Long Term vs Short Term Rental Investment Property

So, you’re thinking about renting out your property? Maybe you’re thinking of investing in a property with the purpose of renting it out. Either way, renting out a property can be an excellent way to generate extra income.

One of the first things you’ll need to decide before renting out your property is whether you’ll rent it out as a short-term or long-term rental. Both of these have pros and cons you’ll need to consider. For example, short-term rentals tend to be more profitable while long-term rentals require less work to manage.

Ultimately, the one you choose depends on your specific needs, preferences, and goals. In this post, we’ll aim to make this decision easier by looking at the pros and cons of both long-term and short-term rentals.

What is a Short-Term Rental?

Short-term rentals typically involve accommodation for people who are looking for temporary housing for short periods of time. As such, most people who rent these properties are travellers or business people.

Generally, short-term rentals are fully furnished and rented out for anything from one night, a few days, or longer. Keep in mind, though, the exact duration to qualify as a short-term rental could differ in different places, but, for purposes of this article, we’ll define short-term rentals as properties that are rented out for 30 days or less.

What is a Long-Term Rental?

Conversely, long-term rentals are properties that are rented out for longer periods of time. Here, as is the case with short-term rentals, the exact period that the property should be rented out for to qualify as a long-term rental could differ.

For example, in some places, long-term rentals are properties that are rented out for at least 30 days. In turn, in other locations, long-term rentals would be properties that are rented out for at least 180 days.

Short-Term Vs. Long-Term Rental Pros and Cons

Now that we’ve recapped what long-term and short-term rentals are, it’s time we look at the pros and cons of each. To decide which rental model fits in best with your goals, you’ll need to understand how these pros and cons not only influence the amount of income that you’ll be able to generate but also how they impact your enjoyment of the property.

Pros and Cons of Short-Term Rentals

First up, we’ll look at the pros and cons of short-term rentals. From these, you’ll see that, while short-term rentals have higher income potential and offer excellent flexibility for your personal use of your property they, generally, require more maintenance and require more operating costs.

Pros of Short-Term Rentals

Some of the reasons for considering a short-term rental instead of a long-term rental include:

Higher Income Potential

One of the main benefits of short-term rentals is that you’ll, typically, have the ability to earn more rental income. This is especially true with vacation rentals that can be very profitable. For instance, a property that could earn $2,000 per month on a long-term rental basis, could easily fetch double that as a short-term rental. 

Dynamic Pricing

Another major benefit with short-term rentals is that you’ll be able to dynamically adjust your rental. For example, if you rent out a vacation home, you’ll be able to increase your rental substantially as demand increases and supply goes down. With long-term rentals, this is simply not possible as you’ll sign a rental agreement for a fixed period of time at a fixed rate.

Flexibility for Personal Use

Because people rent short-term rentals for short periods of time, it gives you the flexibility to use the property for your own personal use. You could, for instance, block out certain times of the year where you’ll be able to use it for vacations. In this way, you’ll get to enjoy the best of both worlds. In other words, you’ll have an investment and a home you can use when you travel.

Easy to Keep Up With Repairs

With a short-term rental property, you’ll be better able to maintain it and keep up with repairs. This is due to a few reasons. For one, guests don’t occupy the property on a daily basis, so there’s less wear and tear overall. Also, because you’ll have a higher turnover compared to a long-term rental property, you’ll be able to identify any issues earlier and be able to rectify them before they become bigger problems. 

Cons of Short-Term Rentals

Considering the above, there are some clear advantages to renting your property out as a short-term rental. It’s not all good news, though, and there are some drawbacks too.

Fluctuations in Demand

Generally, with a short-term rental property, you’ll have fluctuations in demand. And with these fluctuations, you won’t be able to earn a constant rental income. Fortunately, there are some things you can do to compensate for this. 

For instance, you’ll get to know the trends and patterns of when these periods of high demand are. You’ll then be able to market your property to generate the maximum amount of income during these periods. This could then minimize the effect of periods where there is lower demand. 

More On-Going Maintenance

Unlike long-term rentals, where most of the housekeeping, yard work, and general upkeep of the property is the responsibility of the tenant, this isn’t the case with short-term rentals. As such, you’ll need to do most of these tasks yourself. Also, because your turnover will be higher, you’ll need to do this regularly. 

Local Short-Term Rental Zoning/Restrictions

Most municipalities have zoning laws and regulations that govern the operation of short-term rentals in their jurisdictions. As such, these laws and regulations determine what properties may be constructed and what types of businesses may be operated in their areas of jurisdiction. 

These rules could severely restrict your ability to operate a short-term within the area of a specific municipality. In all addition, you’ll need to consider things like taxation, business licensing, and other rules relating to the operation of a short-term rental.

Short-Rental Start-Up and Operating Costs

Compared to long-term rentals, short-term rentals have higher start-up costs. For example, before renting out your short-term rental, you’ll generally need to furnish the property which requires bedding, seating, appliances, and the like.

Also, as your guests will not be responsible for any of the utilities like electricity, water, and in some cases, gas, you’ll need to pay for these out of your pocket. Then you’ll also need to see to the upkeep of the garden and the pool if there is one. Also, you’ll need to pay cleaners every time guests vacate the property and, if you wish to use a management company, you’ll need to pay their fees.

Pros and Cons of Long-Term Rentals

Now that we’ve looked at the pros and cons of short-term rentals, it’s time we do the same for long-term rentals. Here, you’ll see that a long-term rental can be an excellent way to generate a consistent income but it comes at the expense of less flexibility and a greater emphasis on finding the right tenants. 

Pros of Long-Term Rentals

First up, let’s look at some of the reasons why you should consider renting out your property as a long-term rental.

Consistent Income

In contrast to short-term rentals, you’ll generally sign rental agreements with tenants for longer periods of time. This means that, for as long as the tenant rents the property, you’ll have a consistent income. It also means that you’ll be able to eliminate the seasonality that often accompanies short-term rentals. 

Less Management Required

Once you’ve found a tenant for a long-term rental property, there won’t be much else to do, except collect the rental every month, of course. Also, from time to time, you’ll need to do some maintenance on the property. Ultimately, this means that, when it comes to long-term rental properties, you’ll have a lot less to manage. 

Tenants Often Pay Utilities

As mentioned above, long-term rental properties require a lot less management. Another contributor to this is that tenants, generally, pay their own utilities. Keep in mind, though, this may differ from contract to contract, but, at the very least, most tenants pay their own electricity bills.

Cons of Long-Term Rentals

As is the case with short-term rentals, long-term rentals have some disadvantages too.

Lower Profit Margins

Although long-term rentals are able to generate a consistent income, you’ll typically earn less compared to short-term rentals during certain periods. As mentioned earlier, this is simply because you’ll sign a rental agreement with your tenant for a specified rate which means you won’t be able to adjust your rates during peak times.

For instance, if you rent your long-term rental property out at $1,500 per month, you’ll likely lose out on a significant amount during peak times when you’ll be able to make this amount in a matter of days.

Less Flexibility for Personal Use

Once you sign a long-term rental agreement with a tenant, you won’t be able to use the property for personal use. As such, you won’t, for instance, be able to use your property when you want to go on holiday or when you need to go on a business trip. Ultimately, this lack of flexibility is something you should consider and, if you want to still use your property during certain times of the year, a long-term rental might not be the best choice. 

More Importance of Finding the Right Tenants

Once the rental agreement is signed, your tenant is, to a large extent, in control of the property. As a result, they’ll be responsible for many of the things you, as owner, were responsible for before signing the agreement. Sure, you can inspect the property, but you’ll generally need to give notice to the tenant.

This makes it crucial that you find the right tenant, especially when you consider that the wrong tenants can end up damaging your property or, even worse, not paying the monthly rental. You’ll then need to incur further costs to evict them from the property which, in turn, reduces your profits. 

With short-term rentals, you simply don’t have this problem as you’ll be able to clean, inspect, and fix any issues regularly. 

Local Landlord Laws and Regulations

As is the case with short-term rentals, you’ll need to comply with a set of regulations, by-laws, and zoning laws when you operate a long-term rental. You’ll also need to comply with the Residential Tenancies Act and health and safety regulations. As such, you’ll need to understand what all these rules are and how to apply them.

Conclusion

As you can see from the pros and cons listed above, both short-term and long-term rentals have advantages and disadvantages that you’ll need to consider before deciding on the right model to use when renting out your property.

Ultimately, you should take into account all the advantages and disadvantages of each to figure out which fits best with your specific goals and preferences. To learn more about rental properties or how we can help you manage yours, why not contact us today to discuss your unique requirements.

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