Short Term Rentals vs Long Term Rentals
You are probably at a point in your life where you want to start investing, and mainly in real estate. But before we start putting money down into any property you need to understand the pros and cons of short term rentals and long term rentals. Each one has its own drawbacks and advantages in this blog we will discuss what those advantages and drawbacks are of each.
Difference between Short Term Rentals vs Long Term Rentals
Long Term Rental: A long term rental is pretty much the same as an apartment, they will stay in the property for longer than six months. The residence treat the property as a place to live, and if they like where they live than they might want to renew on a lease.
Short Term Rental: Then there are short term rental properties like BNBs or hotels. These are designed for people who are on vacations, business retreats, or perhaps someone seeking short term living.
Pros of Long Term Rentals
Less Management
When owning a long-term rental there is less to day to day activities like cleaning, maintenance, and check-ins. So in reality once a lease is signed the tasks of landlord get smaller.
Operating costs are reduced
A majority long-term tenants pay for their own things like internet, etc. With this in mind the operation costs for the landlord or owner of a long term rental investment is reduced. To learn more about operating costs of a rental property head to Stessa.
Getting a passive income
Lets just cut to the chase here a majority why many people invest in a long-term rental is because it is way to obtain a passive income. Rent comes in at fixed periods and thus it is much easier to manage the income of your investment.
Easier to insure and finance
Insurance providers as well a majority of lenders would prefer that whatever rental you have invested in be long-term mainly because it less risky. With that being said it is much easier to obtain a mortgage loan and pay less in insurance premiums.
Cons of Long-Term Rentals
Bad Tenants
It is important that you screen all your tenants there a might be chance they have some undesirable qualities that might effect investment in a negative way. Some of these flaws could be they are loud and obnoxious, have a bad credit score, don’t pay the rent on time or at all, and damage the property.
Flexibility becomes hindered
Once a lease is signed you can’t change the lease rules whenever it suits you, once it is signed it stays in effect until the lease duration is up.
Vacancy issues
Once a tenant has stayed their time the rental then becomes vacant, the problem with that is there is a chance the rental could become vacant for a long period of time and unable to obtain a passive income. If you want to learn more about vacancy problems and solutions head to Main Street.
Possible low income
There is chance you might list the rent at a low price and because of that get less in passive income. Another flaw is that while the lease is in effect you can’t alter the rent price, you will have to wait until the lease is up.
Pros of a short term rental
Flexibility
Unlike long-term rentals flexibility you can block off certain days for your rental just for you. This is a desired feature for those who want to go on vacation.
Property Inspections
Considering that the rental might be vacant at certain times the property owner or whatever title they might be called can check the property to see if there are any problems. To learn more about what to find in an inspection head to Total Home Inspection.
Able to change price
There might be a possibility that the rental property is near or in a location that is prone to popular events or maybe rented out during a holiday, so because of that the owner can raise the price of their property.
Higher Income
As stated earlier the location of your property might be in an area that is prone to events or sought out during the holidays which means that your property could be high in demand and with that able to make a huge profit.
Cons of Short Term Rentals
Erratic income
Unlike a long-term rental property you won’t be able to rely on a fixed monthly income from the tenants via rent. Because of this you might be put in a situation of financial distress and sometimes the market price for short term rentals can fluctuate and those fluctuations can be either good or bad, what I mean in the context of market is that if there are other short term rental competition in your area and you can’t compete with their prices then you won’t be able to sell out the short term rental.
Higher need for management
A short term rental property requires a lot more cleaning, client relations, maintenance, and marketing. With all of this it can come a great cost finically wise.
Expensive operating costs
Owners are responsible for every utility such as internet, water, gas, cleaning restocking, and maintenance. Also décor might need to be changed every now and then to compete with rival short term properties. However as the property owner you can make some guidelines for your property to ensure you won’t spend as much on operating costs.
Legal blocks
There is chance that your state, city or even neighborhood might not allow you to open up a short term rental property. But if they do you might need to obtain a permit, licensee, or some operating paperwork to open a short term property which can be very expensive.
Hybrid Approach
As stated earlier there is difference between short term rentals vs long term rentals, but you can make your property be both. You can open up your property to be long term for a fixed income and you can also set your property up for short term for events, holidays, vacations, etc. But before you think “hey this is good idea” you need to know that this process can be a little tricky and requires an understanding of both short term rentals and long term rentals.
Factors to consider when choosing short term rentals and long term rentals
Location
The location of your property is big variable when determine whether to short term vs long term.
- Tourist Areas: if you location is known primarily for tourism, vacation, or getaways then it is best to get a short term.
- Urban areas: if your property is in a city with not a whole lot of activity then it is best to get a long term rental.
Research rates of your areas including vacancy rates, price rates, and occupation rates before committing to a rental property.
Legal Aspects
Some areas might not allow you to rent out spaces for multiple nights or even rent out any place. If that is the case before you start putting money down on a property look into legal regulations for your area. To learn more about the legal aspects of renting out space head to Justia.
Time commitment
Making an investment in anything takes a lot of work and it requires a significant amount of time and commitment.
Financial Mission
When putting investment down on a property you need to ask yourself first what is the overall goal you are trying to accomplish. If you plan to just get some quick cash in a short amount of time then the best investment is a short term rental on the other hand if your goal is to have a passive income I would recommend a long term rental.
Conclusion
Choosing between short term rentals and long term rentals isn’t easy there are advantages and drawbacks to each one. They often depend on location, area regulations, commitment, and resources.
- If you plan to obtain a passive income with little attentiveness as possible it is best to go with long term.
- If you plan to make mush more money and have a much larger time commitment then a short term rental is best for you.
Your decision should be based on your time commitment, budget, and clear understanding of what you want to achieve finically. With a good strategy you will be able to determine what investment is best for you.
Content inspired by ChatGPT.