Investing In Real Estate: Short Term vs Long Term Rentals?

A short term rental like this beach house would be a great vacation spot.

Short Term vs Long Term Real Estate Rentals

If you’re looking to plump up your bank account (and most of us are!) real estate can be a fantastic option.

When you start thinking about getting into the game, one of your first considerations is whether you want to rent long or short term. Both strategies could send your net worth soaring, but each has its own strong points and also drawbacks.

Above all else, regardless of your plans, make sure to choose a prime location first and foremost.

Short Term vs Long Term: What Is The Difference?

As you can probably figure out, short term rentals are those available to tenants for an overnight, a week, or another limited period of time. These homes or apartments or rooms are furnished and ready to use. That means they’re stocked with fresh linens and towels, a sparkling clean kitchen, and an overall appearance similar to what you’d expect to find in a nice hotel. One of the most popular platforms for short term rentals these days is Airbnb!

A short term rental like this beach house would be a great vacation spot.
This beach house would make for a great short term rental.

Pro’s Of Short Term Rentals

1. Higher income potential.

You will earn a higher nightly fee than in a long term lease. For example, if you owned real estate in a beach town you could charge a premium during the summer. This is because everyone is going on vacation and there is a high demand for short term vacation rentals!

2. Less wear and tear.

Since your home/apartment/room won’t be occupied every single day, everything from carpets to walls to furniture will stay fresher and new looking. As long as you don’t have renters throwing wild parties, your furniture should last for years!

3. You can use it yourself.

The space is yours for the taking. If being there for Christmas is more fun for your family than the profits for renting it out, simply block off those days and use it yourself. Short term rentals offer you loads of flexibility.

4. Adjusting prices.

Your overnight or weekly guests won’t know if you charge 50 percent more during ski or beach season. You can adjust your rate according to peak times, including weekends versus weeknights.

5. It’s easier to find renters for a few days compared to a year.

If you’ve bought property in a highly coveted area, you may even have your choice of tenants. Sites like Airbnb make it easy for you to find short term renters. If you don’t want to pay the fees, create your own website for the place and market it yourself!

6. Switch things up.

You can get into your place and change the décor seasonally to attract more people. It’s as easy as switching from down comforters to cotton, dark pillows to pastels or paisley curtains to florals. You get the idea. These little touches will send your reviews soaring, attracting more renters!

7. Easy to rent.

Most places are rented instantly and don’t require background checks or references. You can do additional screening of tenants if you are looking to be more careful with who you are renting to.

Short Term Rentals Through Airbnb

The incredible popularity of Airbnb has resulted in a huge number of investors buying properties for the sole purpose of renting them out via the app. Smart investors know that the top priority in real estate is LOCATION, and if they can find houses or apartments in tourist areas, all the better!

Holidays, summer, skiing season and school vacations can spike interest in your rental property. Also, any events such as concerts or sports games in the area will bring people in. That’s the good news! The not so good news is that there will be down times, and they’re bound to happen annually like clockwork.

Real estate investors can find short term tenants through Airbnb.
Airbnb is a great platform for short term rentals.

How To Keep Your Occupancy Rate High

1. Add perks!

Make your nightly rental space stand out from the crowd. Many short term landlords go out of their way to enhance the guest experience to stay competitive; such as stocking the fridge with drinks, leaving out a fruit basket or baked goods, and a nice supply of bath products are great incentives. These perks could allow you to make more money with your Airbnb!

2. Local guide.

Put together a package such as breakfast at a local eatery, movie tickets or a gift certificate to downtown business associations for them to shop. This is almost certain to get you some 5 star reviews from guests!

3. Discounts.

Lower your rate for extended night stays to encourage weekly rentals. You could also offer a slightly lower rate if they book it off your on website since you won’t be paying any fees.

4. Decorate for the holidays.

People make decisions based in large part by visuals, and good quality photos of your charming space can help reel them in. Themes within your short term rental based on the holiday can go a long way!

What To Expect As A Short Term Landlord

  • You are responsible for all utility payments, from water and sewer to electricity to internet, as well as trash removal, insurance and any neighborhood association fees.
  • You have little control over what happens in the house, apartment or room. This could include parties that annoy neighbors. Someone might sneak in a dog that’s not house trained. Wine can be spilled on light colored carpeting. Which leads to the next drawback….
  • You’re in charge of the big clean up between tenants. Yup, that includes the toilet, shower and sinks. Ditto for changing sheets, bathroom and kitchen towels, and putting out those perks again listed above.
  • You will not have it occupied every day of the year. This means you won’t have a clear set of numbers when projecting your income figures. Some years may be up; some may be down, but you will still have to pay the mortgage.
  • You are always responsible for watering the flowers and shoveling snow, and if you can’t do it yourself, this will be a regular expense.
  • Rental insurance is necessary. Your homeowner’s policy is generally not sufficient when you are renting. Check with your insurance agency and get a quote.
  • Some vacation home communities have rules against homeowners renting their houses out to long term renters or short term. Research this well ahead of time!

Long Term Real Estate Rentals

The idea behind this is to invest in a single family home and rent to the same tenant for a much longer period of time.

Essentially, your tenants are paying off your mortgage payments and allowing you to enjoy the tax benefits involved in running your real estate business. Some real estate investors aren’t crazy about the idea of doing short term vacation rentals, but a long term rental might better suit their needs.

Pro’s Of Long Term Rentals

1. More consistent cash flow.

Long term renters pay the same amount of money every month, giving you a more constant cash flow as compared to renting to vacationers. When you have a short term rental, the cash flow is usually really good during the high season and crappy during the low season. If your occupancy rate drops, so does the cash flow!

2. Long term renter pays the monthly utility bills.

Depending on where your vacation home is located during the summer or winter months, the utility bills can be quite high. Plus, some families like to keep the thermostat at 72 degrees or the air conditioner blasting. If you rent your house out long term, this is an expense that will be passed on to them.

3. No need for the house to be furnished.

Forget about the hassle to buy couches, beds, pots and pans and a zillion other furnishings. This is why people rent U Hauls. They bring their own stuff. You are not responsible for any furnishing!

4. You will be protected by a lease and hold a security deposit.

So if your tenants are partiers, or small children who scuff walls, dogs that scratch at doorways, or cats that pee outside the litter box, you hold funds for repairs. Something to keep in mind: while many tenants treat the house like their home, others may not have the same reverence for the property. They may feel they can do whatever they want because ultimately, the structure doesn’t belong to them.

The Downside Of Long Term Rentals

1. Limited use of your vacation home.

Most investors buy a vacation home because the house is located in an area they love to visit. If you rent your vacation home out to a long term renter, this will limit your use of it. You can’t exactly ask them to vacate the property for a week! If you wanted to use your short term vacation rental, you would simply black out the dates you planned on using it.

2. The quality of your long term renters will vary.

Renting to a long term renter is always a gamble. Sometimes you get great tenants who pay on time and even fix their own leaky faucet. Other times, you can get whiners who complain about every small scratch on walls and the age of appliances. Some tenants you hope will last indefinitely. Others, you will be counting the days until they leave.

3. You are always on call when something goes wrong.

Even if it’s 1 a.m. If the toilet is running, your tenant hears a mouse, a window is jammed, the fridge light goes out or any of a thousand other inconveniences occur, consider yourself the hotline. This is the case with short term rentals as well, but you might find that they are less picky as they won’t be there for very long.

4. It won’t be easy to check on the house.

Yes, it’s your house, but no, you can’t barge in and take a look around. There are certain laws in place that protect long term renters, such as having to give them advance notice to inspect the property. With a short term rental, you can scope the place out between every rental.

Owner Occupant: Best Of Both Worlds?

Having an owner occupied rental may be the hybrid you’re looking for. You start by purchasing a duplex or townhome and move into one of the units. It’s up to you if you take the larger side and rent out the smaller portion, or vice versa!

Owner occupied means you can keep a close eye on what’s going on, can immediately address any concerns, and are right at your renter’s doorstep with a socket wrench if the sink spouts a leak.

You also won’t need a property manager, which will cut back significantly on your costs.

Another option is having your tenants sign a limited time lease of three or six months. This gives you the flexibility of ousting troublesome tenants in a short time period and bringing in new.

Keep in mind, you need to manage the property yourself, or hire a pro!

Do it Yourself Management

If you’re renting your space for longer intervals of time, doing it yourself is a fine option. This is especially true if you live nearby and have enough time to show the space, interview prospective tenants, tend to minor maintenance needs, and collect the rent yourself. You can also drive by and quickly assess the condition of the property (no, you can’t look into the windows, that would be breaking privacy laws). Perhaps the best reason to be your own property manager is that you don’t have to pay someone else to do it!

Professional Management

If your rental place is a distance from where you live, getting a local property manager is probably a necessity. Services included in this typically include advertising and showing the space, interviewing and credit checking potential tenants, negotiating the lease, pre and post move in inspections and on call maintenance services. Also, they will collect the rent and make sure it’s on time.

Long term management services are frequently charged as a percentage of collected rent, with a range of around 10 to 15 percent. However, as with most services, fees are negotiable and there are also “a la carte” price schedules, which may be a good option for you.

Remember, don’t leave your day job and expect to support yourself on your first real estate venture, but we encourage you to look into this wide-open market for building revenue.

There are countless ways to invest in real estate. Short term and long term rentals as a landlord are just two of the many options. These may not be the best fit for you based on what you are looking for out of the investment. Check out our comprehensive guide on real estate investing to learn more and explore other avenues!

  • Johnny says:

    wow great content Ryan! On Point as Usual!

  • For short term you can also screen your tenants. You can see their rating and reviews. Actually you’ll get more experience at screening since you have multiple guests per month.
    You can hold a security deposit, specially if other in your area are doing so.
    Oh, and you can charge separately for cleaning 😁

  • Nice Information…Thanks For Sharing.

  • Homeia says:

    Thanks Ryan for informative share! This post will be helpful for people who want to learn more about real estate investment.

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