Hi. What are your thoughts on what will perform better going forward, short-term rentals or long-term rentals?
This is a topic that comes up very frequently in conversations with clients, investors, and friends here in Florida. I currently own 5 long-term rentals and 3 short term rentals, and everyday I wonder which one will do better over the next few years. Below is my answer to this question, but I'm very curious on what others think.
- Appreciation – in central Florida we’ve seen our condos and townhomes appreciate quite a bit since 2016. My opinion is that this will shift over the next few years in favor of single-family homes as people start valuing privacy, having space for their family and pets, and move to the suburbs. But for now, they have been fabulous investments.
- Passive Income – it doesn’t get any more passive. Besides fixing an appliance a year, if you have good tenants you can enjoy the fruits of long-term rentals for a long time. I think every passive income retirement plan should include long-term rentals.
- Cashflow: when I started in 2016 the financial metrics were very good (monthly rent / price were greater than 1%, cap rates were decent at over 7%). Nowadays it’s very hard to find a long-term rental that meets most investor’s criteria in Orlando. If you move outside of the city you can still find attractive opportunities, but those present their own challenges.
- Cashflow: the cashflow can be attractive. These past few months have been challenging, but the cashflow continues to be better than long-term rentals.
- Leveraged play on real estate and COVID aftermath – Airbnb homes tend to be bigger than long-term rentals. I personally consider real estate to be one of the best investments you can make for the next 10 years given record low interest rates, accommodative fiscal and monetary policy, and tax benefits. Unless your Airbnb home is in a vacation rental community, you can also benefit from the structural move to the suburbs and bigger homes. At the same time, once people start traveling, I think they will prefer the privacy of an Airbnb home vs traditional hotels.
- A lot of work – managing a short-term vacation rental is a full-time job in itself. If I were to calculate the net cash flow / hours worked in 2020 relative to my long-term rentals…
- Seasonal business & COVID – there are many systems you can use in your business to make it more predictable, but there is still a lot of uncertainty out there. If you can weather the storm and up your game, I think short-term rentals will become a lucrative investment. Until then, you can’t ignore this headwind.
For now, I continue to focus on building my portfolio with short-term rentals on the view that once this year ends and people start traveling, they will do extremely well. That’s also because my husband and I have the time, energy, and motivation to put the hours required to renovate and manage a short-term rental. If we didn’t have the time or did not share the views of short-term vacation rentals doing extremely well post COVID, then we wouldn’t pursue this strategy.
Once COVID ends, I can see myself jumping back into long-term rentals (buy the rumor, sell the news). I can see a lot of landlords using the opportunity to sell their properties due to issues with their tenants not paying.
Regardless, I think both strategies will do very well over the long-term because appreciation and tax benefits can represent a large portion of the gains in real estate. Finally, I think real estate in Florida will do very well compared to other parts of the country (this also can be another full post).
Do you have different views? What are your thoughts?
Hi Serena, I am curious about your short term rental time commitment comment. I have a STR in TN with over 90% occupancy year round and I spend about 30 minutes per week managing it, from my phone.
Maybe there are systems you can put in place to help cut back on the time you have to spend on it?
I agree a mix of both is nice as well, but the earnings on the STR side are what keeps me attracted to it.
@Michael Stokes Thanks for your comment. I'm curious, what systems do you use to manager your STR?
The STR that I have are fairly large houses (3–4br) with pools. What I've noticed is that back in 2018-2019, when I was managing them from NY through my phone as well, people were ok with little details not being perfect. Now in the COVID world, guests are extremely detail oriented.
This year I spent a ton of time remodeling the homes, creating a system (checklists for cleaning team, signs everywhere in the house), switched cleaning team, and eventually preparing to allow the business to run by itself. For now I personally inspect after each check out, and make sure that everything is up to the highest standards. No one cares about your home like you do.
I use the following to automate as much as possible:
Smartbnb for communication with guests and cleaning team
BeyondPricing for calendar pricing
@Serena Kim Those are good tools to be using, you can also use services such as turnoverbnb for the cleaners. If you continue with the mindset of no one cares about your home like you do (which is true), then you will forever be making it a part-time/full-time job. In my opinion, really finding cleaners you care about will help with this alot. If you want to inspect everything afterwards you can pay your cleaners for another 20 minutes to take quick photos and send them to you.
The main issue with the approach of walking it each time is you are hurting your ability to scale if you won't let go of that control level. Will seeing the unit once a month while receiving a few photos post clean each time alleviate that mind set?
I like this idea a lot. Our goal is to be able to manage the business from an iPad anywhere in the world, and for that we have to remove ourselves form the equation.
Luckily we now have a great cleaning team. Over the past 20+ reservations everyone has loved the cleanliness.
I’m going to speak with our cleaning team to see how best to implement.
@Serena Kim That is great, maybe they can do a quick video that they send to you via Ipad instead of photos as well to make it even faster. If everyone is happy with them then the place is most likely to be in outstanding condition. Even maybe pop in unexpectedly on some days when it is not rented just to do an eye test. This would be my approach when I have downtime, but I wouldn't be doing it in place of productive activities if my day needs me to get to them. Finding the cleaners is the biggest part!
@Reese Newell I agree 100%. A 5-10min video walkthrough should do it, and easier than taking a bunch of specific pictures
Hello Serena! Great tips above, I agree with all of them! Also additionally I have found leveraging social media platforms and being on as many STR OTA's as you can to help optimize your STRs. I personally use the PMS IGMS to keep everything synced calendar wise, but a lot of times one can sync everything and keep it organized on an Airbnb or Vrbo calendar. Have been getting a lot of leads on LI and IG in the post COVID climate. Probably wouldn't hurt to get plugged with in with a national network of STR managers who lead share, with you having premium rentals with pools, another great way to optimize would be to make sure you are everyone's FL go-to when in need of a premium STR experience.
@Serena Kim great thread. You're spot on regarding cleaners (be sure to give them a nice holiday gift).
I specialize in only extended stay / mid-term rentals. My typical stay is 4 months for 27 units.
It's been my experience that the revenue is lest for longer stays but the net income is the same - especially when factoring the cost of my time.
If you follow the hotel industry, you'll see many brands moving toward the extended stay model because it's held up in stressful times. Even during a pandemic, government, construction and healthcare work continues.
In fact, mid-priced extended stay hotels were barely affected by the pandemic.
That's why I vote for extended stay rentals. They typically yield 3x the net income over traditional rentals, they are easy to market to different audiences in the mobile workforce, and they are not time consuming.