It takes guts to invest in real estate and spend your hard-earned money on buying a rental property. Renting it to long-term residents or tourists via Airbnb, Vrbo, or Booking.com has benefits and drawbacks.
In this article, you’ll learn about the fundamentals, advantages and disadvantages, marketing advice, and other factors you need to take into account when choosing your first property to start your real estate journey.
Exploring the World of Short-Term Rentals
If you are interested to learn how to buy your first rental property, you can find a lot of resources online that tackle short term rental investing like Techvestor. It is important that you are aware of the risks if you want to invest in vacation rental property since a big amount of money is at stake. Here are some things you need to know about short term rental:
- A short-term rental can be a unit or portion of a unit that is furnished to provide convenience and comfort for a visitor who would stay for 90 days or less, much like a hotel stay.
- These units are normally designated residential and may be subject to particular restrictions and by-laws that pertain to renting out to visitors for the period of a vacation or short-term stay.
- Owners of vacation homes or short-term rentals may charge a per-night fee or offer weekly packages to visitors staying for longer durations.
Due to the sharing economy, these lodging options have become more and more well-liked over the last 20 years as alternatives to hotels and motels. Hence, hotel chains are now starting to pay attention to how they handled the pandemic. Businesses are now jumping into the vacation rental industry bandwagon.
Given this, it is worthwhile to examine vacation rental properties more closely as a potential real estate investment.
Advantages of Short-Term Rental
Many real estate owners are now reaping the benefits of their short term rental investments. With the current state of economy, people are now looking for a cheaper alternative to stay. Here are some benefits of a short term rental.
Higher Income Potential
A vacation rental property can make you earn a better passive income because you can charge a higher nightly fee compared to a long-term lease.
- You can change your daily rate depending on the season. If your property is located near a tourist spot, you can charge higher during peak season where many people travel.
- During off-season, you can charge lower or offer discounts to potential guests, so you can still earn.
Effective occupancy management during peak seasons and judicious pricing during off-peak seasons can result in profitable investments.
No Long-Term Commitment
You won’t need to commit to your renter for an extended period of time if you own a short-term rental.
- The ability to screen visitors before accepting their reservations makes it simpler to ensure that they will be considerate of your home and follow any house rules or policies you may have.
- If the guest proves to be troublesome, you can have the comfort of mind that the duration of their stay will be a short one.
- Background checks have been implemented by platforms like Airbnb to help give you peace of mind when accepting a reservation and to help you adequately vet your guests.
In addition, there are other internet resources to aid you in doing more complete background checks to help you make an informed decision.
You might have already owned a cottage or a condominium in the city. In this situation, renting out your space for short-term rental can turn your vacation home into an additional source of income. This can help you pay off your monthly mortgage.
- As the homeowner, you have the freedom to block out calendar dates for your own personal usage if you haven’t bought a vacation rental yet but are thinking about it.
For many real estate investors covering the cost of a vacation property plus being able to enjoy the space is a win-win situation.
Less Wear and Tear and More Control Over the Property
Short term rental properties will see less traffic and use than a home with long-term tenants because short-term stays usually last for days up to two weeks with sporadic vacancies.
- You are free to inspect the property between turnovers and make any necessary repairs, enhancements, or modifications without having to enter into negotiations with the tenants.
Disadvantages of Short-Term Rental
Having a short term rental property does not only bring you good things. It’s unavoidable to face issues and concerns when you get into short term rental investing. Here are some disadvantages of owning a short term rental property:
Unpredictable Cash Flow
Inconsistency in bookings is one of the main stressors for vacation rental owners. Depending on the time of year and the activities that draw tourists to your area, vacation rental businesses experience peak and low season periods.
- Ensure that you’re producing a steady revenue by employing a dynamic pricing strategy that maximizes your nightly rate during the period of increased demand and intelligently price your property during the low season so that you don’t undercut your competition.
Property Management’s Steep Learning Curve
Owning a vacation rental property is one thing, but in order to succeed, you’ll need to learn how to manage it effectively and stand out as a host. The following duties are involved in managing a short-term rental:
- Marketing your listing
- Managing reservations from online travel agencies
- Screening prospective visitors
- Responding to questions and requests throughout a visitor’s stay
- Carrying out turnover cleanings, inspections, and maintenance tasks
If you don’t have sufficient time or aren’t interested in maintaining your rental property, several vacation rental management businesses will do everything from marketing to reservations, inspections, and cleanings. When hiring a property management company, make sure you have a clear idea of what the property management fees are and what services will be included.
Working with More Tenants and Possible Negative Reviews
Renting out a short-term rental means less commitment to renters, but you’ll also have to deal with more individuals, and there’s a greater risk of a tough scenario with some of them.
- There might be issues and concerns that you are unable to fix.
- It might lead to a bad review that will hurt your brand and reduce the number of reservations you get.
- When hosting guests, there is additional pressure to ensure that each guest enjoys their stay and that the property is well maintained with the necessary upgrades to stay competitive and lucrative.
Preserving Good Relations with the Neighborhood
Vacation rentals can be a topic of concern with certain neighbors and create complaints.
- Visitors may cause some neighbors to feel uncomfortable.
- Visitors could create loud noises or hold parties late at night.
It is essential that you have a strong relationship with your neighbors and take initiative to make them feel at ease. For example, you can provide them your phone number so they can call you rather than the police if they have a noise complaint.
Exploring Long-Term Rentals
The majority of long-term leases have a minimum term of six months. The owners and tenants of long-term properties typically draw up one-year agreements, especially if you’re renting a single-family home to renters with children who plan to enroll them in school and integrate into the community.
It is vital to carefully assess the advantages and challenges of owning a long-term property before making any investment decisions.
Advantages of Having a Long-term Rental
Some real estate owners prefer to have their properties rented for a long period for several reasons. Here are some advantages of long-term rental investment:
Less Upkeep and Maintenance Duties
If you have a long-term investment property, maintenance and upkeep aren’t as demanding. While renting short term, you’ll need to be ready for cleaning and upgrading facilities and replenishing consumables like toiletries.
- Tenants that rent long-term normally maintain the ground and are responsible for maintaining the inside (aside from serious repairs) and stocking the property.
Consistent Monthly Rent
Many property owners choose long-term rentals because they can be assured that they have monthly passive income. This allows them to plan and forecast your revenue year-round.
- The owners can expect their renters to pay them on time every month. The income they get from their rentals can be used for other things.
With less turnover comes far fewer administrative tasks. With a short-term rental, there is a constant need for marketing, handling queries, making reservations, and all the other chores that accompany having a vacation rental.
- If your property is rented out long-term, there is no need for constant marketing and promotions.
Reduced Operating Costs
If you decide to rent to long-term tenants, you will also save on possible administration costs, such as employing a cleaning service, paying booking fees at online travel agencies, maintenance fees, and using software to streamline your workflow, if you choose to subscribe to one.
Disadvantages of Long Term Rental
Like with any investment, investing in long term rental properties is not always a good thing. Here are some disadvantages from having a long term rental property investmen:
The Possibility of Dealing With Eviction
To avoid renting to an unqualified renter, you must interview prospective long-term tenants. But occasionally, even with a careful screening of potential tenants, you might encounter problematic renters.
- Your renter might constantly skip rent payments, complain a lot, and demand too much.
- They may not also properly maintain your property.
As a property owner in this situation, going through the eviction procedure to recover access to your home and rent it out to new renters can be a time-consuming and expensive process.
Less Authority Over Assets
If you have long-term renters, you will have restricted access and influence over your property. In the case of short-term rentals, you have the chance to regularly assess the property’s condition and make improvements as necessary.
- To gain access to your property or make any changes, you will need to respect the agreement that both parties have signed if you have a long-term tenant.
The Property Cannot Be Used for Personal Purposes
When you lease a short-term property, you can schedule time on your calendar to enjoy the space with your family and friends.
- When you lease your property long-term, it becomes someone else’s private space, and you are not permitted to utilize it for your personal enjoyment.
Smaller Margins of Profit
It’s crucial to keep in mind that a long-term rental will probably have lower profit margins. The trade-off is that you won’t be able to charge the higher nightly rates that you can in the vacation rental area, despite the fact that you can rely on collecting steady monthly rent and not have to worry about vacancies or low seasons.
There’s no clear answer which between short term rental and long term rental is the best. You just need to evaluate your goals and see which one is better for you. Your financial objectives, your comfort level with fluctuating monthly income, your desire to deal with fewer turnovers, whether your investment property is in a vacation hotspot, and how much time and money you have to devote to property management will determine whether you become a landlord for a long-term rental property or the host and property manager of a vacation rental.