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There are two options for every investor who wants to venture into rental property investment: short-term or long-term rentals. As one maxim goes, different strokes for different folks. In real estate investment, you also get to choose what’s the best rental property investment for you.
Of course, short-term and long-term rentals have their pros and cons. In this blog article, we’ll examine the advantages and disadvantages of each.
Short-Term vs. Long-Term Rentals: The Difference
First, let’s identify the difference between short-term and long-term rental properties. Why are they called those names?
- Short-term rental properties. Residential properties that are rented for a day, week, or month are under the category of short-term rentals. Examples of these are vacation rental cabins, spare bedrooms for rent, and inns.
- Long-term rental properties. This type of property investment has lease terms ranging from six months to a year or longer. Examples of these are single-family or multi-family properties of which the renters pay the utility bills.
Short-Term Rentals
Investors have their respective reasons for choosing short-term rentals as property investments. Like any other investment, there are advantages and drawbacks to this option.
Advantages of Short-Term Rentals
One benefit of investing in a short-term rental is it’s easy to maintain because renters don’t stay longer in the property. Once a renter leaves the property, you can clean and check it for any maintenance issues before the arrival of a new renter.
There’s also the upside of adjusting the rent price as the market rate changes, which optimizes your gross rental income. You can earn more monthly rent in a short-term rental property than in a long-term rental depending on local market conditions and demand.
The flexibility of short-term rental properties also attracts investors. For instance, you can have the property for personal use whenever there are no renters. There’s also the easy option of selling the property if it seems in your best interest.
Disadvantages of Short-Term Rentals
While short-term rental properties can give you more gross rental income, consistency is not guaranteed. One unfortunate scenario is when the unit sits vacant for a longer time. In contrast, long-term rentals can give you consistent income as long as there’s a tenant who signs for a longer term of lease.
Another disadvantage is the utility expenses. Owners of short-term rentals typically pay for water, electricity, gas, internet, and cable television. In addition, the maintenance expenses are pretty high since you need to keep it well-maintained and well-furnished for new renters. You also need to stock new towels, sheets, and toilet paper.
Moreover, owners of short-term rentals have to deal with stricter local laws and regulations. Depending on homeowners association or city regulations, short-term rental properties may need to pay occupancy tax similar to hotels. There may also be limits on occupancy periods.
Long-Term Rentals
For long-term rental properties, there are also upsides and downsides you need to consider. Here’s a list of them.
Advantages of Long-Term Rentals
Long-term rental properties are typically affordable to operate. Tenants usually pay the utilities and do the cleaning. They also consider the property as their own home, which means they take care of it properly, giving you fewer maintenance issues.
If you consider property management fees, long-term rentals are more affordable than short-term rental properties. The reason for these fewer management expenses is that there are no renters constantly moving in and out every month.
Another advantage is the consistent income. If you have a tenant on a one-year lease, you can expect to earn an income within that period. You can make accurate ROI calculations, and it’s easier to budget for repair and maintenance expenses.
Disadvantages of Long-Term Rentals
Tenant screening is crucial if you want to own a long-term rental property because you must avoid tenants that cause you headaches. But, sometimes, you’ll encounter tenants who don’t take care of the property, pay the rent late, and who always complain. This can be a disadvantage since you can’t simply terminate a long-term rental agreement.
Another drawback is you can’t adjust the rent price because long-term lease agreements have the same rent price during the term of the lease. In this sense, what you agreed between you and the tenant can hinder the potential of earning more from the investment.
Maintenance can also be a disadvantage because inspections on long-term rental properties happen every four to six months. This can make it more difficult for you to identify minor maintenance issues before they become major, expensive problems.
Takeaway
I hope this article can help you in your decision which to choose as a real estate property investment: short-term or long-term rentals. Consider the pros and cons of each to ensure that you put your money into the best investment. Also, take note of which investment you can handle better.
