Short Term Rental Vs. Long Term Rental

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Short Term Rental Vs. Long Term Rental

Russell Payne
Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes

When looking to purchase your first investment property, would you prefer a short term or long term rental plan?

Would love some pros and cons!

Thanks!

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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
5y

Long term. Less upfront costs and easier to manage.

Most people see the nightly rates of STR and assume the net is higher, but that's not always the case. When you consider setup costs, utilities, landscaping, consumables, your time, marketing, and other expenses, the net may not be much higher than a long-term rental.

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  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @John Morgan

    Hey John. Really appreciate that. What do you think the key is to not hearing as much from long term tenants??

    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    5y

    @Russell Payne

    I self manage and meet all my tenants. I look for lifers to rent out my SFRs in blue collar neighborhoods. I don’t want turnovers every 2 or 3 years. I want them to stay for 10+ years. I’m ok with people who have bad credit and a little debt. After reviewing their apps, you can sort of tell who won’t ever be able to qualify or afford to buy a house. That’s who I target. I always ask market rent at first, but then keep them $100 or so below market rate if they don’t bother me for little things when it comes to lease renewals. I actually tell them I’ll keep them there as long as they want to stay under market rate if they can fix or do little things on their own. They all seem good with that. But I’m sort of a noob since I’ve only been a landlord for about 6 years. But so far so good!

    4Reply
  • Stephen E.
    Rental Property Investor · Member since 2020 · 172 posts · 110 votes
    5y

    @Russell Payne you really need more information to answer this question. @Terry Johnson had great advice, but as they say, all advice is autobiographical :)

    I did it the exact opposite way. I did STR first, and then got into long term rentals. I now have 6 properties, 9 doors (units). 2 of the units are STR. It has almost everything to do with the location of the property. There are some places, like Austin and Nashville, where an STR will rent for 5 times the monthly rent. And other places where an STR is only twice, or less. An STR has to rent for a lot more to be worth it. But sometimes they do.

    A big consideration is if you're managing them yourself. Again, to be the opposite of Terry, I manage my STRs and have a property manager for 3 of my long term rentals which are out of state. I have not found it worthwhile to have a property manager on short term rentals. Most property managers can't handle it. To do it right you need to run it like a hotel. Running an STR is infinitely easier when you live close by, and progressively harder with distance. LTR is almost the opposite of that.

    To do a STR you have to know the neighborhood, and also the neighbors. If you think the neighbors are going to have a problem then don't do it, because it won't be worth it. The best way to do it is when you actually live on the property, ie. a double/duplex, or just renting rooms in your home.

    It's an entirely different set of skills from long term rentals, but I disagree that it's significantly more complicated. And the returns can be amazing. And it can also be your own vacation home, which is an amazing plus, just put yourself on the calendar.

    Now, the most important thing when you're buying a house, is if it's a good deal. Another aphorism: the best deal is a good deal. And the criteria, again just an opinion, should really be no different for a STR or LTR. Nowadays if I buy a property for STR I would still want the property to cashflow well if the STR doesn't turn out to be a good option on that property, or I'd want it to be priced low enough that I could turn it around for a profit.

    In other words, I would put your effort into finding a good deal. You can decide to STR or LTR based on the property and the particular pluses and minuses, but I wouldn't let either strategy guide your choice of home, really the other way around, let the home guide your strategy. Find the deal.

    Just to underline this point, if something goes wrong, and you are unable to STR because of neighbors, changes in laws, etc. Will you be OK converting to a LTR? If the answer is no don't do it, if the answer is yes, you've probably found a pretty good deal.

    Good luck!

    5Reply
  • Joe PrillamanPro Member
    Rental Property Investor · Carolina Beach, NC · Member since 2017 · 441 posts · 462 votes
    5y

    @Russell Payne, I always recommend house hacking. Running one AirBnB out of a studio apartment or mother-in-law suite is a great way to live for free and potentially cash flow. It’s the lowest down payment option and if you hate it no worries put a traveling nurse in the unit or rent it long term. The real kicker is the money you SAVE by not paying rent!!! Why not take a year and find out what you like or don’t like? Worst case scenario you move out in a year, rent both units or sell it. The ultimate goal of the first deal should be to do the first deal so you can do the second deal!

    2Reply
  • Melissa Wesling
    Investor · Chicago, IL · Member since 2020 · 148 posts · 97 votes
    5y

    Hi @Russell Payne! I started investing with an STR in 2007 and since have added 2 more STRs and 2 LTRs. My husband and I self-manage them. There are pros and cons to both, it comes down to your investment goals. Over the years it has become easier to self-manage our vacation rentals with channel management software and smart home technology. We find the STRs are more beneficial to us because we like to use them when we don't have a guest. I do think it requires a bit more research to find the right STR property in vacation rental markets for best ROI. Reach out if you'd like to discuss more specifics! Good luck!

    2Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @John Morgan

    That’s all good info. Are your rentals close to you or out of town?

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Stephen E.

    Awesome advice Stephen! Very detailed and love your experiences. I’ve been doing good research and understanding a lot of successful short term rentals are unique living situations or in high tourist/busy areas which makes the house prices higher.

    I love the idea of being able to do either STR or LTR with the same property if you ever want to switch.

    Being in California I’ll have to start with 3-4 out of state properties and we plan on buying our own place locally in the next 1-2 years. But wanted to get into real estate investing before we get our own house. So a lot of questions I have to ask to get a gauge on everyone’s experiences.

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Joe Prillaman

    Hey Joe. Thanks for the advice, we are in CA so saving as we currently moved into an apartment for rent. We will be out of our lease in September so planning for that with a duplex or triplex. Would definitely look at one for a LTR or STR depending on the location! But definitely need that first hand experience of being a landlord, helping fix things or just being familiar with how it goes!

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Melissa Wesling

    Thanks Melissa. Any advice you have would be great. Good to know about your experiences. Us being in Los Angeles I’m sure short term rentals would be in high demand, just have to find the right property that would work!

    0Reply
  • Louie Masters
    Rental Property Investor · Fremont, NE · Member since 2016 · 23 posts · 5 votes
    5y

    @Russell Payne

    Honed dude just jump in. I’d prefer to say long term but if a fix and flip, brrr, wholesale is better than do it. I spent years just sitting and waiting. Finally I’d had enough and just did it. First property 20 years ago I bought a duplex. After three years I sold it and barely made a profit. Tax write offs are good either way. Just do it!

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Louie Masters

    Haha. Definitely going to do it! Just have to have a plan going in!

    0Reply
  • Jeremy Helsabeck
    Rental Property Investor · Denver, CO · Member since 2019 · 31 posts · 16 votes
    5y

    @John Underwood

    Hi John. Do you mind if I ask where you’re investing in properties from 10-25K? I’m trying to find ways to grow more quickly myself, but putting down 20-30K at a time for properties from 100-140K and closing costs are slowing me down.

    Do you mind if I ask how these properties cash flow per month? I purchased 2 in 2019 that cash flowed ok, I purchased 3 in 2020 and are cash flowing better, but the down payment is killing my growth.

    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y
    Originally posted by @Jeremy Helsabeck:

    @John Underwood

    Hi John. Do you mind if I ask where you’re investing in properties from 10-25K? I’m trying to find ways to grow more quickly myself, but putting down 20-30K at a time for properties from 100-140K and closing costs are slowing me down.

    Do you mind if I ask how these properties cash flow per month? I purchased 2 in 2019 that cash flowed ok, I purchased 3 in 2020 and are cash flowing better, but the down payment is killing my growth.

     I bought these in Greenville SC.

    Typical prices are much higher. I found these offmarket deals via word of mouth. They rent for close to $1000/month. I paid cash so they are cash flowing nicely.

    0Reply
  • Gerald Pitts
    Lender · Asheville NC · Member since 2016 · 470 posts · 317 votes
    5y
    Originally posted by @Russell Payne:

    @Gerald Pitts

    Right market would mean closer to a city or destination area correct? That’s what I would assume. High tourist areas.

    yes. And I prefer tourism areas that have been doing this a while instead of metro areas that don't depend on the tourism for their economy. Those laws can change anytime for STR.

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Gerald Pitts

    Great to know! Thank you!

    0Reply
  • Zachary Beach
    Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes
    5y

    @Russell Payne

    I have both and I prefer STR's the upside is massive but truthfully most suck at running it especially most STR management companies. This caused my wife and I to start our own STR management company. You are spot on that good design and other aspects like optimizing communications and your listing in the algorithms are critical for maximum profit. If you would like feel free to message me we are in the LA area too.

    1Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Zachary Beach

    Would love to get in contact with you!! Thanks! Message me!

    0Reply
  • Leo Watts
    Real Estate Agent · Washington, DC · Member since 2017 · 109 posts · 93 votes
    5y

    @Russell Payne

    Long term rentals get a lot closer to the idea of “passive income” often touted here. STRs are a business. Bad cleaners, guests trashing your house, etc etc.

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Leo Watts

    Out of state you would still need a property manager, so yes it is more active work but I feel you still have to be active at all times to be successful.

    0Reply
  • Leo Watts
    Real Estate Agent · Washington, DC · Member since 2017 · 109 posts · 93 votes
    5y

    @Russell Payne

    I’ve managed out of state long term and short term.

    Long term is maybe fix something once or twice a month.

    Short term is managing cleaners, dealing with guests complaining about cleaners, random **** breaking, reporting damages do Airbnb, seeing a big *** party starting at your house at midnight (your property manager isn’t on call 24/7 and are charging for every hour spent), dealing with pissed off neighbors etc.

    You need to weigh all those costs (management + cleaners stack) minus potential high weekday vacancy minus Airbnb’s rising fees and declining service plus your time and headache spent, VS an easy / much more guaranteed paycheck.

    There's a lot of guru BS in the STR game. You can make great money under the right circumstances, but the work load is many times greater, and Airbnb etc is far from passive (unless you're giving up 50% of the profit at a vacation rental condo for instance)

    3Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Leo Watts

    Got it. All of that is super helpful. Thank you!!!

    0Reply
  • Leo Watts
    Real Estate Agent · Washington, DC · Member since 2017 · 109 posts · 93 votes
    5y

    @Russell Payne

    I had a property I own on Airbnb. Long term rental income is $3250. Longterm is $5500 (could have been more but I didn’t fully optimize it for large groups - more risk but more upside)

    People generally don’t want 5 bed houses during the week in a non tourist city. So you had lots of vacancies in the weekdays and then people having parties on the weekends.

    Lots of locals smoking weed on the front porch / blasting music on front porch, plus worse, that I wasn’t fully privvy too.

    Airbnb is making it harder and harder to screen Airbnb tenants (a quick Google / FB stalk is impossible without last names / photos being shown).

    A party starting to kick up at 2 am that you’re watching from your outdoor cams hundreds of miles away and your 450k home on the line is a terrible feeling.

    Anyone who’s been doing Airbnb long enough has horror stories, big items stolen, thousands of dollars of damage, or worse. You also deal with endless bull **** with there’s not enough cups, I can’t find the house, I saw one hair in a corner, I thought this was going to be as good as the four seasons, yada yada. You’re always paranoid about a bad review that can derail all the work you’ve put in.

    Then when you analyze the numbers; taking on this semi full time job may not be worth it.

    $5500 income

    Minus $550 (10% for property management that coordinated cleaners, some maintenance, restocking, communicating with guests which I took over eventually because I was much better / more invested in it.)

    Minus $300 for bills (water elec cable / internet gas)

    Minus $100-150 for each clean

    Remember you have a 5 bedroom house and your 15 guests just spilled beer all over the place, dirtied the **** out of the kitchen and all the bathrooms, tracked dirt in the house, and maybe smoked weed inside

    And you have to strip all the beds and sheets and everything and remake everything / restock everything

    That’s a 3+ hour job for at least 2 cleaners

    Now you can find cleaners that are cheaper, but will they do a half *** job and hurt your ratings (this is common in volume Airbnb businesses), be able to show up consistently and on off times (Friday at 11 am and then also Sunday at 11 am). A volume business is hard to outsource to one lady that may charge less but not be as reliable, so ultimately you need a real cleaning company

    Then the component that really killed me was I was outsourcing laundry. Each turnover (full hotel quality bedding on 5 beds / 4 baths) is at least $80. If you have a back to back turn around, how can you do in house laundry with 2 - 4 loads of wash and dry and fold in the 4 hours between check ins. You could do onsite laundry which I was going to do but the time constraint is difficult. Having a cleaner drop it off at a laundry mat and pick up at a later date for a cheaper per pound cost just adds more labor / steps of complexity to the process.

    You can add two night stay minums to reduce your cleaning and laundry costs but it drives away your opportunity for big one night pay days. You can also try to rent out the rooms individually for weeknights when demand is lower, but that adds a whole nother layer of complexity and micromanagement and so and so slept in the wrong bed that’s it’s hardly worth it.

    So let’s say you only had 5 full turnovers at $200 a pop, for $1000 minus $550 management minus $300 bills minus $150 restocking of supplies and incidentals That’s $2000 taken out of your $5500 leaving you a $3500 profit when you could just do LTR at $3250 without adding years to your life

    Now if I was local, which I was at one point, I could reduce a fair bit of these expenses and improve the systems. I also had reason to believe I could hit $7500 or $8000 on this property (not 100% that I could, but a buddy was doing similar numbers in a similar property but also being less discerning with guest screening and had a longer run time to build up reviews).

    If my end profit was $5000+ a month, the headache seems more palatable.

    But, when Airbnb decided to give a no questions asked refund on $20,000 on confirmed “strict” bookings, and the str market tanked, I switched over to LTR and haven’t looked back.

    /endrant

    4Reply
  • Fred Cannon
    Rental Property Investor · St Augustine, FL · Member since 2019 · 265 posts · 279 votes
    5y

    @Russell Payne during COVID I have modified my business plan to include STR's By short term I mean 60 days or more. There is certainly a growing need for housing in this niche. My tenants are mostly traveling nurses and stay for 3 months on their assignment. I use 1 bedroom condo's and it's an ideal fit, you have to research your HOA to make sure it's allowed.

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Leo Watts

    Wow. You’ve been through a lot. That 20K refund would have hurt me too. I completely understand where you are coming from and what you went through.

    0Reply
  • Russell Payne
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2020 · 50 posts · 16 votes
    5y

    @Fred Cannon

    Got it. That’s good to know. How has that been going for you?

    0Reply
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