If you’ve just invested in a rental property, or you’re deciding to rent out a property you own, it can be difficult to decide which type of rental to go with. There are many different types of rentals, but they all fall into two main categories: long-term and short-term.
Both long-term and short-term rentals have their pros and cons, so it’s best to assess which one works best for your property and your lifestyle. Here we’ll cover the basic advantages and disadvantages of each. While this shouldn’t be taken as specific investment advice, it may help you get an idea of which one might be better for your property.
Long Term Rentals
A long-term rental is what you probably think of when you think of a rental property. Any rental with a lease term of 12 months or longer is considered long-term. This includes any type of rental, from single-family homes, to apartments, to commercial rentals. There are many advantages to a long-term rental:
Pros of Long Term Rentals
Stable income: Long-term rentals provide a more reliable, consistent income and are generally considered a safer investment than short-term rentals. Once tenants are in, you receive the same amount of rent each month, and there shouldn’t be any vacancies until the lease is up. Knowing your cash flow amount also makes it easier to finance a long-term rental.
Fewer operating expenses: Tenants will typically take care of things like utilities, cleaning, and yard work, meaning less recurring expenses for you.
Tenants who care: When tenants are renting a property for a year or longer, they tend to take better care of the space. You’re less likely to get carefree tenants who misuse the property and leave damage.
Less time spent finding tenants: Marketing and showing a property can be a hassle, and with long-term rentals you only have to do it once a year, or even less often, as tenants may renew their lease.
Property management is easier and cheaper: The standard rate for property management for long-term rentals is 8-10%, whereas it can be as high as 30% for short-term rentals. If you’re doing your own property management, managing a short-term rental requires constant attention and hands-on work, as tenants are moving in and out consistently.
Cons of Long Term Rentals
Limitations on rent: Long-term rentals tend to have greater limitations on rent and offer less flexibility for changing the rent. You can only raise the rent when a lease term has ended, and only by a certain amount each year.
Choose your tenants wisely: Tenant screening is extremely important for long-term rentals. If you happen to rent to a less-than-ideal tenant, you’ll be stuck with them until the lease is up.
Hard to catch repairs: With a long-term rental, the property tends to go unchecked for longer periods of time, so leaks or damage may go unnoticed.
Short Term Rentals
Any rental property that rents for less than a year is generally considered short-term. There are a few different kinds of short-term rentals:
- Any property with a month-to-month lease
- Vacation rentals, which can range anywhere from one night to one month lease terms
- Airbnb or VRBO rentals
Pros of Short Term Rentals
Greater flexibility on pricing: Short-term rentals give you more opportunities to change the rent, allowing you to adjust for peak seasons or raise the rent as needed. They also typically give the opportunity for a higher income level than long-term rentals.
Option to leave the property vacant: You can have the flexibility of leaving your property vacant during certain periods when you want to use it yourself.
You won’t get stuck with bad tenants: Since tenants will move out after a few months at the most, you won’t be stuck in a jam if you get less-than-ideal tenants.
Frequent maintenance opportunities: With more vacancy periods, you’ll have more opportunities to check the property and do any required maintenance or repairs so damage is less likely to go unnoticed.
Cons of Short Term Rentals
Tenants may be careless: Especially when it comes to vacation rentals, tenants may be more likely to damage or misuse your property, or leave a mess for you or the property manager to clean up.
Less stable income: Short-term rentals are considered a riskier investment than long-term because they don’t offer a stable, consistent income. There are more opportunities for vacancies and you need to spend more time making sure the property gets rented and moving tenants in and out.
Higher operating expenses: With short-term and vacation rentals, you need to cover costs like utilities and cleaning, in addition to offering services that aren’t required with a long-term, such as stocking toiletries, sheets, and of course, furniture. A short-term rental may be ideal if you want to leave your own furniture in the rental for occasional personal use. Additionally, property management is a greater expense, as there is significantly more work involved compared to a long-term rental.
More regulations: Consider the local laws and regulations on vacation rentals in your area. Rental services like Airbnb and VRBO may not be legal in your state, and local governments typically have regulations and fees related to short-term rentals.