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.
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Deciding between short-term and long-term rental investments depends on your goals and how hands-on you want to be. Short-term rentals, like vacation homes, can generate high income but require constant management. Long-term rentals offer steady returns with less effort but come with the risk of longer vacancies. If you lean toward short-term, consider locations with unique attractions, like properties near Eco Tours in St. Augustine. Highlighting experiences like these can help attract more guests and keep your property booked. Ultimately, it’s all about balancing your income expectations and the type of involvement you’re comfortable with.
Choosing between short-term and long-term investment rentals really comes down to your goals and what suits your lifestyle. Short-term rentals can be lucrative and offer flexibility, but they require more management and constant attention to details. Long-term rentals, on the other hand, provide stability and steady income with less frequent tenant turnover. If you’re leaning towards a short-term approach, consider making your property attractive for travelers seeking a day retreat—something serene and unique that offers a break from routine. Think about what type of guests you want to attract and whether you’re prepared for the demands that each option brings.