Long-Term vs. Short-Term Rentals: What You Need to Know
Owners must consider what they want to do with their new property before investing in real estate for holiday rental purposes. Many considerations can assist owners and managers in deciding whether to go with long-term or short-term holiday rentals. Most of the time, this selection is simple and is about the nature of your property and your goals. These two renting techniques, on the other hand, have several benefits and drawbacks.
What is a Short term Rental? A short-term rental (sometimes known as a vacation rental) is leasing a furnished property for a limited period. These facilities are rented by the week or night, depending on the owner, rental location, and various other considerations. When they are not utilizing their short-term holiday rental, many owners rent it out for the rest of the year. In the last 20 years, they’ve become a trendy alternative to hotels, especially with the rise of sharing economy websites like Airbnb.
Short-term holiday rentals have several advantages
While long-term rentals provide constant income and are often easier to handle, there are some benefits to renting for a shorter period instead:
1. Potential for higher rental income
You can establish varying rates based on the peak and low seasons in your area. You can also set a minimum duration of stay for your busiest times of year to ensure maximum profits.
2. Increased flexibility
There is a lot more flexibility for you and your family if you rent your property for a short period. Without inconveniencing anyone, you can mark off calendar dates that you intend to keep vacant for your usage.
3. There is less wear and tear
Contract lengths for vacation rentals often range from a few days to a few weeks. Having guests arrive in small intervals like this ensures that they are merely visiting your home. They will not be thinking about remodeling or relocating items.
4. Deductions and tax breaks
Because there is no long-term occupation of the property, many holiday rental owners are eligible for tax advantages or even deductible property expenses. Check your local government’s laws and regulations on this.
5. Be a part of the sharing economy
These days, we hear a lot about the sharing economy and its positive benefits to society. By renting your house to vacationers on a short-term basis, you demonstrate that you are a forward-thinking individual. You are contributing to this modern way of life and thinking.
6. Automate property management
Technology advancements such as innovative applications and smart locks have made it easier to manage holiday rentals from afar.
Short-term rental challenges
When it comes to maintaining a vacation rental, you’ll need to think about local rules, property maintenance, and slow seasons.
1. Increased upkeep and upgrades
If your business is holiday rentals, you must keep the property in excellent condition or risk receiving unfavorable feedback. This includes routine cleaning and maintenance such as drain cleaning and paints repairs, but it also considers evolving technology and current inventions. You’ll need to refresh your rental facilities regularly. This ensures that you have all of the necessities and more for a comfortable stay – and this can be costly.
Also, each time someone may move out, you will need to start the process of marketing your property from the beginning more often. This may include taking new pictures (learn more here), cleaning, painting, advertising in groups, and so on…
2. Not guaranteed income
The impact of seasonality on vacation rental businesses is a source of unhappiness for many holiday rental owners. While there are full bookings in their peak season, off-peak bookings are sparse, potentially resulting in a loss of revenue. Pricing can be changed to cater to seasonality (off-peak offers are cheaper, peak deals are more expensive). Income and bookings are not always assured.
3. Competition from other properties
Unlike the housing market, when renters swarm apartments and houses, the short-term rental market has much more homes advertised than travelers looking. Because competition for vacation rentals may be fierce in your area, this may put some homeowners at a disadvantage.
4. There are too many things to keep track of
While vacation rentals are a hobby-turned-vocation for some owners, they are full-time employment for others. Throughout each guest’s stay, there are numerous tasks to keep them occupied. If you don’t have the right tools like a pallet scale, vacation rentals can be difficult to manage. There is ensuring calendar availability to facilitating a smooth booking process to providing a simple and easy check-in and check-out, cleaners, and gardeners. Vacation rentals can be challenging to manage if you don’t have the right tools.
What is the definition of a long-term rental?
Unlike short-term rentals, long-term accommodations usually go for a month. Whether renting an entire property or just a single room, tenants typically pay each month. They are responsible for other expenditures such as energy bills.
Advantages of long-term rentals
There are several benefits to owning long-term properties; here are a few of them:
1. A steady stream of money
One benefit of renting your property for a long time is knowing that you will have a consistent monthly rental income. This can relieve some of the stress for new homeowners dealing with a slew of additional bills. Long-term tenants are also responsible for paying utility bills for power, gas, water, and even the internet monthly and quarterly. Like at the beginning of the pandemic many short rentals lost money, and only those doing long-term are making steady money, to learn more about this check this guide.
2. It’s a lot easier to manage
It will take less time than a short-term rental, whether you hire a property manager or handle the property yourself. You won’t have to spend as much time marketing the rental property, dealing with frequent rental turnover, or making sure it’s ready to rent.
3. A lower rate of turnover
You’ll have less to worry about when it comes to administrative responsibilities like paperwork, key handover, and marketing to long-term guests. Once your tenant signs the lease, you’ll know (to a degree) how long they’ll be staying. Once you see the house is empty, all you have to worry about is filling it again.
4. There may be no need to furnish
Some (but not all) long-term visitors bring their belongings with them. If you’re considering leasing your unfurnished house, this can help you make a quick choice. You will not only have a guaranteed monthly rent payment, but you will also save money on new furniture for your home.
5. You have the option of charging a high-security deposit.
There’s no need to be concerned about the finer renting points, such as insurance, rental agreements, and security deposits. You can normally demand a hefty security deposit for long-term rentals. This will be repaid to the guest at the end of the tenancy unless there is property damage. When renting out their houses, these deposits can give owners a lot of peace of mind.
Long-term vacation rental challenges
Less income potential and greater occupancy rates are two concerns worth mentioning. Other disadvantages include:
1. Earning potential is limited
Vacation rental properties occupied for a longer time typically receive a 40% discount. It is not always possible to charge higher fees during peak season.
2. The owner has fewer options.
Unfortunately, in the world of long-term rentals, there are no unexpected vacations. You can’t ask your tenant to leave for a weekend here and there if you have a tenant in your home. This can be a major turnoff for many property owners. Renting out their home to supplement their income during the months and weeks when it is not in use.
3. Property control is limited
During the majority of rental stays, nothing goes wrong. However, when it comes to checking on your home, there is a significant difference between the short-term and long-term possibilities.
Owners of short-term rentals benefit from the ability to inspect the property between guests. This ensures that everything is in working condition and nothing is destroyed or damaged. Long-term rentals, on the other hand, are a little more complicated. Before dropping by for normal maintenance and security checks, you’d probably need to offer plenty of notice.
4. Your Local Restrictions
There will be different regulations, limitations, and licenses to consider depending on the type of property and its location. This can be more challenging and more expensive than short-term renting.
5. The time-consuming process of finding a suitable tenant
When someone lives in your house for an extended period, you want to be sure they are a good fit. However, when you factor in the time you’ll spend vetting and reviewing references before drafting the contract, it’ll quickly become a lengthy procedure. On the other hand, short-term renting is typically a considerably simpler process, especially with tools like quick booking.
There is no ideal answer for everyone because what you consider a disadvantage may be advantageous to others. The largest difference between long and short-term leases, though, is earning power. Short-term rentals can generate a 30% profit margin over long-term leases. Short-term rentals take more supervision. The extra cash is well worth the effort, especially if you use vacation rental software to automate your responsibilities. Short-term renting is a terrific way to supplement your income and flexibility while contributing to the collaborative economy and meeting new people.