What is the difference between short-term and long-term rentals? Rental properties, in general, are the most popular type of investment properties in real estate investing.
There are two basic types of rental properties: short-term rental properties and long-term rental properties.
So, before deciding on investing in rental properties, any real estate investor should first understand the difference between short-term and long-term rentals in order to decide on the type of rental property that is most suitable for them based on their investment needs and goals.
The difference between short-term and long-term rentals can be summarized in a few points:
Potential for Profits
Since real estate investing is all about making profits, the first and foremost aspect that should be taken into consideration when trying to understand the difference between short-term and long-term rentals is the property’s potential for profits.
Generally speaking, we can say that short-term rentals have a higher potential for profits. However, long-term rentals have a higher chance for generating profits. So, how can we decide which one is more profitable?
In order to determine the profitability of a property, each property must be analyzed individually in order to understand its potential profits and level of risk and to find the balance in between.
For example, a rental property might have a higher potential for profits because it can be rented out for more during certain times of the year. However, if the property’s profits for the remainder of the year are low, then renting out the property as a long-term rental for a steady but lower rental income throughout the year might generate higher overall annual profits.
There are several aspects that need to be taken into consideration before determining the amount of rent that you can charge on your property, either as a short-term rental or a long-term rental, to help you determine the strategy that is more profitable.
Want to learn how to determine the right amount of rent to set on your rental property? Click here to read our guide on the amount of rental income that you can generate.
Rental Property Management
Rental property management is another major difference between short-term and long-term rentals.
In fact, the biggest and most obvious advantage of investing in long-term rental properties over short-term rentals is the property’s management.
Long-term rentals are generally much easier to manage than short-term rentals. This is due to the low tenant turnover in addition to the fact that long-term tenants are less likely to require any help in managing the property and that they will typically treat the rental property with care because they will be staying in it for a longer period of time.
This also means that long-term tenants will be more willing to handle all repairs and maintenance of the property, and they are less likely to need your help in managing any aspects of it.
Short-term rentals, on the other hand, require an extensive amount of time and effort into running and managing them. From screening the tenants, through handing over the keys, to tending to the tenants, etc. Real estate investors who own two or more short-term rentals will almost always hire a professional property management company to manage their property, greatly reducing the amount of time and effort needed.
Time and Location
While long-term and traditional rentals have a high demand in every market and throughout the year, short-term rentals’ performance is tightly linked to the location of the property and the time of the year.
Most experienced real estate investors know that investing in short-term rentals needs more careful planning due to the strong impact of the property’s location on its performance, and because short-term rentals’ performance can depend greatly on the time of the year.
Sometimes it even makes sense to invest in a short-term rental that might only get rented out for a few days each year if that property could generate a high enough rental income during that period. Properties that are located near football stadiums, for example, can be rented out for an extremely high rental rate whenever there is a big game taking place in the nearby stadium.
Long-term rentals, on the other hand, are much more stable, and they are less likely to be affected by seasonality and the time of the year. The location of a long-term rental remains a very significant aspect to consider, but that is the case with any real estate investment. However, no matter the location or the time of the year, there are always people who are looking to rent a property for the long term, which results in long-term rentals having a higher overall demand, which is why they are considered a more stable investment in real estate.
Want to learn how to pick the right location for your rental property? Click here to read our guide and learn about the tools that can help you pick the perfect property in the perfect location!
Finally, another crucial difference between short-term and long-term rentals is that while long-term rentals are legal everywhere, short-term rentals aren’t.
So, if you opt for investing in a long-term rental, then your research will be much easier as you won’t have to look up the laws and regulations that might severely limit your property’s performance.
However, if you’re investing in a short-term rental, then it is a must to do a research and to be aware of all the laws and regulations that might affect your property.
Additionally, the laws that regulate short-term rentals can be changed at any moment, and they could result in your perfect short-term rental becoming sub optimal, making short-term rentals a riskier type of rental properties to invest in.
Whether you want to invest in a short-term or a long-term rental, you should always consider the different factors that are related to the two types of properties.
To make up your mind and decide on the type of rental property that you want to invest in, you should first do your research and learn the different ways for analyzing a rental property and for projecting its future profits, while also making contingency plans in case any changes happen, such as the emergence of new laws, in order to avoid severe losses on your investment.
Make sure to read our articles on setting your rent and choosing the location of your rental property to help you achieve the highest profits on your investment in real estate.