Thinking about investing in a long-term rental property? Before you make any changes in your real estate investment portfolio, it’s important to understand the risks of your next move. Continue reading to learn the advantages and disadvantages of long term rentals.
What’s a Long-Term Rental?
A long-term rental property is often rented out to a tenant for a long period of time, ranging from 6 months to a year or more. Many investors diversify their real estate investment portfolio with long-term rentals due to their consistent income and lower overhead costs. Like every investment, long-term rentals come with their downsides, too.
Advantages of Long Term Rentals
No matter what kind of market we’re in, tenants are going to need a roof over their heads. Especially now that the prices of real estate are increasing, buying property can be out of the question for some. Renting has become the go-to solution for those who cannot afford to purchase property or prefers to live with a long-term lease. If you invest in a long-term rental, you can expect your vacancy rate to be far less than a short-term rental.
Owning a long-term rental property means having consistent income. Generally speaking, those who rent long-term properties prefer to renew their leases and stay at their property for generous amounts of time. Receiving consistent rental income can make it easier to budget for repairs and upgrades, unlike a short-term rental where income can vary throughout the year. As rent prices increase year-over-year, you can expect your monthly income to grow, too.
Lower Tenant Turnover
You are sure to see a lower tenant turnover rate when managing a long-term property rental when compared to other types of rental properties. Less turnover means more reliable income for the duration of the lease. Lower tenant turnover can also help alleviate administrative costs, such as negotiating and signing a new lease. A plus side to having long-term renters is that they are more hands-on with the property and are invested into making it look good, considering they are staying there for six or more months.
Less Advertising Costs
It comes as no surprise that long-term rentals experience less advertising costs considering there is a lower tenant turnover with long-term leases. Long-term rental properties only need advertising when a renter is moving out, saving you generous amounts in overhead costs.
Less Cleaning and Maintenance Expenses
When you own a long-term rental property, you can expect to have far less cleaning and maintenance expenses than a short-term rental. There will be less time inspecting, showing, and securing things that the tenant would be responsible for. With less turnover, you’ll spend less time cleaning the property and more time focusing on expanding your portfolio.
Disadvantages of Long Term Rentals
More Difficult Maintenance
When owning a long-term rental property, it may be harder to catch and repair minor problems before they become big and expensive. To avoid violating tenant’s rights and ensure your property is in good shape, considering performing regular property inspections on a quarterly or semi-annual basis. On the other hand, short-term rentals can be inspected frequently and repairs are made each time a tenant leaves.
More Risk of Damage
The more time spent at a property means there are more chances for damages to occur. If a tenant has a pet or young child, they could do significant damage to your property. When leasing to long-term tenants, they will create more wear on appliances, flooring, and walls. Make sure to include a damage clause within your renter’s contract and collect a deposit before finalizing a lease.
In general, there is less flexibility when it comes to owning a long-term rental property considering you will more than likely always have occupants at the property, making it difficult to use for personal reasons. On the other hand, owning a short-term rental could mean a free weekend getaway when it’s not booked.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.