After investing in real estate, a landlord must make proper decisions to achieve the maximum potential of the investment property. Any real estate property can generate some rental income, but ensuring that the property is reaching its full potential in terms of return on investment is what we will be discussing here. While some properties may be more profitable as long term rental properties, others can generate more revenues through short term renting (vacation rentals).
Related: Real Estate Investing: Should You Go for Long Term or Short Term?
The dilemma whether to rent his property through a short term or a long term rent is something that any new real estate investor faces. There are many factors though that an investor should take into consideration before making this decision, including the location of the property, the investment property itself, and his own preferences and goals.
What makes (short term) Airbnb rentals a strong candidate to consider?
Airbnb is one of the most profitable rental strategies adopted by landlords nowadays. The landlord usually offers a fully furnished property for rent from one night up to 30 nights. People are more interested in renting Airbnb units than hotels as they offer more space and more privacy for a whole lesser price than conventional hotels. All you must do as an Airbnb investor is to snap a few photos and upload them, write a short description of your rental property, and voila! You are an Airbnb host! Whether you own a studio, an apartment, a loft, a townhouse, or a single family home, Airbnb is a valid option for you.
The earning potential of an Airbnb property is generally higher than of long term rental properties, as you offer nightly or weekly rates. You can compare this to a wholesaler being a traditional long term tenant, and a short term vacation landlord being a retailer. By dividing the service you offer into shorter time intervals, you lessen the burden on the tenant while expecting more per night.
Related: How to Use an Airbnb Profit Calculator to Make the Most Money as a Host
The flexibility that Airbnb rentals offer is a huge attraction to real estate investors (or Airbnb hosts in this case) as they can easily control the monthly schedule and the nightly rate. An Airbnb investor can rent out his investment property when it’s available and live in it himself when there are no bookings.
Another major advantage of short term rental properties is not having to pay taxes for a short term rental of less than 14 days.
In addition, Airbnb rentals benefit from the host protection insurance which the Airbnb platform started offering in 2015, including a liability insurance program which will provide for Airbnb hosts and their listings.
What are the issues that short term rental properties can face?
Airbnb rentals generally have seasonal occupancy. You might have a fully booked calendar for a few months but experience a slow period during other months. A landlord is expected to strategize the situation by setting a high rental rate in high seasons and lowering the rent in low seasons. You must study the market demand in your area through different seasons and set the appropriate rate.
Related : What are the challenges of owning an Airbnb investment property?
Another major disadvantage is keeping your income property maintained and cleaned properly. The Airbnb business is based on open reviews. This means that both Airbnb guests and Airbnb hosts can review each other’s experiences. Your property needs to be well maintained and spotless for each new guest. The maintenance of Airbnb properties is generally demanding and more expensive than of long term rental properties.
Another major issue that Airbnb hosts can experience is short term rentals regulations in the area. It is your responsibility as an Airbnb investor to ensure the legality of your business endeavors before embarking on this journey.
Related: What to Consider Before Buying an Airbnb Investment Property
What makes long term rental properties an attractive option for landlords?
A landlord may opt to rent his property as a long term rental property and receive monthly or yearly rent. This option has been the norm throughout the 20th century and is still going strong in the early 21st century. After all, real estate investments are used to generate revenue through rent, as the biggest reward of long term rental properties is the constant rental income. A traditional landlord can count on the money coming every month without having to worry about seasonal fluctuations or Airbnb occupancy rates.
As a real estate investor, the landlord is expected to maintain and repair the income property but can charge the tenants for any damages or any extra maintenance needed for the rental property.
What challenges should you expect as the owner of long term rental properties?
The downside of long term rental properties can be summarized in the lesser flexibility they offer. A landlord has less to say about the usage of his investment property, because tenants have a strong say in their landlord’s usage of the property. If you are looking to rent out your income property short term, you are going to get a lot more candidates interested in renting it than when advertising long term rental properties. Moreover, the amount of rental income generated by long term rental properties is generally 40% less than the rental income of short term rentals.
So, what is the optimal rental strategy for you?
There is no right or wrong way to answer this question. It’s a matter of perspective while factoring in your property’s aspects such as location, the seasons, and, most importantly, the space you have. If you have time to invest in creating a welcoming and homey atmosphere for Airbnb guests, you should try being an Airbnb host for at least a month. This would help you find out what’s the more appropriate rental strategy for you. However, if you are looking for a more stable and ongoing rental income (as most real estate investors do), you should probably use your properties as long term rental properties. Going for traditional rentals would relieve the landlord of paying for the utility bills and all other costs of the income property.
Another way to decide on the optimal rental strategy that’s best suited for you is Mashvisor’s investment property calculator; it offers many features that can help you find the best property and the best rental strategy for it while making use of real estate investment metrics that professional real estate investors use to make smart investment decisions.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.