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Short term rental vs. long term rental – what may be best for a host?​

Resortifi gives hosts the platform for both short- and long-term rentals; however, which one they prefer the most, is solely based on their personal preferences and some factors.

When it comes to rental property, you’ll want to ensure that you’re getting the best returns possible.

One consideration that can impact the returns that you’re generating is the way that you choose to rent out your property, whether you rent it as a short-term rental, also known as a vacation rental, or as a long-term residential rental.

While long-term residential properties can be a great way to generate wealth and when done right, can even serve as a form of passive income, vacation rentals offer a number of advantages as well. Namely, the fact that in some especially hot vacation markets, they can be a way to generate more income, or at least, more gross income.

But are vacation rentals everything they’re cracked up to be? The answer is: it depends! The profitability of your property as a vacation rental will hinge on a number of factors, including where the property’s located –and how popular that destination is. Another thing to consider is management costs. With a short-term rental, there are a lot more maintenance and ongoing management costs, which can quickly eat into your profits.

If you’re on the fence about operating your rental as a long-term or vacation unit, or if you’re in the market for another investment property and considering a vacation rental, then read on to know the pros and cons of each to help you discover the best option for you.

What’s Considered a Short-Term Rental?​

Before we get started, let’s quickly clarify what is considered a short-term rental. While the exact definition can vary, most would consider a short-term rental to be anything rented out for less than a month. Vacation rentals are usually considered short-term rentals, while long-term rentals are those that are rented out for long periods of time.

Pros:

  • The Potential for More Income:

Short-term rentals can bring in more money than long-term residential units. Of course, your gross income will often be offset by expenses –so you’ll want to keep in mind that your net income will most likely be much lower. The reason that these properties tend to bring in more income is that they’re often located in popular vacation destinations, and are usually priced higher than their long-term counterparts since vacationers are usually willing to pay more than residents.

  • More Flexibility:

Another reason you might consider a vacation rental is if you are planning to visit the area yourself and would like to stay there. With a short-term rental, the owner has the ability to use the property whenever they wish; you can simply block out the days that you’d like to stay at the property. Having a vacation rental can be a great way to avoid having to stay in a hotel when visiting, while still generating an income the rest of the year. This is in contrast to a long-term rental, which is almost always continually occupied unless you time your visits to a period when you’re in between tenants.

  • Damage is Often Easier to Spot:

While short-term rentals may see a lot of visitors, the short-term aspect means that there’s time to keep up with maintenance, and crucially, to spot small problems before they escalate into bigger issues.

  • The Ability to Adjust the Rent at Any Time:

Another benefit of short-term rentals is that you can adjust the rent whenever you’d like. As long as it’s in line with the market rate, that is. With a long-term rental, you’ll need to wait until the lease expires. Or until the next month if your tenants are on a month-to-month lease.

Cons

  • More Expenses:

While these properties often generate more income, keep in mind that a good portion of that will go into management and upkeep. Cleaning and management costs for short-term rentals are much, much higher. You’ll have to ensure you are either cleaning yourself in between visitors or have a reputable housekeeper who does it for you.

  • Loss of Income During the Off-Season:

Another downside with short-term rentals is the dreaded off-season. While peak season means that your rental might be occupied, the off-season means more vacancies and the loss of income. If your short-term rental is a vacation rental in a popular vacation spot, you must consider if the area is popular year-round, or if there are peak times when it is most popular. Be sure to factor in the cost of your rental sitting empty for long periods during the off-season.

  • More Legislation to Follow:

Another potential downside to short-term rentals is that there’s often more legislation to follow, especially in hot markets, where cities may have implemented their own regulations surrounding short-term rentals. Some cities have limited the amount of time a property can be rented as a vacation rental, while others have even banned them altogether or restricted them from operating in certain districts.

  • Higher Risks

The events that have taken place over the last couple of years have made things financially challenging for many short-term rental owners. Lockdowns and travel restrictions that were implemented in many states impacted the vacation industry.

What about Long-Term Rentals?​

Pros

  • Reliable Income:

First up, one of the benefits of long-term residential units is that it allows you to generate steady, predictable income. When it comes to long-term rentals, you don’t have to worry about extended vacancies or seasonal downtime. While it is certainly possible to have some gaps in between tenants, your downtime in between tenants should be minimal. Ideally, 2-3 weeks at the most.

  • Lower Operating Expenses:

With long-term rentals, your expenses are much lower than with short-term rentals. With residential units, your tenants will pay for most of the operating expenses such as utilities, electricity, water, sewer, and more.

Cons

  • Less Income:

One of the main risks of having a long-term rental is that in a popular, booming tourist destination is that you could be losing money if you’re running a long-term rental as opposed to a short-term one. Still, this depends greatly on the market in question and what your returns would be after expenses.

  • Risk of Unqualified Tenants:

Long-term rentals carry the risk of unqualified tenants gaining access to your property. Of course, bad guests are a risk with short-term rentals too, although their duration will most likely be much shorter. Fortunately, though, this risk is one that can be mitigated by implementing an airtight tenant screening policy offered at Resortifi. It’s the best way to reduce your risk and ensure that you get qualified tenants in your property.

  • Less Flexibility:

Long-term rentals also have less flexibility. You can’t simply raise the rent or use the property when you need. The loss of flexibility can lead to loss of profit if you’re not careful to plan ahead.

  • Challenging Maintenance:

Long-term rentals tend to experience less wear-and-tear than their heavily used vacation counterparts, but there’s a downside to this as well. Maintenance often goes unperformed or undetected with long-term rentals, especially when there are longer tenancies. Delays can lead to more extensive repairs or maintenance needing to be done once the issues are finally discovered.

Which Option’s Best for You?

There is no right or wrong way to invest. Instead, it’s all about choosing the best route to help you reach your goals the most effectively. So make sure you take the time to sit down and assess your big-picture objectives from the start. This will help you to create an investment strategy that’ll enable you to reach your goals, and save you from wasting time and resources, not to mention tying up your capital in an asset that’s just not performing as well as it could be.