Who Makes $$$ with STR?
Where does the profit accrue in STR?
I get a lot of calls from people interested in getting into the STR game for the depreciation that can accrue with a cost segregation study that would subsequently offset income and reduce taxes. The core sales pitch they’ve been given isn’t wrong. But, it’s not totally right and is a good case of the tax tail wagging the dog.
Any investment should be driven by your belief in the underlying business proposition and future returns intersected with your joy from owning the asset intersected with the hassle factor of owning the asset. That gets to be a complicated highway interchange really quick.
So, let’s look at the players in an STR investment.
The Platforms (AirBnB and the other marginal players - VRBO, Booking, etc.)
The platforms are the winners in this game. They take their 15% cut (or whatever the fee is at the time) off the top. They make no investment in your business. They do not promote your business. Indeed, when push comes to shove, they aren’t going to support your business either. They support THEIR business, first, middle and last. Their business is maintaining a critical mass of listings and getting customers to book.
The Owners (Individuals or companies who own and operate the real estate as an STR)
The owners make the investment in the real estate, furniture, supplies and pay the mortgage, deal with the guests, the cleaning and any vacancy. In exchange, the hope is that the cash return from the increased rental rates plus ongoing appreciation net of ongoing maintenance and repairs generates a sufficiently high enough cap rate to justify owning it vs holding a money market fund.
The Arbitragers (Individuals or companies who simple operate the STR but do not own the real estate, renting it instead).
Very similar to owners minus the large up front investment in the real estate. Instead, these folks will typically rent a house or an apartment and try to sub rent it out for more. Breaking bulk if you will. To do so, the investment in furnishings and experience is often minimal. These folks often play in the value end of the market.
The Property Managers (people who don’t own the STR business but manage it for a fee)
This is similar to the platforms however, they put in more work dealing with guests, ensuring the property is clean, functional and maintained. There is work involved here that allows the owner to be completely hands off. But, it is capital light as the management company does not make actual investments of cash into anything.
Now, let’s take a look at what normally accrues to each party.
The Platforms
Huge upfront cost in building the platform. But, if you can hit critical mass like AirBnB you reap the rewards of booking fees with limited cost to obtain those fees. The Platforms, and really The Platform in the STR world because there is only one big enchilada, are the ones that reap the true rewards.
The Property Managers
Property managers likely are in 2nd place in the return game, particularly given the lack of capital involved. They can frequently charge a 20% or more management fee which provides an ample margin to cover cleaning and their services. Those that can build a property management business normally end up selling their STR properties. The returns can be good and the capital requirement light.
The Owners
This one gets variable, based on the deal and the owner’s circumstances. The return here falls into one of four categories, the sum of which determines whether it is a good investment.
Long term appreciation. This is driven by local economics, macro economics, uniqueness of property, desirability of the area and many other factors. Not all properties appreciate and it’s tough to know which ones will until the dealing is done. The best you can do is purchase a property that has some uniqueness, quality and is in an area where people want to be today and likely will want to be in the future.
Short term returns. Essentially, your revenue - operating costs - interest - taxes - insurance - capital repairs. Often in STR, these are small or negative. Not every type of property works in every location. I’ve rarely seen a property that can only book on the weekends generate any profit. It’s hard for large, expensive properties to generate profit too simply because there are too few people or groups that are willing and able to rent them. If you can find a scenario where you can get a book rate of 70% or more, you’ve got a shot at this number being positive. The negative here can eat up the positive in #1, #3 and sometimes #4. Be realistic about the book rate possibilities whether there is seasonality or weekdays are dead.
Tax advantages. This one gets fun and is often the driver of a purchase. The advantages can be real and can be large. You have the opportunity to accelerate the depreciation on the furniture purchase as well as quite a bit of items in the home from toilets to fences. This can result in a large loss in year 1. Because the STR is an operating business, this loss can offset your W2 income. If you are in a high tax bracket, this can be very meaningful. However (yeah, no one ever gets to this part), this comes at a cost. This is depreciation that you would have gotten to take in future years. So, you didn’t gain anything, per se, merely are able to take it sooner which does have a time value of money benefit. Moreover, when you sell, you are required to recapture or book to income the depreciation that you took. So, the benefit is temporary for your ownership duration. The savings today are real. But so is the temporary nature of those savings.
Enjoyment. There is a price for enjoyment. That price is different for everyone. If you enjoy the property and want to rent it out when you’re not using it to bring in a little bit of cash, so be it. This alone can outweigh any losses or costs. You just have to know that you’re putting a big value on it.
The Arbitrageurs
There isn’t any money in this any longer. Don’t waste your time.
Now - what is the one wild card for owners that combines #1, #3 and #4 above without much of the hassle of #2?
https://colbyharmoncpa.com/writings/2026/9/25/str-to-primary-game