If you’re looking to invest into a rental property, there are a few things you have to consider. Whether it’s for short-term rentals like AirBnb or long-term rentals like a year to year lease, there are several advantages and disadvantages to keep in mind. If you need help deciding which one is right for you, you’re on the right page. Let’s begin with the pros and cons of both types of rental strategies.
What is a short-term vacation rental?
A short-term rental is leasing out a furnished property on a short-term basis. Most short-term properties are rented by the month, week, or night. Many owners of short-term rentals rent their property for the majority of the year when they aren't using it themselves. Short-term rentals have become a popular alternative to hotels. They list their properties on websites like HomeAway, Airbnb, and VRBO.
Advantages of short-term rentals
1. Higher rental income
Rates fluctuate due to area as well as high and low seasons. You can also set a minimum length of stay for the most popular times of the year which can maximize your profits.
2. Better maintenance
Owners of short-term rentals have the property thoroughly cleaned between renters and the renters pay for this cleaning service. This makes the properties better maintained and constantly being checked for serious problems.
3. Personal use
This is the number one reason why most investors want short-term vacation rentals. It’s a great combination of an investment and somewhere for your family to go on vacation without paying for a hotel.
4. Automate property management
Technology such as smart apps or smart locks have made it easier to manage vacation rentals, especially if you don’t live nearby.
Disadvantages of short-term rentals
1. Constant upgrades
You’ll most likely need to update your rental amenities every so often to include all the essentials and more for a pleasant stay. This can come with a hefty price tag.
2. Not guaranteed income
Vacation renters can face frustration because their business comes seasonally. Majority of the time, high seasons are fully booked but during the slow times of the year. This can take a toll and you may not generate the same income. Rates can be adjusted due to season to bring in more renters but bookings aren’t guaranteed.
3. Competition from surrounding properties
Travelers love looking at more than one rental property when deciding where to stay. The vacation rental or short-term market sees many more homes listed than travelers searching. This can put some owners at a disadvantage. Know your area and scout the competition.
What is a long-term rental?
Long-term rentals typically refer to leased periods for months at a time. Renters pay the homeowner each month and typically take care of other expenses such as utility bills.
Advantages of long-term rentals
1. Consistent income
The advantage of long-term rentals is you can rely on monthly income. This also keeps you at ease because you will have someone on a long lease.
2. Easier to manage
Whether you choose to hire a property manager or manage it yourself, it requires less time than a short-term rental. You don’t have to try to find renters and worry about frequent rental turnover.
3. No need to furnish
Majority of long-term renters bring their own furniture. Not only will you have guaranteed money every month, but you also don’t have to worry about furniture.
4. You can charge a high-security deposit
Long-term rentals normally get charged a security deposit and will be returned to the guest at the end of the tenancy unless there’s property damage.
Disadvantages of long-term rentals
1. Less earning potential
Short-term properties generate more income compared to long-term rentals. Most long-term rentals charge the average of properties near them.
2. Owner has less flexibility
Long-term rentals are normally a year lease and owners just can’t go and visit their property.
3. Less maintenance control over property
As an owner, you can’t just go in and out of your property. You typically have to give notice before dropping by for maintenance and monthly checks.
4. Finding the right tenant
Finding the right long-term tenant can be tricky. You want someone who is going to stay in your home and take care of it. Check references and if possible, run background checks on potential tenants with their permission.
Which should you choose: long-term or short-term rental?
This all depends on what you’re looking for. Go over the advantages and disadvantages to see which will be best for you. Keep in mind that short-term rentals can bring in 30% higher profits than long-term rentals.
Studies found that the same rental property, used for both short and long-term rentals, can generate up to $20,000 more in the short-term rental. Short-term rentals do require more overseeing but the additional revenue is worth it. Find the right rental software and systems to automate your tasks. Short-term is a great option to bring more income and flexibility.
In conclusion, both long and short-term renting have their benefits. If you are having any questions about which one works best for you, send us a message. We have worked with all types of investors and can determine which might be right for you.
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