Short-term Rental vs. Long-term Rental: 12 Things to Know
When it comes to renting out a property, property owners have two primary options: short-term rentals, such as those listed on Airbnb or Vrbo, and long-term rentals. Many people ask, “between a short-term rental vs. long-term rental, what’s more profitable from a business standpoint?” Even though profit is important, other factors, such as the return on investment, should be considered as well. Both options offer distinct advantages and disadvantages, and cater to different investor goals, preferences, and risk appetites.
In this article, we will dive into the pros and cons of each rental type, and help you make an informed decision about how to rent your property based on your specific circumstances and priorities. Will be diving into the pros and cons of a short-term rental vs. long-term rental, so you can make an informed decision about how to rent your property.
Pros of Short-Term Rentals/Vacation Rentals
One of the most popular advantages of short-term or vacation rentals is the flexibility they offer to property owners. You can visit the property when it’s vacant, which gives you an opportunity to inspect the premises regularly. This allows for more frequent maintenance checks, which can be scheduled without disturbing a guest. For example, seasonal maintenance tasks like air conditioning tune-ups or appliance replacements can be carried out efficiently during vacant periods.
Higher Cash Flow
Do airbnbs make more money than renting?
Short-term rentals, like AirBnb, can provide substantially higher cash flow compared to long-term renting, especially when managed personally by the property owner. Even after accounting for additional expenses and the seasonal nature of the market, diligent management can lead to increased revenue. However, if hiring a property manager, the cash flow may not differ significantly from that of a long-term rental.
Decreased likelihood for Legal Disputes
Since short-term rental guests come and go quickly, the likelihood of experiencing prolonged legal disputes with tenants is relatively rare. Unlike long-term rentals, where prolonged tenant-landlord relationships can lead to disagreements and legal action, short-term rentals allow for a fresh start with each new guest.
Even though guest turnover can decrease the chances of prolonged legal disputes or tenant problems, it’s important to keep in mind that the same tenant laws that apply to long-term rentals also apply to short-term rentals. Therefore, if a tenant refuses to move out, you must go through the standard eviction process.
Cons of Short-Term Rentals (Airbnb, Vrbo)
What are the downsides of doing Airbnb?
Long Vacancies are Risky
Short-term rentals, especially in seasonal markets, can face extended periods of vacancy, particularly during off-peak seasons. In areas where vacation rentals are popular, you are constantly competing with your neighbors to get Airbnb or Vrbo guests.
Despite loss of income, long vacancies in short-term rentals pose another significant risk. Without guests frequenting the property, there may be no one present to promptly detect and report potential issues like leaks, plumbing problems, or other damages that could silently worsen in the background. Consequently, these undetected issues might escalate into significant repair or maintenance problems if left unattended for an extended period.
Wear and Tear
If you choose to rent your property as a short-term or vacation rental, you’ll constantly have new guests arriving and departing. With this regular foot traffic, the furnishings, walls, and flooring are subjected to more significant usage than in a long-term rental scenario. For example, guests might accidentally bump into walls with luggage or move furniture around to accommodate their needs, unintentionally causing minor scuffs and scratches that accumulate over time.
Additionally, the constant flow of guests leads to a higher risk of accidental spills and stains on carpets and upholstery, which may lead to more frequent cleaning or replacement. This wear and tear not only affects the aesthetic appeal of the property but also increases the need for regular maintenance and refurbishment, leading to additional operational costs for the property owner.
Linens, towels, and pillows, which are essential amenities in short-term rentals, also bear the brunt of frequent use and washing. The more guests the property accommodates, the more frequently these items need replacement to maintain the level of comfort and satisfaction expected by guests. Furthermore, with the growing emphasis on Airbnb and Vrbo standards and guest expectations, property owners must invest in quality linens and furnishings, adding to the overall expenses.
Short-term rentals, such as those listed on platforms like Airbnb or Vrbo, may lead to more neighbor complaints than long-term renting situations. Common neighbor complaints related to short-term rentals include excessive noise, parking congestion, and trash pile-ups. Over time, these complaints can potentially lead to conflicts with neighbors. Short-term guests’ transient nature and lack of familiarity with the neighborhood’s norms contribute to these challenges.
Is owning an Airbnb passive income?
The management of short-term or vacation rentals is generally not considered passive income because it requires a considerable amount of time. You have to be available to communicate between bookings, answer guest questions, and help with check-in and check-out processes. From the moment a guest confirms a reservation to the day of their departure, you must be actively engaged in facilitating a seamless guest experience. This includes ensuring that guests have all the necessary information to smoothly access the property and amenities. Additionally, you must respond promptly to guest inquiries, ranging from booking inquiries to on-site concerns, to maintain guest satisfaction and address any potential issues promptly.
Furthermore, the fast turnover of short-term guests necessitates quick coordination with cleaning and maintenance services. You must ensure that the property is thoroughly cleaned and prepared for incoming guests within a short timeframe. This can be particularly challenging during peak seasons when back-to-back bookings are common.
If you want to rent your property as an Airbnb, but do not want to be involved in the day-to-day operations, you have the option to hire an Airbnb management company.
Unlike long-term rentals where non-urgent maintenance tasks can be scheduled and budgeted efficiently, short-term rentals require immediate attention to ensure guest satisfaction and uphold the property’s reputation. This urgency can lead property owners to opt for expedited services, which may come at a higher cost. For instance, emergency repairs may require hiring contractors outside of regular business hours, resulting in higher service fees. Additionally, the need to keep the property in pristine condition at all times may require more frequent maintenance checks and replacements of wear-and-tear items, further increasing operational expenses.
Immediate attention to maintenance needs in any short-term rental is essential, as any delays in addressing urgent repair or service requirements can negatively impact guest experiences and lead to bad reviews.
Short-term Rental vs. Long-term Rental Market and Legal Risks
The short-term rental market is known for its unpredictable shifts in demand and supply. Factors such as seasonal variations, changes in travel trends, and fluctuations in tourist activity can all influence the feasibility and profitability of short-term rentals. Therefore, if you want to rely solely on the short-term rental model, then you should be aware of these inherent risks and develop contingency plans to navigate market fluctuations successfully.
Another consideration is that local laws and regulations governing short-term rentals can change unexpectedly and present challenges for property owners. Many cities and counties have implemented specific rules and restrictions on Vrbo and Airbnb rentals to address concerns related to housing affordability, neighborhood disruptions, and tax compliance. These legal changes may include restrictions on the number of allowable vacation rentals, the duration of guest stays, or even outright bans on short-term rentals in certain areas.
Also, external factors, such as economic downturns or unexpected events like the 2020 pandemic, can have an immediate and severe impact on Airbnb rental revenue. During economic crises or global emergencies, travel demand can plummet, leading to mass cancellations and a lack of new bookings.
Limited Tenant Screening
Unlike traditional long-term renting, where property owners have more extensive control over the tenant screening process, short-term rental platforms like Airbnb and Vrbo typically offer only basic verification measures. These measures usually include nothing more than verifying a guest’s email address, phone number, and, in some cases, government identification. While these steps help ensure that guests are real individuals, they do not delve deeper into their background, rental history, or financial stability.
As a result, you may find it challenging to thoroughly vet guests before accepting their reservations. Without a comprehensive screening process, hosts may unknowingly welcome problematic guests into their properties. These guests could potentially cause damages to the property, engage in disruptive behavior, or violate house rules.
One of the most significant risks of limited tenant screening is the possibility of property damage. Unlike long-term tenants who typically have a lease agreement and a more significant stake in maintaining the property’s condition, short-term rental guests may not feel as accountable for the property’s well-being. Accidental damages can occur due to their unfamiliarity with the property or lack of understanding of its specific rules and functionalities.
Additionally, limited tenant screening can lead to potential legal complications. If a problematic guest refuses to vacate the property at the agreed-upon checkout time, the property owner may need to resort to the eviction process, which can be time-consuming and costly. Furthermore, in cases of significant damages or breaches of contract, pursuing legal recourse may become more challenging when limited information about the guest was collected during the booking process.
Pros of Long-Term Rentals
More Predictable Income Stream
If you opt to make your property a long-term rental, then you’ll typically enter into a lease agreement with responsible, long-term tenants who commit to occupying the property for an extended period, often ranging from several months to several years. This commitment will provide you with a sense of security, knowing that you can rely on consistent rental payments over an extended duration.
The steady cash flow associated with long-term rentals allows you to plan your finances more effectively. As a result, you can plan for future investments or upgrades, allocate funds for property maintenance and repairs, and even explore additional real estate opportunities with more confidence.
Property Care and Tenant Treatment
With long-term tenants, there is a greater incentive to maintain the property’s condition over an extended period. Since long-term tenants tend to view the property as their home, they cultivate a sense of ownership and responsibility. As they settle into the space, tenants are more likely to invest time and effort in caring for the property, which can translate into reduced wear and tear. Long-term tenants are also more inclined to promptly report any maintenance issues or repairs, which allows you to address them before they escalate into more significant and costly problems.
Additionally, the emotional attachment and sense of belonging fostered by long-term tenancy can result in tenants taking pride in their living environment. They may be more motivated to keep the property clean, tidy, and well-maintained as they envision it as their long-term residence.
Reduced Vacancy Periods
Another advantage of long-term rentals is the reduced turnover rate. Unlike short-term rentals that experience frequent guest turnover, long-term tenants tend to stay in the property for more extended periods, leading to lower vacancy periods. Lower turnover means fewer marketing and advertising costs, reduced administrative tasks associated with finding new tenants, and decreased wear and tear on the property from frequent move-ins and move-outs. All these factors contribute to cost savings and a more seamless and hassle-free rental experience.
Unlike short-term rentals, where vacancies can be sporadic and unpredictable, long-term rental leases often come with more extended periods of occupancy. This allows you to plan and implement maintenance more efficiently.
During times when long-term tenants have moved out, you can take advantage of the vacancy to conduct necessary repairs, renovations, and upgrades. This can include significant projects such as roof repairs, HVAC system maintenance, repainting, or replacing outdated appliances.
With long-term rentals, you can strategically plan maintenance project costs and shop around for estimates. With knowledge of upcoming maintenance needs and the ability to plan around vacancies, you can set aside funds for maintenance and avoid financial strain of immediate renovation needs with short-term rentals.
Cons of Long-Term Rentals
Unlike short-term rentals, where property owners can easily block off specific dates for personal use or allow loved ones to stay at the property when it’s not occupied by guests, long-term rentals involve a more extended commitment to tenants under a fixed-term lease agreement.
Once a long-term lease is in place, property owners are legally bound to honor the terms of the lease, which typically includes granting exclusive use and possession of the property to the tenant for the agreed-upon lease duration. This means that property owners cannot access the property for personal purposes during the lease term, and they must respect the tenant’s right to privacy and enjoyment of the property as their own residence.
The lack of flexibility to use the property for personal purposes can be seen as a disadvantage for some property owners, especially those who may have envisioned using the property occasionally as a vacation home or for weekend getaways.
Legal Landscape and Tenant Rights
Long-term rentals are subject to various tenant rights laws and regulations, which can pose challenges for you in situations involving problematic tenants or eviction scenarios. Property owners must navigate legal requirements and adhere to strict guidelines when dealing with issues such as eviction proceedings, security deposits, rent increases, tenant privacy, and lease termination. These laws prioritize tenant protection, making it essential for you to approach any issues with utmost care and follow due process to avoid legal consequences. While long-term rentals offer stability and consistent income, you must be well-informed about tenant rights laws to ensure a fair and equitable rental relationship.
Dealing with Problematic Tenants
Resolving issues with long-term tenants can be a more time-consuming and complex process when compared to the relatively short-term interactions with short-term guests. Long-term rental agreements typically span several months or even years, leading to more extended and ongoing relationships with tenants. Addressing concerns or disputes that arise during this extended period may require more extensive communication, negotiation, and problem-solving efforts.
On the other hand, short-term guests stay for brief periods, and any issues that arise are typically resolved within the limited duration of their stay. The shorter time frame for short-term rentals allows you to handle and resolve guest-related matters more swiftly and with less prolonged engagement compared to the intricacies involved in managing long-term tenant issues.
Conclusion: Short-term rental vs. long-term rental - which is better for you?
Deciding between short-term and long-term rentals requires careful consideration of various factors, including financial goals, time commitment, market dynamics, and risk tolerance. Short-term rentals, like Airbnb or Vrbo) offer higher cash flow and more frequent property inspections but demand significant involvement and come with higher risks. Long-term rentals, on the other hand, provide a stable income stream and reduced vacancy periods, but they require less involvement from the property owner and can be subject to legal complexities.
Ultimately, property owners must assess their preferences and priorities before choosing the most suitable rental option. Both short-term and long-term rentals can be lucrative ventures when managed efficiently and tailored to your individual circumstances. Whichever option you choose, you must stay informed about local laws and regulations to ensure compliance and maximize the benefits of your investment.
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