Investing in rental properties is an excellent way to build long-term wealth and add a cash producing asset to your portfolio. The many benefits that real estate provides is what makes it one of the best asset classes for investment. If you’ve decided you would like to invest in a cash producing rental property, you should familiarize yourself with the two different categories of rental real estate, short and long-term, to determine the one that best fits your investing goals. Each has its own benefits and drawbacks, which you’ll need to consider before adding a property to your portfolio.
Continue reading as we compare the differences between long-term and short-term rental property to help you determine which type of investment is right for you.
Long-Term Rental Property
Long-Term rentals can be classified as those being leased for extended periods, with most leases lasting six months or one year. This model is more common with rental properties since it’s easier to get into and requires less active management than short-term rental properties do. Although a long-term rental means spending less time searching for tenants, you will want to take extra care when selecting one since you don’t want to deal with the headache of a bad tenant or an eviction process. The main benefit of these properties is their steady and predictable rental income, which may be more suitable for certain investors depending on their goals.
Drawbacks to Consider
As great as long-term rental investments are, you should be aware of the potential risks and drawbacks that come with them. We already mentioned that you run the risk of renting your property out to a bad tenant, which could lead to missed payments, neglect of the property, or even a costly and drawn-out eviction. Bad tenants are certainly a risk with short-term rental investments as well, but these renters are gone just as quickly as they come so they are less of an issue. You should also recognize that even though long-term rental income is consistent, it will be limited when compared to the revenue generated by a short-term investment property. You also won’t be able to adjust rental prices as quickly to maximize the return on the investment.
Short-Term Rental Property
Short-term rental properties can be defined as any property being rented for less than 6 months at a time. They are typically rented on a monthly basis, but with vacation rentals it can be even shorter. Short-term rentals have a big advantage in that they have a much higher potential for earnings than long-term rentals do. It’s possible to generate the revenue of a long-term rental in one weekend with a comparable vacation rental. You’re also able to adjust nightly rates on the fly so as to get the most out of your investment. Finally, you should consider the benefit of being able to use your property for your own getaways whenever it’s vacant.
Drawbacks to Consider
Just like an investment in long-term rental property, there are some drawbacks to owning short-term rental property to consider before you make a purchase. First and foremost is that short-term rental properties demand more time and effort from owners, both for managing listings and maintaining the property after each stay. It’s possible to hire a professional cleaner or landscapers to take care of some of this work for you, but that’s another cost to consider with your investment. You also need to understand that short-term rentals offer much less consistent income which tends to be seasonal, especially in the case of vacation rentals. Properties on the beach won’t do as good in the winter months, and ski cabins won’t perform well in the summer.
Finally, be sure to check local and state regulations surrounding short-term rental properties. Many cities and metropolitan areas have begun enforcing restrictions on AirBnB and other short-term rentals, so you’ll want to ensure that you can operate your investment as a rental before you make a purchase.
The easiest way to save on a rental property investment is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance a long-term rental property? Connect with us today.