While we often use oversimplified terms to describe real estate investments, every situation is unique. When it comes to rental properties and identifying the best rental strategy, some investors find short-term investments to be most profitable, while others prefer long-term rentals. Understanding how each could fit into your overarching strategy will allow you to make smarter, more informed decisions.
Understanding Short-Term Rentals
A short-term rental is usually the label people apply to properties that allow people to rent for anything upwards of a single night to as long as a few months at a time.
A condo on the beach in a coastal town would be an example of a short-term rental. People have the choice of staying for long periods of time, but generally stay for a weekend.
A house rented out using a service like Airbnb would be another example. These properties can typically be rented directly from the homeowner and listed for as little as one night at a time.
Also referred to as transient rentals or STRs, short-term rentals come with their own unique set of benefits. These include:
- High earning potential. Because prices can be adjusted based on seasonal demand and other external factors – such as a nearby sporting event or tourist season – you’re able to generate maximum income during times when there’s lots of demand.
- There’s also considerable flexibility with short-term rentals. If it’s a beach house, for example, you have the ability to use it when it’s not booked. This allows you to enjoy the property in multiple ways.
Short-term rentals aren’t perfect, however. You may face these challenges:
- Strict guidelines. Many jurisdictions charge steep taxes and fees to rent short-term. Trying to navigate these laws can be time-consuming and costly.
- Frequent maintenance and cleaning. When you have high turnover, you have to constantly clean and maintain the property. These little costs can add up over time and eat away at your bottom line.
There’s certainly potential with short-term rentals, but it won’t work for every property in every market. So much of it depends on where you’re located and what your specific needs are as a property manager.
Exploring Long-Term Rentals
Long-term rentals are more traditional and come with a unique set of pros and cons. The advantages of these sorts of investments include:
- Steady income. The biggest benefit of a long-term rental is the predictability in income. Whether it’s a six-, eight-, or twelve-month lease, you know exactly how much money you’ll be receiving every This gives you a dependable source of income and allows you to think strategically about how you manage the property.
- Lower turnover. When you have a tenant signed to a long-term lease agreement, you don’t have to spend any effort finding new clients, marketing your property, or dealing with the challenges associated with high turnover. Not only does this save you money, but it also makes your day-to-day life as a landlord exponentially easier.
- Paid bills. With an Airbnb or vacation rental, you’re responsible for paying all of the utilities – including gas, cable, internet, water, etc. When you have a long-term rental, the tenant almost always pays for these bills (or at least for some of them). When you add these savings up throughout a year, it represents a pretty significant chunk of change.
Long-term investments aren’t always a walk in the park. If you’re in the game long enough, you’ll also experience some of the following disadvantages:
- Minimal flexibility. When you have a tenant signed to a yearlong lease agreement, there isn’t much flexibility on your part. In other words, you aren’t going to be able to stay at the property And if you want the tenant to leave (for a reason that isn’t covered by law), you’ll be hard pressed to do so.
- Inability to change rates. As previously mentioned, short-term rentals let you change the rate to meet demand. You can even do so on a nightly basis. With a long-term rental, the rate is locked in for the life of the lease agreement. This forces you to leave some money on the table.
- Tenant troubles. With a short-term rental, you’ll run across renters that you don’t get along with. However, you don’t have to deal with them for very long. With a long-term rental, you may be forced to associate with a problematic tenant for months or years at a time.
There’s a reason thousands of real estate investors choose long-term strategies over short-term rentals. They offer predictability and lower risk. They also tie your hands behind your back in certain situations. It’s imperative that you recognize both sides of the equation.
Choosing the Strategy That’s Right for You
Every real estate investor and property management professional is ultimately seeking the same thing: the optimal strategy that protects their underlying investment and allows them to maximize profits over an extended period. For some investors, this means putting money into lots of Airbnb rentals and learning what it looks like to properly market these property listings for big returns. For others, it’ll involve purchasing real estate with the intentions of finding long-term renters who stay for 12 months or more.
There’s nothing wrong with pursuing either of these strategies. At the end of the day, it comes down to how profitable and stable each method is for you. And you also don’t have to get married to one strategy. If you find that long-term rentals aren’t working, you can try out short-term listings for a while (or vice versa). Be firm, yet flexible and you’ll stand a much greater chance of being successful.
Work With Green Residential
At Green Residential, we take pride in helping Houston’s leading real estate investors and landlords manage their properties in a cost-effective and transparent method that maximizes the bottom line and provides superior peace of mind.
For additional information on any of our services, please contact us today. We’ll be happy to answer any of your questions and provide you with a free analysis.