When you invest time and money into a property, getting the best possible return on your investment is the main goal. This might mean opting for a short-term rental instead of a long-term rental or vice versa. Short-term rentals are becoming very popular as an alternative to pricey hotels in vacation destinations or high-tourism areas. On the flip side, long-term rentals provide more stability and consistency with year-long leases and committed renters.
The old adage “location, location, location” is spot on when deciding what direction you are going to take with your rental property. Some of the top places for short-term rentals include Tampa, Florida, Kahuku, Hawaii and San Antonio, Texas; notice these are all considered vacation areas where the weather is usually warm year-round. However, because the average worker’s earnings haven’t increased much in the last decade, there is still a high demand for rentals, especially apartments and single-family homes. Some of the top places to invest in long-term rentals are Cleveland, Ohio and Jacksonville, Florida.
Regardless of what you choose, here are some advantages to both options as well as some potential setbacks:
Long-term rentals have been the traditional option for property investors for a variety of reasons, including:
• Longer lease length: Having a consistent deadline and a year-long lease will ensure you always have someone in your property paying rent. This means there is no seasonal variance or off-seasons that would make it difficult to rent your property.
• Less advertising: Short-term rentals have to be advertised constantly, usually every week to fill in for later dates. With a long-term rental property, you will only need to advertise when your tenant leaves. You can also require notice, which allows you ample time to find a new tenant.
• No utility payments: In a long-term rental, the tenants are usually responsible for taking care of their electricity and water and other utility payments. This isn’t the case with short-term rentals, which means if guests blast the AC, the charges fall on you.
• Renters will take care of basic maintenance: Long-term renters can generally keep the house clean, complete yard work and do minor repairs around the house. With short-term rentals, guests often treat it as a hotel, with no cleaning responsibilities or upkeep.
Short-term rentals are the go-to option for tourists at the moment. You can now find Airbnb and VRBO rentals in almost any location. Short-term rentals can provide more of a homey and in-depth cultural feel that a hotel usually doesn’t provide. Here are some of the advantages of opting for a short-term rental (but remember, location is going to be vital):
• Not tied to the same tenant: Even if you go through proper screening to find a tenant in the first place, you can get stuck with a renter who ends up not being a good fit for you and your property or doesn’t pay rent on time. This can be avoided with short-term rentals. Plus, you can also sell the property without having to worry about moving the tenant out.
• Vacation home: If you own a property in an ideal location, whether it’s a mountain lodge, beach condo or just a home away from home, you can block out availability for your own personal vacation. You can also let other friends and families use it if you’d like.
• Possibility of more income: Short-term rentals in destination areas are usually listed at higher prices with nightly rates. This can significantly increase the income you are collecting at a faster pace.
• Easier to keep up with repairs: As you will more consistently be at the property to inspect and get it ready for the next guests, you will be able to catch and fix things more often. Usually, long-term renters create more wear and tear on the furniture and appliances.
While both long-term and short-term have advantages, there are several factors that should also be considered. For example, a short-term rental would require more interaction from you to keep it clean, organized and to always communicate with guests. If you don’t live close to your property or don’t have the means to be that hands-on, you will need to hire a property management company or someone to do most of the work for you, which can be expensive. Another aspect to short-term rentals that can make them more difficult is that they need to be fully furnished, have kitchenware, linens, towels and, ultimately, have necessary amenities guests would need and want if they were staying at a hotel.
Furthermore, when it comes to long-term rentals, they will have a slower cash flow and you most likely won’t have the ability to charge more premium rates as you must stick to the lease agreement. As mentioned above, long-term renters may potentially create more wear and tear on your property, particularly in the kitchen, due to the longevity of their stay.
Whichever way you decide to go, make sure you’ve asked the right questions about your property in accordance with location, size and type of management for the optimal return on investment.