This common question comes up often, especially in this day and age with Airbnb, VRBO and other platforms. In this sharing economy, it’s a decision you’ll really have to weigh out. If you choose the short-term route, your property will act as a hotel, providing travelers a place to stay with much more conveniences than the typical hotel at much higher rates than long-term rentals. With long-term rentals, you avoid the seasonality aspect of Airbnb’s with consistent rental income. But which option is right for you and your property?
Pro’s and Con’s of Short-term and Long- Term Rentals
Maximized earnings: It’s easy to do the math: often, what you can make in one month is what you can make in one week. You’re able to raise or lower prices demanding on the market on a daily basis. Whether it’s high season or a music festival or sporting event in your neighborhood, you’ll be able to double your nightly rates.
Flexibility: Since you’re able to set your rates and take advantage of seasonality, you’re also able to choose how often you want to rent the space and how long. For example, you own a short-term rental in a popular ski resort like Vail, Colorado and you’d like to use the condo for your family during Christmas. You’d simply need to block off the appropriate dates for your own use. If you are dealing with a bad short-term guest who has broken your house rules, you have the right to ask them to leave immediately (dependant on platform rules), unlike a long-term rental.
Screening & Marketing: Platforms like Airbnb and VRBO handle this for you free of charge. Unlike long-term rental property management companies who charge you marketing, screening and leasing fees – Airbnb has a system in place to screen all guests based on their ID, past host reviews, their profiles and more. Airbnb and VRBO also allow the host to set a security deposit in case anything is damaged or stolen.
Upkeep, Wear & Tear and Cost: Short-term rentals are always furnished, and to do so (especially if you choose to purchase a short-term investment property), this can cost anywhere from $4000-$5000. Since new, unused and trendy furniture typically brings in more guests based on listing photos, shopping for a smelly used couch at a garage sale won’t cut it. Along with the setup cost alone, you’ll need to factor in items like toilet paper, paper towels, fully stocking the kitchen and you’ll want to invest in multiple pairs of bedding for a quick and easy turnover for your housekeepers. It’s suggested to provide your guests with nice amenities like snacks and beverages so you’ll need to make sure these items are regularly stocked up. Another cost factor are the fees that platforms such as Airbnb and VRBO charge. If you are looking for a professional property manager to manage your property, get ready to pay anywhere from 20%-30% from your monthly earnings. Lastly, the amount of wear and tear a short-term rental sees is substantially more than a long-term rental. Think about it, say you host a group of 8 guests on their bachelor party. Alcohol may or may not be involved and it’s highly unlikely they’ll want to take extra care of the property. With long-term, it’s possible you’ll have a long-term tenant who sees your property as their home and prefers to keep it in decent shape.
Seasonality & Competition: While above we mentioned seasonality can be a benefit, it can also be a challenge. In certain markets that have cold weather, hosts will see a drop between October-March, typically. Another factor is the competition with other hosts in your area. It’s common for hosts to drop their rates to compete with other short-term rentals to decrease vacancy, which can be hard to compete with. This causes unpredictability to whether or not the mortgage will be covered with slow and high vacancy months.
Final thoughts: Short-term rentals require much more time, effort and upkeep than most long-term rentals. It’s highly suggested to hire a property manager (again, the cost is typically 20%-30% of monthly earnings) unless you’re able to handle communication with dozens of guests, 24/7 on-call service, self-cleaning or managing cleaners, quality assurance for each check-out to ensure there are no damages or theft, guest issues, etc. Hosts have admitted to spending 30-40 hours a month managing their short-term rental, as opposed to the less than one hour a typical landlord (with a hired professional property manager) can commit. Some cities like Denver, Los Angeles, Nashville, Washington DC, Austin, Boston and Seattle and also require you to prove your short-term rental as your primary residence, meaning not only must you obtain a license and/or register as a business, but you cannot purchase additional investment properties to turn into short-term rentals. As you can see, the list goes on. While the potential earnings are a great pay off, the time and effort sometimes aren’t worth the risk.
Consistent income: One of the main and biggest advantages of a long-term rental is the guaranteed income. Yes, income will be lower than it would be if it were a nightly rental, however cash flow is consistent and you are able to not deal with the anxiety of high vacancy. The long-term market does not fluctuate and dramatically as much as the short-term rental market.
Less turnover: Some short-term rentals can see as many as 15 guests check-in in one month. The fewer number of renters or guests you are renting means less cleaning, less maintenance, fewer emails, paperwork, and hassle. With little turnover, there’s no need to change pricing on a daily basis or having to check for local events daily to know when to raise or lower prices. If you have a consistent renter for 2-3 years, marketing will come up less often.
Utilities: Typically with long-term rentals owners pass on monthly utilities such as electric, gas, water, trash, and landscaping to their tenants one way or the other. Bills are consistent, stress-free and not to mention better for the environment (some Airbnb guests have told stories about $500electric bills from guests abusing the AC thermostat).
Lower profit margins: It’s easy to say that you most likely won’t be getting the $200/night from your long-term like you would if you short-termed it. In some states, landlords are legally required to give tenants at least 30 days notice for rent increases, and some even cap rent increases 3% by enforcing rent restrictions such as California and Oregon. Because a lease is a binding agreement, a landlord can only legally raise the rent once the lease has expired.
Lack of flexibility: State and Federal laws can restrict landlords from what they can and cannot do. Unlike short-term rentals, it can be hard to evict a tenant – not to mention costly and time-consuming.One of the solutions to following laws and restrictions is to hire a licensed Property Manager to ensure you are following protocol for evictions and most importantly finding you a great tenant to avoid a broken lease or eviction to begin with. Another factor in flexibility are laws put in place when it comes to choosing a tenant. Discrimination laws can be scary, and what you might think is a simple screening procedure can get you in a lot of trouble. Doing the necessary work to finding a great tenant through thorough background checks, credit checks, eviction, and past disputes can be time-consuming but it’s the best way to find the ideal tenant. Keep in mind when it comes to inspections, with a short-term rental you can do this as you please and with a long-term rental you must follow state laws such as 24-hour notices, etc. Lastly, if you decide to sell while you have a renter – you’d have to wait for the renter’s lease to expire or fork up a hefty buyout fee.
Final thoughts: It’s up to you to figure out what your schedule and finances allow. It’s clear that hiring a property manager for either decision is best if you’re wanting to skip out of town for a few weeks and not worry about your property – or if some of the legal and maintenance factors are a little over your head. One can call self-management for either option a part-time job, so it’s really dependent on what you’re up for!