Every landlord faces a dilemma when choosing the best rental strategy for his/her real estate investment property. Deciding to lease your investment property as a long term rental or a short term rental is tough.
Nevertheless, deciding on the optimal rental strategy has a huge impact on the success of your real estate investing business. Are you willing to learn when a long term rental is better than a short term rental? Keep on reading to find the answers.
#1 Long Term Rentals
A long term rental property is usually rented out to tenants for a long period of time, typically more than a half a year. Moreover, depending on the landlord, the rental property may come furnished or without any furniture. In order words, long term rentals are associated with providing tenants with accommodation for an extended period of time.
Therefore, long term rental properties are accompanied with a relatively constant occupancy rate. Consequently, a long term rental is a traditional real estate rental, where the landlord receives a constant flow of rental income from his/her tenants.
#2 Short Term Rentals
Simply put, a short term rental property is most often a furnished home that you lease for a short period of time. A short term rental period is usually less than six months. However, when the tenants refer to a short stay, they usually mean one night to a few weeks.
As the landlord of short term rentals needs to find tenants more often compared to the landlord of long term rentals, the occupancy rate of such properties is quite uncertain. The latter has a huge impact on the rental income that the Airbnb host receives.
Some Airbnb rentals, for instance, are occupied only seasonally, while others are occupied throughout the whole year. Even though the location plays a tremendous part in this, the Airbnb host has a significant role as well. Airbnb rentals with hospitable landlords and higher online ranking (through positive Airbnb reviews) tend to attract more Airbnb guests.
#3 When Is a Long Term Rental Better Than a Short Term Rental?
As previously mentioned, both long term rentals and short term rentals have their pros and cons. For instance, long term rentals are considered to provide a relatively steady rental income and are typically associated with less time and efforts spent on maintenance. However, it is not always easy to find long term tenants.
In case a long term rental is unoccupied, it tends up staying vacant for a longer period of time compared to a short term rental. Short term rentals, on the other hand, are associated with higher rental income per night. Nevertheless, Airbnb rentals also require much more maintenance as well as hospitable attitude from the Airbnb host.
Even though it is somewhat easier to find Airbnb guests for your rental property, there is a risk involved. The latter is due to the fact that you do not have the time to check and get to know your Airbnb guests. This might have some negative consequences. The reason behind is that you do not know who exactly you are letting to stay in your investment property.
However, knowing the pluses and minuses of each rental strategy is not enough to choose the optimal one for your real estate investing business. So, here comes the question: “When is a long term rental better than a short term rental?”
The location plays a significant role when deciding whether a long term rental as a rental strategy is the better choice or not. Areas which are suitable for long term rentals are typically the family-oriented real estate markets. The tenants at such locations seek long term accommodation. This is because they are willing to spend a significant amount of time in the area.
Other places suitable for long term rental strategy are the ones which offer various job and education opportunities. Meanwhile, tourist destinations as well as places popular as business trip locations have a higher occupancy rate for Airbnb rentals.
Consequently, it might be harder for you to be successful as a long term contact landlord at such locations. It is advisable that you explore the chosen area in depth and perform real estate market analysis before investing in a rental property and deciding on a rental strategy.
Knowing the local market, the supply, and the demand for each type of rental is of crucial importance for your growth in the real estate industry.
Investment Property Analysis
A long term rental property is usually a single family home, a townhouse, etc. However, a real estate investor can also establish long term rentals in multi family houses, apartments, and condos.
Whatever the property type, it is necessary to conduct investment property analysis when choosing the optimal rental strategy. Such analysis typically takes into consideration the neighborhood and the features of the property as well as its potential cash on cash return, cap rate, future rental income, etc.
As you might already know, conducting investment property analysis is not a simple task. Nevertheless, there is a tool – the investment property calculator – which computes all the different real estate metrics. Such real estate metrics include cap rate and cash on cash return.
If you are looking for a good rental property calculator, you should consider Mashvisor’s. Mashvisor’s investment property calculator has some unique additional features. Besides computing the potential rental income, return on investment, cap rate, and cash on cash return, Mashvisor’s investment property calculator also provides other insightful information about the investment property.
Most importantly, the tool shows you which the optimal rental strategy for this particular rental property is. Thus, it helps you in deciding if it is in fact better to lease your property as a long term rental or not. The latter is extremely useful as the results are based on a tremendous amount of data and accurate computations.
Are you willing to be one of the most successful real estate investors there are? Go ahead and read more of Mashvisor’s useful tips on numerous real estate topics!