As we wrote in our blog last week, the short term-rental industry has gotten extremely popular over the past few years due to new platforms like Airbnb and Homeaway. With as exciting as those short term rentals can be, people tend to forget about long term rentals. That being said, long term rentals have continued to be a consistent and a great source of income. All real estate investors would like to get as much value for their dollar as possible, and owning long-term is a great way to do so. Landlords with traditional lease terms don’t need to worry about seasonal demand or market fluctuation as much. A long-term rental is a consistent and very reliable way to increase an owners cash flow and help them achieve financial freedom. You may be wondering, Should you go for long-term rentals or short-term rentals? Make sure to read the following to weigh out the pros and cons.
1. High demand
No matter the location, time or even market conditions, people will always need a roof over their heads; a place to live. Especially now that the prices of real estate are increasing significantly and purchasing is becoming unobtainable for some, renting has become the go-to solution for many. If you decide to invest in long-term rental, you can be confident that your vacancy rate will be much lower than a short-term rental would be.
2. Consistent Income
Yes, short-term rental can produce more income for your property, but that’s typically not the case throughout the whole year. Owning long-term investments means that for 12 consecutive months a year you will be receiving a consistent rental income, making it much easier to budget and plan for repairs or upgrades. Don't forget that the rent price increases every year as well, so year over year the monthly income should grow. Having leases that are a minimum of one year also means you will have less turnover and therefore lower costs.
3. Tenant screening
Tenant screening is one of the biggest advantages long term real estate investment has compared to short term. If you decide to go through this route, you can either hire a professional property manager like Landmark Property Management to be in charge of the tenant screening or you can do it yourself (if you know how and have the time). The whole process can include: an eviction check, evaluating rental history, income verification, credit and background check, and more. While you can never be sure that a tenant will be a good tenant, you can reduce the risk as much as possible through a thorough screening process. With short term rentals, you don’t have the luxury of running all of these checks so the approval process is mostly based on the guest reviews left by other hosts.
As we mentioned above, the consistency of a long term rental is great but it does come with its drawbacks. When you have long term rentals, there is no “high season” for you to take advantage of. Also, during holidays or special events, nightly rates can double and triple which does wonders for your bottom line. You’re obviously not going to get this with a long term rental and while you can raise the rent, it’s usually done in small increments spread out over several years.
Higher Turnover Costs
With short term rentals, the cleaning crew is there every few nights to take care of everything and ensure the property looks great. With long term rentals, it may be years before you step foot in the property again. If the tenant isn’t the cleanest tenant or if they’re rough on the property, there’s the possibility for substantial damage over the course of a year or two. When they finally do move out, you may be in for a full unit turn which can easily wipe out a year of profit.
Another downside of owning a long-term rental is that you don't get to make use of the property. With short term rentals, if there’s a week or weekend that isn’t booked, you have the luxury of taking advantage of the vacancy and staying for free. There’s nothing worse than owning a vacation property and not being able to use it!
Landmark Property Management is a firm believer that an investment property needs to give the owner the financial freedom they seek. If you want to make your experience more enjoyable, make sure to contact us