If you are lucky enough to own not one but two properties, you've got yourself an opportunity to earn some additional income. You've long thought about it but can't seem to decide whether to rent it out to passing travelers or look for a tenant who'll stick around for months on end. The earning potential of the first is definitely greater, but then there's the question of constant marketing. On the other hand, you won't be making as much money renting to a permanent tenant, but the cash flow would be steady. Knowing how tough it is to come to a final decision, we've made it our mission to gather the facts concerning long-term vs. short-term rental ownership and management. Strap in because they are coming your way!
Long-term vs. Short-term Rental Ownership: Pros and Cons
Bear with us while we attempt to introduce you to the advantages and disadvantages of long-term and short-term rentals. Let's also take the time to define the notion of each.
- Short-term rentals, or better known as vacation rentals, are considered fully furnished properties one can rent out for the duration of a day, a couple of those, all the way up to a month. They are great alternatives to staying in hotels, as they tend to offer certain features the latter don't, for example, a washer.
- Long-term rentals are properties rented to only one tenant on a longer-stay basis. What exactly constitutes a long-term rental agreement tends to differ from one state to the other, with the period of 30-days being the absolute minimum and year-long occupancies being the norm.
The Pros of Short-term Rentals
#1 High Earning Potential
Demand sets the price. If your residency is located in a particularly sought-after neighborhood, you'll have a chance to earn a substantial amount of money by renting it out on a daily basis. There are also certain times of year that attract more visitors, thus, giving you a chance to drive the rates up during the peak months. On the other hand, increasing rent isn't as easy with long-term rentals and would probably lead to landlord-tenant disagreements.
#2 The Ability to Use the Property Yourself
Do you feel like vacationing in your own rental? Well, if you advertise it as short-term, you'll definitely be able to do that! You'll have to block specific dates on the calendar to prevent them from getting booked, and you'll be free to enjoy your property for as long as you wish!
#3 Less Damage
With fewer days of staying comes less damage. You'll be visiting the rental every couple of days and will, therefore, manage to get wind of problems early on. This, in turn, will give you a chance to fix them before they've turned into a disaster!
#4 Tax Deductibles
Being the owner of a vacation rental grants you the opportunity to pay lower taxes. There are various tax deductibles associated with renting daily, including cleaning, maintenance, marketing, management fees, and more.
The Cons of Short-Term Rentals
#1 Strict Regulations
When it comes to long-term vs. short-term rental properties, the first ones come out a winner in terms of regulations. As a matter of fact, in certain states, stays shorter than 30 days are entirely banned.
#2 Higher Management Fees
Hiring a property manager to keep an eye on your vacation rental is considered a costly business. The fees of short-term rental management are significantly higher compared to those of long-term.
The Pros of Long-Term Rentals
#1 Constant Cash Flow
Those who advertise their properties as long-term rentals will experience a steady influx of cash upon finding a tenant. The latter will be responsible for paying rent each month while also taking care of the utilities.
#2 Easier Management
There are few things left to manage when you find a tenant to stay in your rental property for a while. There's no longer the need to market the listing; cleaning is now their responsibility, and so are the bills. The only things up to you to handle become possible repairs and improvement projects.
#3 No Furniture
If you are renting on a long-term basis, you can forget all about furnishing, as it's typical for new residents to bring with them their own furniture. Chances are, your property is already equipped with several pieces. If so, perhaps, you'll have to move them someplace else before the tenants move in. Contact a moving company to handle the transport while you deal with packing the moving boxes. Leftover boxes can be reused later on and could potentially function as temporary storage.
#4 Requiring Security Deposit
Lending to long-term tenants allows you to include a security deposit on the lease to cover the damage they may cause. If no damage has occurred over the course of occupancy, the deposit is then returned. It's not unusual, for example, for landlords who allow pets to ask tenants to put down higher-than-average deposits. Despite most pet owners being highly responsible, animals can be unpredictable, accidents could happen, and the property could suffer in the process, hence the higher deposit rates.
The Cons of Long-Term Rentals
#1 Lower Earning Potential
When renting long-term, the rent rate is set and can't be changed on a whim. Furthermore, the same property that rents for $1,000 a month could rent for about $100 a day, thus being significantly more profitable as a short-term rental.
#2 No Control Over Property
You relinquish all control over your property when you rent it in the long run. You cannot access it any time you want unless you have previously discussed visiting with a tenant. It's almost as if the place itself is no longer yours.
#3 Finding Proper Tenants is Tough
The screening process takes time, especially if there are multiple parties interested in the rental. Once you decide on those you deem reliable, you still can't know for sure if they'll treat the property well. You can only hope they won't damage it beyond repair.
The Finishing Words
Talking about long-term vs. short-term rental ownership, we can't help but notice there are advantages and drawbacks to both. And we haven't even mentioned all of them! Regardless of everything, it's up to you to decide how you want to advertise your property. Just don't be rash! Slow and steady wins the race, so do your research to make sure you are making the right decision!