Kentucky sits at an intersection that few STR markets can replicate: world-class tourism, affordable real estate, and demand drivers that span bourbon distillery visitors, horse racing enthusiasts, outdoor adventurers, and business travelers. Louisville alone draws over 25 million visitors annually, fueled by the Kentucky Derby, a bourbon trail that’s become a global destination, and a food scene anchored by James Beard Award-winning restaurants. Lexington adds bluegrass horse farm tourism and University of Kentucky athletics. And then there’s Red River Gorge — one of the country’s premier rock climbing destinations — quietly generating some of the highest ADRs in the entire state for cabin owners.
The numbers work here because Kentucky hasn’t experienced the supply explosion that’s compressed margins in places like Gatlinburg or Asheville. Median home prices statewide sit around $210,000, and even Louisville — the most expensive market — comes in well below the national median. For operators using rental arbitrage, monthly lease costs in most Kentucky cities allow comfortable cash flow at 50% occupancy. That’s a buffer most coastal markets can’t offer.
Why Kentucky Is a Top Market for Short-Term Rentals
Kentucky’s tourism economy generated $12.8 billion in direct spending in 2024, and a significant portion of that spending flows to accommodations. The state’s appeal breaks into four distinct demand categories, each supporting different STR strategies.
Bourbon Tourism: The Kentucky Bourbon Trail covers 46 distilleries across the state, drawing 2.5 million visitors annually. Most visitors spend 2-4 days touring multiple distilleries, and they need accommodation that’s more convenient and characterful than highway hotels. Properties positioned between Louisville and Lexington along the Bourbon Trail corridor command premium rates, especially during bourbon-related events like the Kentucky Bourbon Festival in Bardstown (September).
Horse Racing and Equestrian Culture: The Kentucky Derby (first Saturday in May) transforms Louisville for two weeks. Churchill Downs’ Spring Meet runs from late April through early July. Keeneland in Lexington hosts racing meets in April and October, plus major horse sales in September and November that draw international buyers. Properties near either track can generate 15-25% of annual revenue during racing season alone.
Outdoor Recreation: Red River Gorge, Daniel Boone National Forest, Mammoth Cave National Park (the world’s longest known cave system), and Land Between the Lakes all generate tourism traffic that feeds rural and cabin-style STRs. Red River Gorge specifically has emerged as a premium cabin market with some of the strongest ADRs per-bedroom in the state.
Urban Business and Events: Louisville’s Kentucky International Convention Center, UofL athletics, and corporate presence (Humana, Yum! Brands, Brown-Forman) create midweek business demand. Lexington adds University of Kentucky athletics — Rupp Arena basketball is an institution — plus a growing tech and healthcare sector.
Kentucky Short-Term Rental Laws and Regulations
Kentucky’s regulatory environment for STRs is moderate — neither as permissive as Iowa nor as restrictive as New York. The state allows local governments significant latitude to regulate short-term rentals, which means your compliance obligations depend heavily on which city or county your property sits in. Getting this wrong isn’t just a fine — in Louisville, operating without proper registration can result in daily penalties that stack up fast.
State-Level Requirements
At the state level, Kentucky requires STR operators to:
- Register with the Kentucky Department of Revenue for sales tax collection
- Collect and remit 6% Kentucky sales tax on all lodging stays under 30 consecutive days
- Collect and remit 1% state transient room tax
- Maintain compliance with Kentucky fire safety codes (smoke detectors, carbon monoxide detectors, fire extinguisher access)
- Report all rental income on Kentucky individual income tax returns
Kentucky does not have a statewide STR registration or licensing system. Regulation happens primarily at the city and county level, which creates a patchwork that operators must navigate city by city.
Key City Regulations
Louisville (Jefferson County): Louisville Metro Government implemented one of the state’s most structured STR regulatory frameworks. All short-term rental operators must register with Louisville Metro through their online portal. Properties in residential zones require a conditional use permit for non-owner-occupied STRs, which involves a public hearing process through the Board of Zoning Adjustment. Owner-occupied rentals (where the host lives on-site) face lighter requirements. Louisville also enforces occupancy limits, parking requirements, and a 720-foot spacing rule between non-owner-occupied STRs in certain residential zones. The registration fee is approximately $257 annually.
Lexington (Fayette County): Lexington-Fayette Urban County Government requires STR operators to obtain a business license and register their property. The city distinguishes between hosted rentals (owner present) and unhosted rentals (entire home), with unhosted rentals facing additional zoning requirements in certain neighborhoods. Lexington has been generally supportive of STRs, recognizing their role during events like Keeneland meets and UK basketball season. Local transient room tax (3%) applies in addition to state taxes.
Bowling Green: Located near Mammoth Cave, Bowling Green requires a city business license and compliance with local zoning. The city has been relatively permissive toward STRs, viewing them as an important part of the tourism infrastructure serving Mammoth Cave visitors and Western Kentucky University events. Hosts must register for Warren County transient room tax collection.
Bardstown: As the “Bourbon Capital of the World” and a key stop on the Kentucky Bourbon Trail, Bardstown has seen rapid STR growth. The city requires a business license and has implemented density limits in its historic downtown area. Bardstown’s planning commission reviews new STR applications in certain zones, a process that typically takes 30-60 days.
Recent Regulatory Changes (2025-2026)
Louisville’s Metro Council reviewed and adjusted its STR ordinance in 2025, refining the conditional use permit process for non-owner-occupied rentals. The changes streamlined the application timeline but maintained the spacing requirement that limits STR density in residential neighborhoods. A proposed state-level preemption bill that would have limited local STR regulations was introduced in the 2025 Kentucky General Assembly session but did not advance out of committee.
Lexington expanded its enforcement of unregistered STRs in 2025, using data scraping from Airbnb and VRBO to identify operators who hadn’t completed registration. Operators who received enforcement notices were given 30 days to comply before facing fines. If you’re starting fresh, register before you list — retroactive compliance is less pleasant than proactive compliance.
Tax Obligations for Kentucky Airbnb Hosts
Kentucky’s tax structure for STR operators is more complex than most Midwest states because it layers state, county, and city taxes — and the rates vary by jurisdiction.
State Sales Tax: 6% on all short-term lodging (stays under 30 days). Airbnb and VRBO collect this automatically in Kentucky.
State Transient Room Tax: An additional 1% state-level tax on transient room rentals. This is separate from sales tax and may not be collected automatically by all platforms. Verify your specific situation.
Local Transient Room Tax: This varies significantly by jurisdiction. Louisville charges 8.5% local transient room tax. Lexington charges 3%. Smaller cities may charge 2-5%. These local taxes are the most commonly missed obligation for new Kentucky hosts — and the penalties for non-collection can be substantial.
State Income Tax: Kentucky has a flat 4% individual income tax rate (effective 2024). All net rental income is taxable. Deductible expenses follow standard rules: cleaning, supplies, utilities, insurance, depreciation, management fees, platform fees, and maintenance.
Total tax burden on a Louisville STR stay: 6% (state sales) + 1% (state transient) + 8.5% (local transient) = 15.5%. That’s significant — and it’s critical that your pricing strategy accounts for this. Guests don’t see the tax breakdown until checkout, but underpricing your nightly rate because you forgot to factor in 15.5% taxes will destroy your margins.
Best Cities for Airbnb in Kentucky
Kentucky’s STR markets span a wide spectrum, from urban corporate demand to rural nature tourism. Each market operates on different rhythms, and the best choice depends on your capital, management style, and risk tolerance.
Louisville
Kentucky’s largest city and the state’s STR capital. Louisville’s demand is driven by the bourbon industry, Derby season, UofL athletics, conventions, and a strong corporate travel base. The NuLu (East Market District), Germantown, and Old Louisville neighborhoods are the most desirable STR locations, with walkability and restaurant access driving premium rates.
Average daily rates for optimized Louisville listings run $145-$200, with occupancy between 64% and 74%. Derby week in May is the single biggest revenue event — properties within 3 miles of Churchill Downs routinely command $400-$800/night, and some larger homes top $1,500/night. A well-managed two-bedroom in Louisville generates $3,200-$4,200/month in gross revenue. Outside of Derby and bourbon events, business travel and convention demand keeps midweek bookings healthy.
Lexington
The horse capital of the world and home to the University of Kentucky. Lexington’s STR demand peaks during Keeneland racing meets (April, October), UK basketball season, and horse sale events. The downtown Distillery District and areas near Keeneland/UK campus are prime locations.
ADR in Lexington runs $120-$165, with occupancy between 58% and 68%. Keeneland race meets and UK basketball games create reliable spikes. Monthly gross revenue for a two-bedroom averages $2,400-$3,400. Lexington’s advantage over Louisville is lower property costs (median around $250,000 vs. Louisville’s $270,000) with solid year-round demand from the university ecosystem.
Red River Gorge / Slade Area
This is Kentucky’s sleeper STR market, and the numbers are remarkable. Red River Gorge draws rock climbers, hikers, and outdoor enthusiasts from across the eastern United States. The market is dominated by cabin-style properties — treehouses, A-frames, and rustic-modern cabins with hot tubs command extraordinary premiums.
ADR for well-appointed cabins in the Gorge runs $175-$325, with some unique properties exceeding $400/night on weekends. Occupancy is seasonal but strong: 70-80% from March through November, dropping to 40-50% in winter. Annual gross revenue for a premium cabin can reach $60,000-$95,000. The catch: this market requires property ownership (arbitrage doesn’t work in rural areas with limited rental inventory), and initial build-out or renovation costs for a competitive cabin run $150,000-$300,000+.
Bowling Green
Proximity to Mammoth Cave National Park (550,000+ visitors annually) and Western Kentucky University makes Bowling Green a consistent if lower-key STR market. The National Corvette Museum and Motorsports Park add niche demand. ADR runs $90-$130, with occupancy around 52-62%. Monthly gross revenue for a two-bedroom averages $1,700-$2,400. Lower property costs (median around $210,000) make the margins viable despite modest rates.
| City/Area | Avg Daily Rate | Occupancy Rate | Monthly Revenue (2BR) | Median Home Price |
|---|---|---|---|---|
| Louisville | $145-$200 | 64-74% | $3,200-$4,200 | ~$270,000 |
| Lexington | $120-$165 | 58-68% | $2,400-$3,400 | ~$250,000 |
| Red River Gorge | $175-$325 | 55-75% | $3,500-$5,500* | $150K-$300K (cabin) |
| Bowling Green | $90-$130 | 52-62% | $1,700-$2,400 | ~$210,000 |
*Red River Gorge revenue reflects cabin properties, which typically have more bedrooms and higher nightly rates than urban 2BR units.
How Much Do Airbnbs Make in Kentucky?
Kentucky STR revenue follows a clear hierarchy: Louisville leads on volume and peak-night rates, Red River Gorge leads on ADR for cabin properties, Lexington offers the best balance of consistency and cost, and Bowling Green provides accessible entry points with modest but reliable returns.
Derby week alone can generate $3,000-$8,000 from a single Louisville property — that’s one week producing what some properties generate in two full months. Hosts who position for Derby, Forecastle Festival, bourbon events, and UofL football can generate 35-45% of annual revenue from event-driven bookings. The remaining revenue comes from steady business and leisure travel.
Annual gross revenue benchmarks for Kentucky STR operators:
- Entry-level (1BR, Bowling Green/smaller markets): $20,000-$28,000
- Mid-range (2BR, Louisville/Lexington): $32,000-$48,000
- Premium urban (3BR+, Louisville prime neighborhoods): $50,000-$72,000
- Premium cabin (Red River Gorge, 2-4BR): $60,000-$95,000
- Derby-optimized (Louisville, large home): $65,000-$110,000+
One revenue pattern unique to Kentucky: bourbon trail travelers often book midweek stays (Tuesday-Thursday) as part of multi-day distillery tours. This fills a demand gap that most STR markets struggle with and significantly improves overall occupancy rates for properties positioned along the bourbon corridor.
How to Start Your Kentucky Airbnb Business
Kentucky rewards operators who do their homework on regulations before signing a lease or closing on a property. Here’s the sequence that minimizes risk and accelerates time to revenue.
Step 1: Decide on Your Market and Model. Louisville offers the highest ceiling but the most regulatory complexity. Lexington provides a strong middle ground. Bowling Green is the easiest entry point. Red River Gorge requires property ownership and higher capital. For rental arbitrage, Louisville and Lexington are your best bets — the urban rental markets are deep enough to find willing landlords, and demand supports the markups you need.
Step 2: Verify Zoning and Registration Requirements. Before committing to any property, confirm that the specific address is eligible for STR use. In Louisville, this means checking whether the property is in a zone that allows non-owner-occupied STRs and whether the 720-foot spacing limit is already filled. A phone call to the local planning department takes 15 minutes and can save you months of headaches.
Step 3: Register and Get Licensed. File for a Kentucky LLC ($40 filing fee through the Kentucky Secretary of State). Register with the Kentucky Department of Revenue for sales tax and transient room tax. Obtain your city business license and any required STR registration. In Louisville, budget 60-90 days for the conditional use permit process if you’re doing non-owner-occupied.
Step 4: Secure Your Property. For arbitrage, prepare a professional landlord proposal highlighting guaranteed rent, insurance coverage, and professional management standards. Kentucky landlords in Louisville and Lexington are increasingly familiar with the arbitrage model, though you may need to educate landlords in smaller markets. For purchases, focus on properties in proven STR neighborhoods with strong comparable data.
Step 5: Design for Your Market. Louisville guests expect modern, Instagram-worthy spaces — invest in design. Bourbon Trail visitors appreciate whiskey-themed touches and local distillery recommendations. Red River Gorge guests want hot tubs, fire pits, and outdoor living space. Lexington visitors want proximity to Keeneland and downtown. Match your property’s design and amenities to what your target guest actually values, not what looks good in a catalog.
Step 6: Launch with a Pricing Strategy. Kentucky’s event-driven market demands dynamic pricing from day one. Use PriceLabs or Wheelhouse and manually add custom pricing rules for Derby week, Keeneland meets, bourbon festivals, and college game days. Start with aggressive base pricing to build reviews, then increase rates once you establish a rating. Properties that launch during a major event can generate initial reviews at premium rates — a strong first impression that carries forward.
Step 7: Build Operational Systems. Hire cleaners, set up automated guest messaging, create a local guidebook (bourbon distillery recommendations are gold in Kentucky), and establish maintenance vendor relationships. If you’re co-hosting for other property owners, systematize everything before adding your second property.
Kentucky STR Insurance and Liability
Kentucky’s diverse geography creates varied risk profiles — tornado exposure in the western part of the state, flooding along the Ohio River and its tributaries, and severe storm damage statewide. Your insurance strategy must account for these regional differences.
Commercial General Liability: A $1 million policy costs $900-$1,600 annually per property in Kentucky. Louisville properties in flood-prone areas may see higher premiums. This covers guest injuries, which in Kentucky’s legal environment can lead to significant settlements if you’re uninsured.
Property Coverage: If you own the property, ensure your policy covers fire, wind, hail, and flood damage. Standard homeowner’s policies exclude STR activity — you need a specific short-term rental endorsement or a dedicated commercial policy. For arbitrage operators, renter’s insurance with an STR rider protects your furnishings and provides liability coverage.
Flood Insurance: If your property sits in a FEMA-designated flood zone (common near the Ohio River in Louisville and along Kentucky’s many creeks), separate flood insurance through the National Flood Insurance Program or a private carrier is essential. The devastating 2022 eastern Kentucky floods demonstrated how quickly flood damage can destroy an uninsured operation.
Airbnb’s AirCover offers baseline protection but shouldn’t be your primary coverage. For more detail on coverage gaps, see our guide on Airbnb insurance coverage. Kentucky-experienced STR insurance providers include Proper Insurance, Kentucky Farm Bureau (which offers competitive rates for rural properties), and Safely.
Why 10XBNB Gives You the Edge in Kentucky
Kentucky’s STR market has enough complexity — between Louisville’s regulatory framework, the seasonality of bourbon and horse racing events, and the regional variation between urban and rural markets — that the operators who succeed are the ones with proven systems, not the ones who figure it out by trial and error.
10XBNB’s training was built by operators who’ve navigated these exact challenges across hundreds of properties and dozens of markets. The arbitrage module shows how to secure properties without buying them — particularly relevant in Louisville and Lexington where the rental market provides plenty of suitable inventory. The pricing and revenue optimization training helps you capture the full value of event-driven demand spikes that make Kentucky so profitable.
What separates 10XBNB graduates from self-taught operators is speed to profitability. The typical learning curve in a market like Louisville — figuring out regulations, negotiating with landlords, optimizing listings, calibrating pricing — takes 6-12 months of expensive mistakes. The program compresses that into weeks, with a community of experienced operators who can answer Kentucky-specific questions in real time.
Kentucky’s STR market is maturing but hasn’t reached the saturation point. The operators who build portfolios with strong systems now will have a defensible position as competition increases. Waiting means competing against hosts who already have reviews, relationships, and refined operations.
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Frequently Asked Questions
Do I need a permit to run an Airbnb in Louisville, Kentucky?
Yes. Louisville requires all STR operators to register with Louisville Metro. Non-owner-occupied rentals in residential zones also need a conditional use permit from the Board of Zoning Adjustment, which involves a public hearing process. Owner-occupied rentals face lighter requirements. The registration fee is approximately $257 annually. Louisville also enforces a 720-foot spacing rule between non-owner-occupied STRs in certain residential zones.
How much tax do Kentucky Airbnb hosts pay?
Kentucky STR tax rates combine state and local components. State sales tax is 6%, plus a 1% state transient room tax. Local transient room taxes vary: Louisville charges 8.5%, Lexington 3%, and smaller cities typically 2-5%. Total tax on a Louisville stay is 15.5%. Airbnb collects state sales tax automatically, but local transient room taxes may require separate registration and remittance depending on your jurisdiction.
Is Red River Gorge a good market for Airbnb cabins?
Red River Gorge is one of Kentucky’s strongest STR markets by ADR. Well-appointed cabins with hot tubs command $175-$325+ per night, with premium unique properties (treehouses, A-frames) exceeding $400/night on weekends. Annual gross revenue can reach $60,000-$95,000. The tradeoff is higher upfront investment (cabin build-out runs $150,000-$300,000+) and seasonal variation, with winter occupancy dropping to 40-50%. This market requires ownership — rental arbitrage doesn’t work in rural areas.
How much can you make during Kentucky Derby week?
Derby week (late April through the first Saturday in May) is the single biggest revenue event for Louisville STR hosts. Properties within 3 miles of Churchill Downs routinely command $400-$800/night, with larger homes exceeding $1,500/night. A single property can generate $3,000-$8,000 during Derby week alone. Hosts who optimize for Derby typically generate 15-25% of their annual revenue during this one event period.
Can I do rental arbitrage in Kentucky?
Yes, rental arbitrage is legal in Kentucky with landlord permission. Louisville and Lexington have deep enough rental markets to find willing landlords, though you’ll need a strong pitch that addresses their concerns about property care and liability. In Louisville, ensure the property’s zoning allows STR use before signing a lease — the conditional use permit requirement for non-owner-occupied rentals applies regardless of whether you own or lease the property.
What’s the best area in Kentucky for first-time Airbnb hosts?
Lexington offers the best balance for first-time hosts: moderate regulations, consistent demand from UK athletics and Keeneland, and lower property costs than Louisville. Bowling Green is another strong option for beginners, with lighter regulations and steady Mammoth Cave tourism traffic. Louisville has the highest revenue potential but also the most complex regulatory requirements, making it better suited for operators who’ve already learned the basics.
Kentucky’s STR market combines tourism-driven demand spikes with affordable entry points — a combination that creates real opportunity for prepared operators. Whether you’re targeting Louisville’s bourbon and Derby crowds, Lexington’s horse country appeal, or Red River Gorge’s outdoor adventure market, the fundamentals support profitable STR operations when backed by solid systems and market knowledge. Explore how Kentucky stacks up against other high-performing states in our best states for Airbnb guide.
