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How do you know if a short-term or a long-term rental property offers more benefits to your real estate strategy? Depending on your long-term goals, you might find that one suits your strategy better than the other. Here's short vs. long term property rentals:
What’s the Difference Between Long-Term and Short-Term Rentals?
The main difference between short-term rentals and long-term rentals is that short-term rentals are typically rented on a daily or weekly basis as opposed to a monthly basis. When investors reference short-term rental properties, they are generally referencing short-term residential rentals which includes vacation rental homes and single-family rental homes that are rented out on a day to-day or week-to-week lease. Long-term rentals are typically buy-and-hold investments that are rented out by an occupant with a 12-month lease. Long-term rental rates are more fixed compared to short-term rentals, as short-term rental prices can fluctuate more depending on market conditions.
Pros and Cons of Long-Term Rentals
There are distinct advantages and disadvantages to owning a long-term rental. Here’s a list of pros and cons you should know before purchasing a long-term rental property:
Pros
Predictable Income
Long-term rental properties have consistent income throughout the year. For an investor, knowing exactly how much cash is coming in every month can make it easier to budget and forecast your return on investment.
Lower Operating Expenses
Renters who are on a long-term lease generally take better care of basic items around your property. Since these renters see your property as more ofas a home than a hotel room, they are more inclined to keep the property clean.
Less Tenant Turnover
With less turnover, you can save on many administrative tasks such as marketing the property, negotiating and signing a new lease, and making the property ready for the tenant. If you’re lucky enough, you’ll find good tenant that renews the lease year after year.
Cons
Less Flexibility
Since you’re locked into a lease for a longer period of time, you will have less flexibility to do what you want with your property. Having a long-term lease can also make it difficult to sell a property.
Lower Profit Margins
When leasing a long-term rental, you are unable to adjust the pricing based on current demand. With sudden market changes, this could result in lower profit margins.
Pros and Cons of Short-Term Rentals
While long-term rentals have more predictable income and are easier to manage, short-term rentals offer some distinctive pros and cons to an investor.
Pros
Higher Potential Income
With a short-term rental property, an investor can easily adjust rent price based on current market conditions. The ability to adjust rates quickly allows you to generate higher gross income.
More Control
Since a tenant only stays for a short period of time, you have more control over the property to complete renovations, inspect for maintenance, and do thorough cleanings.
Cons
Lower Occupancy Rate
Many short-term rentals like vacation homes have off seasons, resulting in a lower occupancy rate during certain periods of the year.
Aggressive Marketing
During the high demand season for short-term rentals, you need to have an aggressive marketing strategy to compete with the other rentals on the market if you wish to generate a decent return on your investment.
More Maintenance and Expenses
Creating the perfect short-term rental means investing into maintenance and other expenses such as restocking amenities. The upkeep is more demanding for a short-term rental, as you will have many tenants coming and going.
What’s Best for You?
Depending on your long-term goals, you’ll find that either long-term or short-term rentals will be more suitable to your portfolio, or maybe even a mixture of the two. If you’re an investor looking for low-risk, long-term gains, then you will find that long-term rentals offer the best investing strategy. For an investor that enjoys a high-risk environment with flexibility, a short-term rental property will be your best bet. For an investor looking for a diverse portfolio, a mixture of long-term and short-term rentals will cover all your bases and leverage you in the market. Your personal investment goals will determine what strategy is best for you.
RCN Capital
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 todayto discuss your next real estate investment.