Short-Term vs Long-Term Renting
When investing in a rental property you typically have two options you either rent the property out long term or you turn it into a short term rental property. Both have pros and cons and knowing what those are can help you figure out your next steps. Whichever route you decide to go down both are phenomenal ways to build wealth and set you up for your future.
Short-term rentals are basically vacation rentals such as Air BNB and VRBO. Before considering a vacation rental make sure that your area doesn’t have any laws that would restrict your ability to rent short term. Certain cities don’t allow or heavily tax short-term rentals making them not an option in those areas. Once you learn if you are able to have a vacation rental within your area you can start deciding if this is the option for you.
Pros of Short-Term Renting
By far one of the best benefits of renting your property as a vacation rental is that you will be making more money than if you were renting long term. You also have access to your property whenever you like as it’s not locked into a long-term lease. Just make sure that you plan in advance if you plan on using the property yourself. If you like meeting new people then making a short-term rental might be the choice for you.
If you are worried about anything getting damaged or destroyed by guests Air BNB has a 1 million dollar insurance policy granted to hosts that provides some ease of mind for the owners. Keeping the prices matching with the season will allow you to keep maximum occupancy even through the off-season.
Cons of Short-Term Renting
With all of the benefits of short-term renting, there are some trade-offs that need to be considered. Something to consider is that there is a much larger upfront investment for rental properties. If you decide to manage the property yourself then you need to constantly make sure you are getting renters, restocking after someone leaves, cleaning up after every guest, and occasionally replacing furniture due to wear and tear.
When choosing to go with a property management company keep in mind that you will be paying more than if you were getting a management company for a long-term rental property. Keep in mind that when you host property for short-term renting then you have to fully furnish and decorate the home. Making the initial investment for a short-term rental to be a lot steeper than that of a long-term rental.
Now when I say long-term rentals I’m referring to renting out your property to one person for a prolonged amount of time for them to use as their home. Typically you would write up a lease for 6 to 12 months and only really have to worry about repairs and anything that is listed in your lease. Long-term renting is a lot more passive you won’t have to bother with much and you get a fixed amount of cash each month making it a very reliable source of income.
Pros of Long-Term Renting
Long-term renting is a lot more hands-off than if you had a short-term rental, and while you are making less money than a short-term rental there is something to be said about consistency.
Knowing how much you are going to make each month helps to set up a budget and knowing that amount isn’t going to change for the duration of the lease gives a lot of security. If you decide to go with a property management company it is even more hands-off and they typically take around 20% of the profit as payment which may be worth it depending on your circumstances. Also when looking for tenants, as long as you screen them properly, you can mitigate almost all the risk of getting a bad tenant.
Cons of Long-Term Renting
Whenever you think of long-term renting you probably think about just receiving a check every month for doing basically nothing, and while this can be true in some cases most of the time it is a bit more involved than you think.
If you’re managing your property expect things to break and the tenants to have pretty consistent problems. When anything happens you are the first person they call which can take away the whole “passive” investment concept. Whenever you do find a tenant and sign the lease they are locked in for however long the lease states, meaning if you have problematic tenants you are stuck with them until their lease ends. If you happen to get a problematic tenant then you may end up having to go through the eviction process which is a very long and expensive process to go through.
Deciding Between the Two
Now that the pros and cons have been laid out which should you go with? I think a lot of it is the location and how much effort and time you are willing to put in. If you are able to manage your property yourself I would recommend going with a short-term rental, and if you don’t like having to manage your property that way you can always switch to long-term renting.
You can also rent out long-term and manage it yourself or leave it to a management company and let them handle it. If you already have other rental properties or a job that requires a lot of your time this may be the way for you. Both options are great but it all depends on personal preferences and what type of investment you would like to have.