Long Term vs. Short Term Vacation Rentals: Which Strategy is Better for Investors?
Over the past few months when meeting with new vacation home owners, I’m often asked what would bring them the most return on their investment: renting their house to a long term tenant or renting the house to guest on vacation. In this article I would like to address the pros and cons of both long term and short term rentals.
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Pros of Long Term Rentals
More Consistent Cash Flow
Since a long term renter usually pays the same amount of money every month, renting to a long term tenant usually provides you with a more constant cash flow as compared to renting to vacationers. When you have a short term rental, the cash flow is usually really good during the high season and usually much less during the low season.
Long Term Renter Pays the Monthly Utility Bills
Depending on where your vacation home is located during the summer or winter months, the utility bills can be quite high. I know here in Orlando, it is not unusual to see monthly electric bills be as high as $450 to $500. If you rent your house out to a long term renter, this is an expense that can most likely be passed on to them.
No Need for the House to Be Furnished
Most long term renters have their own furniture so this keeps you from having to furnish the property yourself.
Cons of Long Term Rentals
Limited Use of Your Vacation Home
Most investors buy a vacation home because the house is located in an area they enjoy to visit. If you rent your vacation home out to a long term renter, this will limit your use of the vacation home.
Some Long Term Renters Are Notoriously Late on Paying
Renting to a long term renter is always a crap shoot. Sometimes you get great tenants, and sometimes you get lousy ones. The lousy ones are always late on their monthly check, and they are always complaining or requesting upgrades to the house.
Limited Availability to Check on the House
There are certain laws in place that protect long term renters, such as having to give them advance notice to inspect the property. With a short term vacation rental, the stays are usually 3 to 10 days long, so the property manager can visit the house more often. Also, renting to a long term tenant opens you up to having to deal with squatters.
High HOA Fees and Restrictions in Some Vacation Home Neighborhoods
Most neighborhoods that cater to the short term rental market have much higher HOA fees because they usually have higher insurance premiums due to amenities that cater to guests who are on vacation, including workout facilities, community pools, a water slide, play grounds, etc. Usually if you are going to rent to a long term renter, you can find a house in a neighborhood nearby that does not cater to the vacation home market and you will save quite a bit of money on the high HOA payments. Also, some vacation home communities have rules against homeowners renting their houses out to long term renters.
Pros of Short Term Rentals
You and your family members will be able to enjoy your vacation home more if you rent it out on the short term rental market. All you have to do is block off the dates during which you and your family would like to visit.
Since a vacation home is not occupied 365 days a year, there should be less wear and tear on the property. If you have a good property manager in the house all the time, then your vacation home should be kept in great condition.
More Rental Income
The short term rental market should be providing you more rental income than renting your house out to a long term tenant. While the income may not be as consistent, if you look at the income on a year round basis, the short term market should outpace the long term.
Cons of Short Term Rentals
When guests go on vacation, they want to relax and stay in nice places. When renting your house out to a short term guest, you need to consistently make upgrades to your house to make it more desirable for guest. Usually these are the little things that most people never think about, such as upgrading their mattress every 8 years or so. While this might seem like a minor thing, a decent mattress can easily run a couple hundred dollars.
The Need to Market Your Home
In a perfect world, your property manager would be able to get you plenty of rentals, but if they don’t, then you will need to do some marketing on your own to get guests in your house.
These are just a few of the pros and cons of short term and long term rentals. It is my belief that if you are looking for a long term rental investment property, then you should find a house closer to where you live so that you can keep a better eye on it. If you are looking for a short term rental investment property, then find a vacation home in an area where you and your family like to visit so you can also use it as your family’s main getaway location.
Do you prefer to rent your properties long term or short term? Why?
Let’s talk in the comments section!