One of the beauties of real estate investing is having different options; BRRRR, Fix and Flips, Wholesaling, and investment rentals.
In this article, we will discuss the pros and cons of short-term and long-term rentals, to help investors understand which one is best for them.
Short-term Rentals
A short-term rental is generally defined as a rental of any residential home or unit for a short period of time. This typically includes stays of a couple of days to a couple of weeks, but no more than a month. When most people think of short-term rentals, they think of Airbnb or Vrbo.
Short-term rentals have become increasingly popular in recent years, as they offer a great opportunity for property owners to generate a steady stream of income. However, there are pros and cons to consider before investing in a short-term rental property.
Pros
Higher Income Potential: These rentals offer the potential to generate a higher income than long-term rentals in destination areas. Especially during the holidays, big sporting events, or peak tourist season, you can charge more per night.
Flexible Pricing: Short-term rentals offer the flexibility to adjust pricing based on the season or demand, allowing you to maximize your income.
Increased Maintenance: Regular visits to the property for maintenance checks make it easier to spot minor problems before they turn into bigger issues.
Tax Deductions: A vacation rental allows you to deduct a variety of expenses such as security systems, roofs, HVAC, fire systems, insurance marketplace fees, appliances, furniture, and cleaning and maintenance services.
Less Wear and Tear: Short-term renting usually results in less wear and tear on the property since it’s not occupied every night.
Cons
More work: Short-term renting requires a substantial cleaning after each set of guests and constant marketing of the rental.
Little Control Over Tenants: You can’t really select your tenants, so you have to rely on deposits to protect yourself from bad short-term tenants.
Lack of Income Predictability: The income generated from a short-term rental can vary greatly, depending on seasonality, demand, and other factors.
Legal Ramifications: Local authorities in many cities and towns are restricting short-term rentals or increasing taxation for these types of properties, so you should do your research before investing in a short-term rental.
Overall these kinds of rental properties have the potential to be lucrative investments, but they also come with their own set of challenges. As a property owner, you should weigh the pros and cons carefully before you decide.
Long-term Rentals
Long-term rentals usually refer to property that is leased for periods of time of one month or longer. Generally speaking, these types of rentals require a more substantial agreement documenting terms and conditions.
Long-term rentals offer both potential and financial advantages and other benefits. Before taking the plunge, it’s important to understand the pros and cons of long-term rentals.
Pros
Leverage: Long-term rentals investors are able to use leverage to increase their return on investment.
Positive Cash Flow: They can generate positive cash flow if planned and managed properly.
Passive Income: Long-term tenants are typically more reliable than short-term tenants, making them a great passive income investment.
Tax Benefits: Long-term rentals can offer significant tax benefits to investors.
More Stable: They are generally more stable and produce less volatility in rental rates than short-term rentals.
Maintenance: Long-term rentals provide more stability in maintenance and repairs, as repairs are typically handled by the tenant.
Cons
Availability of Tenants: Long-term rental investments can be more difficult to find tenants for, as potential tenants may have difficulty securing a year-long lease.
Higher Capital Investment: They usually have higher capital upfront compared to short-term rentals.
Risk of Damage: Long-term rentals can be less flexible than short-term rentals, as the tenants tend to remain in the property for a full year.
Risk of Damage: Long-term tenants can cause more wear and tear on the property, leading to increased maintenance costs.
Flexibility: They are usually less flexible as the tenants tend to remain in the property for longer periods.
There are distinct advantages to both short-term and long-term rental properties and the right choice for one investor may be entirely wrong for another. Those who enjoy actively managing real estate may find short-term is the way to go. On the other hand, for investors looking for a property that generates more reliable income, long-term might be your bet.
In both cases, KeyGlee can help you find your next investment property. We have a large inventory of amazing investment properties all over the nation. And don’t forget to sign up for deal alerts in your area and be notified when new properties are available!