Are you searching for information on short-term versus long-term rentals? If so, you’ve come to the right place!
There’s no doubt that in today’s world you’re going to find a variety of investors who support investing in short-term rentals like Airbnb’s while there’s also going to be a group of investors who support investing in long-term rentals.
Then the question that you need to ask yourself as an investor day which type of rental Will offer you the best return-on-investment (ROI)?
In this article we will break down short-term rentals vs. long-term rentals and provide you with insight on both types of rentals so that you know which rental is the best investment for you.
Why Invest In Short Term Rentals?
Demand – The first reason to consider investing in short-term rentals is demand. Thanks to Airbnb, short term rental properties have become more popular than ever before around the world especially in big cities like San Francisco, Dallas, and Miami.
No long term commitment to tenants – When you invest in a short-term rental property, that property is going to be occupied by a tenant for one week at 1 month at a time. After that tenant has finished their stay, it will be your responsibility to have your short term rental cleaned and ready for your next short term tenant.
Not having to commit for the long-term to any particular tenant is one of the things that many landlords find appealing about short-term rentals because they also have the ability to increase their rental income by raising their rental rates depending upon the season or events that are occurring in the city or town was the short term rental property is located.
Minimal Wear And Tear – Another common reason why many landlords prefer to invest in short-term rental properties is a landlord doesn’t have to be concerned about the same wear and tear that they would face when owning a long-term rental property
Minimal wear and tear also mean that the owner of a short-term rental property also has the option to utilize their short-term rental as a personal vacation rental during the year when their property is not available for rent on the short-term rental market.
The “Ugly Truth” About Investing In Short Term Rentals
Even though there may seem like there are a wide variety of benefits that come from investing in short-term rental properties, the reality is that there is also an “ugly truth” that you have to know about as an investor before choosing to invest in a short term rental property
Requires More Marketing – One of the biggest downsides that could come from investing in a short-term rental property is that an investor who owns an Airbnb, for example, is going to have to put more work into marketing their short-term rental than they would have to put into marketing their long-term rental properties.
Short term rental properties require more marking because, an investors income is directly tied to their ability to book guest to stay in rental property throughout the year so it’s not uncommon for investors who own short-term rental properties to be constantly thinking about marketing their properties and how many bookings they have lined up.
Property Needs To Be Furnished – Another downside that comes from investing in a short term rental property is that the rental has to be fully furnished in order to receive guests.
Yes, it’s true that a short-term rental property is very similar to operating a hotel or motel, the only difference is this type of rental has to have everything that a short-term guest would know and expect to have in their home when they stay in your short term rental property.
Requires More Work Than Long Term Rentals – Besides having to be fully furnished, and ready for new guests when they arrive, a short-term rental property also requires more work each time a short-term tenant stays in your rental
Many investors who own short-term rental properties like Airbnb’s have reported that owning a short term rental property is much like having a second job because of the work that’s required in keeping their rental properties cleaned, furnished, and ready for their next short term tenant between bookings.
What most short term investors don’t know is that they could also be faced with having to work up to 40 hours each month just to manage their short term rental properties. This is because of the time that it takes to market the property online, communicate with guests and all of the other responsibilities of owning a short term rental. It’s important to really think about the work that will be required before you invest in a short-term rental property.
Location Matters – One of the important things to keep in mind when investing in a short term rental property is that the location of the property matters. Most people who stay in Airbnb’s want to be close to shops, stores, attractions and things to do in a city so if your short term rental isn’t in a great location, that’s near great attractions, you’re going to have a more difficult time renting that property during the year compared to how long it would take to rent a long term rental property.
Dependant On Tourism Industry – There’s no doubt that short term rentals have done well over the last several years but another reason to be wary of investing in them is that their success is dependant on the tourism industry.
If you live in a large tourist-friendly city like Miami, you may think that there will always be a demand for short term rentals but if the economy takes a hit as it did in 2008, a natural disaster strikes your city, or there’s a major outbreak of a virus in the United States, tourism in your city could dry up fast!
Negative Perception – Even though many investors were making big money owning short term rental properties 3-5 years ago, another reality that investors have to face is that the rental market has changed and there is more of a demand for long-term rental properties than ever before.
Besides the negative perception that short term rental properties are starting to have across the United States, many cities are also making it more difficult for owners of short term rental properties by creating additional fees and licenses that those owners have to pay.
For example, in Key West Florida, if you want to own a short term rental property like an Airbnb, you’re going to have to purchase a transient license, so it’s best to consider all of the additional licensing fees that you may be required to pay on a monthly or annual basis before you purchase a short term rental property.
With a greater demand for long-term rental properties, most cities across the United States are now turn their attention to short term rental properties and they are starting to ban rentals like Airbnb’s.
Yes, even though short term rental properties are responsible for bringing in more tourism in tax revenue to cities, more city councils across the United States are turning against short-term rental properties in favor of creating a more long-term rental in order to satisfy the demand for long term rental properties.
Why Invest In Long Term Rental Properties?
Consistency – The first and most obvious reason to invest in long term rental properties is consistency. When you own a long-term rental property, you’re going to have consistency when it comes to your cash flow because the money that your property brings in is not going to be tied to the season or special events during the year which may bring in more tourism the city or state where your rental property is located.
Yes, there’s nothing better than being able to have consistent cash flow as an investor because that consistency will also enable you to build a stable portfolio of investment properties instead of having to wonder how much money is going to come in on a monthly basis.
Besides having the consistency of cash flow, you’re also going to have consistency in terms of your long-term tenants because you’re going to know who’s living in your rental property on a consistent basis especially if you take the time to properly screen and place those tenants in the property yourself.
Utility Bills Paid By Tenant – Another great reason to consider investing in long-term rentals versus short-term rentals is the fact that the bills will be paid by your tenants instead of you. This means that instead of you having to cover the electricity, water, sewer, trash, internet or cable bill on a monthly basis, those utilities and services will be covered by your tenants who live in your long-term rental property.
Fewer Maintenance Concerns Than Short Term Rentals – Once you have taken the time to screen and place the most qualified tenant in your long-term rental property, another benefit that you will enjoy as a landlord is having fewer maintenance concerns.
This means that you’re not going to get called in the middle of the night for doing things like stocking toilet paper or other essentials that short-term tenants may require since it is a long-term tenants’ responsibility to keep the rental property stocked with the supplies that they need on a consistent basis.
Property Management Is More Affordable With Long Term Rentals – Unless you’re planning on managing either your short-term or long-term rental property in yourself, you’re going to have to hire a property management company to manage those rental properties for you.
When it comes to managing short term rental properties like Airbnb’s and other vacation rentals, property management can cost up to 25% or more of your rental property income. Contrast this to the typical property management rate of 8% to 12% that most companies charge for managing long-term rental properties and it’s easy to see that owning a long-term rental property means that you’re going to pay less money for property management when you own a long-term rental property.
The purpose of this article wasn’t to dissuade you from purchasing a short-term or long-term rental property, on the contrary, the goal of this article is to provide you with real-life information that you can choose from making the best decision you can possibly make before you spend your hard-earned money investing in a rental property.
Regardless if you invest in a short term rental or long term rental property, make sure that it’s a multi-family property because, as Grant Cardone once said: “more doors equals more income”.
Besides investing in a multi-family property, you should also take the time to hire a property management company to professionally manage your rental property for you.
Multifamily properties are in my opinion the best investment opportunity in the United States because an apartment building, condo, or townhome comes with fewer maintenance costs than a single-family home since all of your units will be under one roof. What’s even better is that if one unit is vacant, you will also continue to enjoy cash flow from that property because your other units will be occupied.
Hiring a property manager is essential because, your property manager is going to save you the time, money and hassle of managing that investment property yourself so that you could spend your time focusing on building your portfolio of investment properties instead of having to do the work to maintain those properties yourself.
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