25 Jul Short-Term Rentals vs. Long-Term Rentals
Challenges, Benefits and Expected Returns
When it comes to Austin property management and real estate investing in general, some investors often weigh the decision to enter into the short-term or long-term rental property niche. Review the pros and cons of each and you will find there is a compelling case to be made for both. Let’s take a quick look at the merits and also some drawbacks of both short-term and long-term rentals.
Breaking Down Short-Term Rentals
Short-term rentals are attractive in the sense that they present an opportunity to make more money than would otherwise be possible with other real estate investing opportunities. Short-term rentals have the potential to provide higher income on a per night basis in a short period of time if compared to typical market rents for long-term rentals.
Furthermore, short-term rentals pose intrigue as they present the opportunity to use the property when it is not occupied or used for other purposes. For some real estate investors, the opportunity to live in a short-term rental is a major bonus, especially if family/friends are interested in using the property when available.
Short-term rentals are sometimes quickly dismissed simply because they require ongoing oversight and micromanagement on a regular basis. Consider the fact that having this type of investment will mean numerous tenants on a monthly basis which might require vendor engagement and oversight on a monthly or even weekly basis.
Add in the fact that there is comparably high volatility with short-term rentals combined with a sizable upfront investment and the challenge of maintaining supplies and the property itself.
In terms of returns, short-term rentals present a golden opportunity to make good money, often on par or in excess of that of a long-term rental. The caveat being heightened volatility.
The market conditions ultimately determine if the risk made on a short-term rental is worth it. If demand dips, the short-term rate will also decline for that period of time. Or if numerous vacancy nights occur in a single-month, that would likely produce a substantial decrease or even a negative return in profits if you consider monthly property expenses.
Alternatively, if there is a surplus or steady demand, short-term rentals have the potential to prove highly profitable.
The Pros and Cons of Long-Term Rentals
Long-term rentals are often favored by real estate investors as they provide an opportunity for the property investor to lock in a tenant via a lease agreement for six months, an entire year or possibly even longer. If the property is always well maintained, a quality tenant is found via a solid leasing process, and there is open communication between tenant and landlord (or property manager), then these types of investments tend to keep their tenants in contract for the long-haul; creating substantially less turnover and vacancy. Which means less money spent on the make-ready process, reletting, and more expenses.
Furthermore, some real estate investors do not have any interest in occupying the property in-between tenants. If this sounds like the type of investment strategy you’d likely pursue throughout the course of ownership, a long-term rental would be the better option as these types of investment properties tend to be occupied at a higher frequency and also for a greater length of time.
Additionally, long-term rentals are also favorable in that they provide income stability in the form of steady rent checks on a monthly basis, ultimately stifling volatility.
The downside to long-term rentals is that they have the potential to fail unless the optimal tenant is acquired, legal requirements and code compliance items are maintained at all times, and a great long-term strategy is implemented.
Furthermore, sometimes long-term investments struggle because the property owner has a difficult time emotionally distancing themselves from the investment. A rental property is a business after all and should be treated as such.
The bottom line is that long-term investments provide reduced expenses and a lower cost of management due to minimal short-term daily management obligations over a longer period of time.
Additionally, long-term lease agreements along with less market volatility provide consistent income, enabling better and more predictable return on investment and return on equity performance in the long-run.
Which Investment Strategy is Right for You?
The answer to that question isn’t so straightforward because every rental property and investor are different. Real estate investors should always consider what their goals and timelines are with having a rental property, before purchasing it. Depending on those objectives, you’ll better enable yourself to choose which type of investment strategy is right for you.
Choose 1836 Property Management
If you’re investing or plan to invest in the greater Austin, Tx, area, reach out to our team of professional Austin property managers today to assist you with your real estate investing ventures. At 1836 Property Management, your success is our success.
By: Kayla Gonzales, 1836PM Marketing Manager