Best Home Size for Short Term Rentals
We’re expanding our short-term rental portfolio by adding a new property, bringing our total to two homes where we host guests. We selected a 2 bedroom 2 bathroom home close to downtown Houston in Texas. Why that size? What is the best house size for a short term rental (STR)?
The short answer is it depends. The question that should be asked is ‘what is the right STR home size for our circumstances and needs.
Factors to Consider for Short-Term Rentals
- Trends in the short-term rental industry
- Trends in the real estate industry
- Location
- Target demographics
- Investment budget and goals
Local STR Demand
Not all guests have the same needs. For example, a group visiting a rural West Texas river spot has different expectations than someone booking near a convention center in downtown Houston. Location matters:
- Urban vs. rural
- Near medical districts vs. stadiums
- Tourist spots vs. quiet getaways
- Business vs. leisure travelers
In our case, we focus on urban Houston, where we typically host business travelers during the week and leisure guests on the weekends. For this, a 2-bedroom, 2- or 3-bathroom home works well.
Local STR Laws
Short-term rental laws vary. Some cities, like New York, have strict regulations or bans. There are also efforts in other cities to ban STRs. Stay informed to avoid potential legal issues.
Good article from Harvard Business Review on ‘What does banning short-term rentals really accomplish?’
Target Demographics
Who are you aiming to host? Families, solo travelers, business professionals, or medical guests? Each group has different needs:
- Families: more bedrooms and beds
- Business travelers: office space
- Medical travelers: accessible bathrooms
Your target demographic will affect your potential revenue, management needs, and risk.
Real Estate Industry Trends
The property itself is an investment that should be analyzed using traditional property assessment methods. Market trends can influence the types of properties you buy. For example:
- Vacation properties tend to drop in price more during downturns.
- Condos may not appreciate as much as single-family homes.
The goal is to maximize the overall investment of real estate combined with the short term rental operations.
Benefits of Different House Sizes
Small Homes (Studios, 1-Bedroom)
- Best for solo travelers and couples
- Lower maintenance and cleaning costs
- Less initial investment
- Lower risk if vacant for a time
Medium Homes (2–3 Bedrooms)
- Suitable for small families or groups
- Balance between profitability and management
- Higher acquisition costs than smaller homes
- Medium financial risk if occupancy drops
Large Homes (4+ Bedrooms)
- Ideal for large families or groups
- Considerations for events, retreats, and longer stays.
- Potential for higher per-night rates
- Highest acquisition and management costs
- Higher legal and insurance costs
- Higher vacancy risks
Financial Analysis
To make an informed decision, you’ll need to put together an excel file for yourself and crunch the numbers:
- Estimate average revenue based on house size
- Estimate costs like maintenance, cleaning, and management
- Use return-on-investment (ROI) models
- Adjust future income for inflation to get an accurate financial picture
STR data tools like AirDNA have options to filter results by home size that is helpful in completing your analysis.
Conclusion
There’s no one-size-fits-all answer to the best home size for a short-term rental. It depends on your goals, budget, location, and the type of guests you want to attract. The key is to balance profitability with your appetite for risk.
