With the rising popularity of the short-term vacation rentals, many investors ask themselves which option brings the better return for their investment. And the answer is; it depends. There are some pros and cons to everything and both options offer unique benefits and drawbacks. Before we examine the pros and cons of each option.
What is the Difference Between a Short-Term and a Long Term Rental?
A short-term rental is a property that is rented anywhere between 1 to up to 30 days. While a long term rental property gets rented for over 30 days.
Benefits of Short-Term Vacation Rentals
- More Rental Income: Because homeowners are often able a nightly rate per stay, the monthly income can be at least twice as much as a long term rental. Specially if the property is located on a very popular vacation spot.
- Personal Vacation Use: One of the great advantages of owning vacation rental is that the homeowner can get to enjoy the home as well when it’s not in use. Allowing both enjoyment and higher returns.
- Less Wear & Tear: Short-term rentals are cleaned after every guest checks out. My favorite part is that typically the guest pays for the cleaning fee. The home is maintained in an ongoing basis. Resulting in much less wear and tear than in a long term rental.
Drawbacks of Short-term Vacation Rentals
- Intense Hands On Your Investment: Short term rentals require a lot more involvement. Coordinating guests check in, cleaners & maintenance workers, setting up smart locks and remembering to send out codes, maintaining enough supplies and paying for utilities. These tasks can be very burdensome for some and will add to your operating expenses.
- Off Season Vacancies: Most markets have a few months out of the year when the bookings drop, resulting in less revenue. Planning ahead is key and knowing how to budget for less profitable months.
- Weak Markets or Restrictions: Before you make an investment for a short-term vacation rental do your homework. Some markets are overly saturated with vacation rentals and other areas have restrictions and don’t allow vacation rentals.
Benefits of Long-Term Rentals
- Consistent Income: The rental income is the same every month. This means that a landlord can count on the same income on a monthly basis.
- Less Overhead Fees: Usually the tenant pays for the utilities and no supplies need to be purchased by the landlord
- Less Involvement: Landlords of long term rentals don’t have to worry about coordinating check ins and check outs and cleaners and worrying about when the next guest will arrive.
Drawbacks of Long-Term Rentals
- Lots of Wear & Tear: Landlords can expect to do a lot of maintenance and repairs after a tenant moves out. Even with the best of tenants. Wear and tear is the inevitable decline of a property’s overall condition due to time and use.
- Landlord Restrictions: There are certain laws and restrictions that a landlord must abide by. In addition many areas have rent controls and other constraints that are detrimental to landlords. Tenant eviction has also become a lengthy and costly process.
- No Personal Use of the Property: Obviously this is a drawback because the property is rented to a tenant who resides at the property.
Before worrying about the drawbacks. One approach would be to purchase a property that can either serve as a either a vacation rental property or a long term rental. That way, if you need to switch between both options, you could safely do so. Another approach would be to diversify your real estate portfolio if you are able to purchase more than one property. That way you can enjoy the best that both options have to offer.
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