When real estate investors consider renting out their property, they often wonder whether it would be better to go for short term rentals (Airbnb rentals, or vacation rentals) or as long term rentals (traditional rentals).
Before deciding, property owners should consider their investment goals and needs, revenue, and rental maintenance as well as property usage. Let’s takes a closer look at the differences between the short term rentals and long term rentals to help you make the best investment decision for you and your rental business.
What Is the Difference Between Short Term Rentals and Long Term Rentals?
With long term rentals, the owner of the property rents out his/her accommodation on a long term basis, and typically receives rent payments monthly. As for short term rentals, or vacation rentals, this is the renting out of a furnished home, an apartment, or a condo for a short term stay.
Usually, the owner of the property will rent out on a weekly basis, but there are some vacation rentals that offer nightly rates too. Typically, the owner of the property will rent his/her space when he/she is not using it. It’s become common for people traveling to rent houses or condos rather than pay for expensive hotel rates.
Related: Real Estate Investing 101: Long-Term vs. Short-Term Rentals
Short Term Rentals: Pros and Cons
Short term rentals have become more popular in recent years for a number of reasons, specifically because:
- They tend to offer more privacy and space for lesser costs than hotels. Short term rentals can cost more on the long run; however, many tenants find it cheaper to pay slightly more on a monthly basis and save on utilities and registration fees that long term rentals include.
- Short term rentals also provide major advantages for real estate investors, the first being flexibility. The owner can decide exactly when his/her property will be made available for guests, whether on a nightly, weekly, or monthly basis.
- Additionally, short term rentals owners might get away with charging higher rates easily, particularly around holidays and popular travel times, than long term rentals owners.
In terms of its disadvantages, investing in a short term rental is subject to a number of factors. For example:
- Your profitability will change depending on the location of the property; for instance, having a two-bedroom apartment in the city center will yield very different rental income from owning a beach villa.
- The short term nature of this type of rentals is, in fact, one of its main disadvantages. In order to achieve maximum profitability with short term rentals, it is necessary that the property is occupied for a certain number of nights, and that is not always easy to achieve.
- Since short term rentals come furnished, tenants don’t have many options to choose from. In addition, they will have to pay for any damaged furniture.
- Maintenance is another factor that property owners should always keep in mind. Reviews are essential for the rental industry, and to ensure great reviews, property owners will need to keep up with maintenance issues such as bugs, leaks, drain clogs, and deep cleaning to have short term rentals popular with guests.
- Finally, numerous cities, counties, and municipalities have legal restrictions on short term rentals. These restrictions vary from place to place depending on a number of factors such as location, the type of home you own, and how long you rent it out for. In some cities, restrictions are severe and make most short term rentals illegal.
Related: Why Are Short-Term Rentals So Popular in the Real Estate Market Today?
Long Term Rentals: Pros and Cons
Renting long term can have plenty of advantages as well:
- The first thing is the fact that property owners will receive rent payments on a monthly basis from renters, which provides a consistent payment plan and offers security and financial stability to the property owner over short term rentals.
- Another big plus for long term rentals is that they offer peace of mind when it comes to managing the property. This is because there is less work required in terms of organizing check ins and check outs, key exchange, etc. that there is with short term rentals.
- When it comes to tenants, many would rather be renting for the long term in stead of the short term because they actually prefer annual contracts as it gives them a sense of settlement and stability. In addition, long term rentals usually come unfurnished, which gives tenants the opportunity to choose the furniture of their choice.
However, investing in a long term rental property is not without risk:
- Even though it is more likely to achieve greater profitability with this type of rental property, there are many cases where disagreements between the property owner and tenants arise, for example problems with monthly payments and shortcomings within the property, etc.
- Moreover, with long term rentals, the owner of the property commonly has less flexibility choosing when to use the property as the space is rented out for a longer period of time.
- Keep in mind that a long term rentals property owner also must stay on top of regular maintenance of the property, much like the case with short term rentals real estate investors.
Related: Traditional Rentals vs. Short-Term Rentals: Which One Is the Right Rental Strategy for You?
Conclusion
Which type of rental strategy is the right one for you as a real estate investor? The answer, as always with important real estate questions, depends on various factors relating to location, financing, and your personal situation. Both shot term rentals and long term rentals cover different needs for different aspects of the housing market.
Whichever type of rentals you go for, it will have a different impact on your rental income; therefore, it’s best to study these different factors carefully before making a commitment. Visit Mashvisor for more information on these types of rentals and to decide which one is best for you.