinking about investing in San Diego real estate? Visit emilyschaeferrealestate.com to learn more or reach out to discuss your investment goals.

Investment projections are estimates, not guarantees of future performance. Verify current rental comparables, applicable regulations, tax implications, insurance requirements, and property-specific expenses before making an investment decision.

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