Much like other types of investments, real estate investments come in many shapes and sizes.
In the world of residential real estate investments, things tend to boil down somewhat simply into two categories – short-term rentals and long-term rentals. For the purposes of this article, we will define short-term rentals as properties that are rented for 90 days or less and long-term rentals as those that typically have a tenant on a lease that is six months or longer.
Like almost any form of investment, both short-term rentals and long-term rentals have their advantages and drawbacks. Deciding what type of residential real estate to have as part of your overall portfolio depends on your comfort level and expectations.
The decision to invest in short-term or long-term residential real estate will vary from person to person, not unlike a decision to invest in mutual funds – generally seen as safer, slower-growth investments – versus individual securities that may carry a higher risk/reward balance.
Advantages of long-term rental properties
While it is each investor's decision whether to have short-term or long-term rentals, long-term rentals do present some distinct advantages.
Here are some advantages to investing in long-term rentals compared to short-term rentals.
Long-term rentals require less attention, so managing the property requires less time and effort, whether you self-manage or hire a property management firm. In addition, the less frequent resident turnover means lower fees associated with management, less advertising to keep the unit occupied, and all-around less work associated with the property.
The longer, typically annual, leases on long-term rentals mean less of a chance your property will go unoccupied and not generate income. In addition, seasonality and market conditions have far less of an effect on keeping your property from sitting vacant.
Usually, with long-term rentals, a portion of the property's regular maintenance will be the tenant's responsibility. Items like regular cleaning, replacing light bulbs, pest control, and maybe even lawn maintenance fall to the tenant.
Lower Management Fees
Tenant turnover, maintenance, and advertising cost money, so long-term rentals almost always carry far lower property management fees than short-term rentals.
Advantages of short-term rental properties
None of the above means that short-term rentals do not carry their upsides, especially here in the Cape Fear region with the draw of our warm weather, beautiful waterways, vibrant and unique culinary scene and world-famous beaches.
Here are some advantages to short-term rentals.
With more frequent tenant turnover, short-term rentals receive regular, professional-level maintenance on a much more consistent basis than long-term rentals. Properties are cleaned, and minor repairs are addressed almost immediately upon one tenant vacating and the next tenant taking occupancy.
The oldest law of economics applies more to short-term rentals than to long-term rentals – supply and demand. For example, if your short-term rental is in a coastal area, demand surges during the warmer times of the year, allowing you to charge much more than when the weather is less favorable for enjoying the beach.
Greater Income Potential
Plain and simple, short-term rentals can create substantial income compared to the carrying costs of the property (mortgage, insurance, association fees, taxes, etc.). A dwelling that may fetch $2,000 per month as a long-term rental may go for double that as a short-term property. In popular vacation areas, that number becomes even higher.
Having a short-term rental property in a desirable vacation area allows owners to use the property themselves as they desire. You may decide to rent your vacation property for all but two weeks of the high season when you and your loved ones may enjoy the property yourselves.
Like many investment decisions, there is no right or wrong answer to whether long-term rentals or short-term rentals are the better decision for you. It depends entirely on how you feel about the risk/reward of higher income potential versus lower risk, steadier income, as well as the time, effort, and money you put into keeping the property maintained and occupied.
As a leading property management firm in the Cape Fear region, Sweyer Property Management certainly recommends that property owners strongly consider working with a trusted and experienced property management company. We want to make sure property owners and investors understand the relationship they are entering into when choosing to work with a property management firm.
If you have investment properties and do not use a professional management company, we hope you consider doing so. The experts at Sweyer Property Management will be happy to provide you with a free rental analysis or, if you prefer, give us a call at 910-256-3031.
Johanna F. Still - Jan 17, 2022
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