Should I invest in a long term or short term rentals?
Vacation rentals have been huge in the market over the last few years, as it is a great way to make extra money. Whether you are renting out a unique cabin, a home in the city, or even just your basement for local travelers, it is a great way to earn some side money.
But, how great of a return on investment is it, and is long term rental a more stable income? Let’s break it down…
Pros of Short-term rentals:
1. Extra income- Depending on the rental nightly average, you have the potential to make more than your mortgage payment!
2. Flexibility- You can choose who you rent to, you can stop renting it whenever you want, there is no permanent lease that ties you to the same renters, and you pretty much always know the condition of your property.
3. Personal use- You can have a free vacation every year, and it is making you money at the end.
Now for the pros of long term renting:
1. Stable income- On the same day every month, you are guaranteed a check with the same amount, which leads to stability and predictability.
2. Less management- Although there may be repairs needed, it is less day-to-day check in and follow ups. You also don’t have to worry about cleaning multiple times a week and preparing for new guests.
3. Fewer legal issues- There are protections in place for tenants and landlords, and the law is pretty clear for rental agreements, with a legal contract set in place for both. Short term rentals have agreements signed, but they are not always straightforward and consistent.
Both long term rentals and short term rentals are great way to make extra cash, and they both have their benefits. Now, what are the downsides?
Cons of Renting on Airbnb:
1. Management- Unless you hire someone to take care of it for you, you have to manage your own property, with bookings, cleaning, maintenance, etc. It can end up being very time consuming.
2. Risk- Risk is always involved, but with short term rentals it could be a large risk in the event that you don’t get a single booking for a month. Or maybe it is just 1-2 bookings a month for the weekend. There is also risk involved if your temporary tenant destroys the property.
3. Regulation- Each county and town may have regulations, restrictions, and permits needed on short term rentals. There may also be higher taxes.
Cons of Traditional Renting:
1. Less flexibility- A long term rental obviously becomes someone else’s home for the terms of your lease agreement. That means you cannot use it whenever you want, and if the market rental rates increase, you have to honor the terms of your lease agreement.
2. Risk, and this one is big- There is always risk with long term rentals, especially with tenants. Whether they destroy the property, do not pay their rent, or never on time with their payment, it is a risk that can lead to large financial losses, especially if you end up having to evict them and take them to court.
Consider your property, location, personal preferences, and level of commitment when deciding on whether to do a short term or long term rental. Both are amazing ways to earn extra, and they both come with risk. So at the end of the day, what risk are you willing to take?
–Amber Fleck is a Realtor with Nest Shenandoah Valley. As someone who chose to plant roots in the Valley, Amber loves to welcome people to the area and share all of her favorite hidden gems. Because, ultimately, she believes you should love where you live!