What’s The Difference Between Long-Term And Short-Term Rentals?
A short-term rental is a residence that provides accommodation for people looking to stay for a few days to one month, on average. This type of rental property is also referred to as a vacation rental since it primarily appeals to travellers.
The short-term rental niche has enjoyed impressive growth during the last decade, capturing market share from traditional hotel chains. A significant contributor to this surge is the rise of online vacation rental platforms like Airbnb and Vrbo, which connect property owners with travellers seeking accommodation on their getaways.
Long-term rentals are properties that cater to those tenants looking to stay for an extended time, usually longer than six months.
A variety of residences serve as long-term vacation rentals: apartments, condos, townhouses, and detached homes. Commercial and industrial also fall under the category of long-term rentals.
In most cases, property owners require tenants to sign up for at least a fixed, one-year lease, though some allow periodic tenancy. In the latter case, tenants commit to a lease on a month-to-month basis.
Short-Term Rental Pros
1. You Can Earn More Money.
A short-term rental property can generate a very lucrative income, especially if people rent it for a week or two at a time.
You can command high rates easily if your property is also in a popular tourist spot. For example, if you own a condo that sits along a beach, you can increase your rates liberally during the summer months, when demand soars.
2. You Can Also Use The Property
Since your guests will only be staying for a brief period, you have the convenience and flexibility to set aside time to use the property for yourself. If you want to go on holiday or spend the long weekend with your friends or family, you simply reserve the block of time in your calendar for personal use.
3. You Can Limit Some Of The Renting Risks
Being a landlord of a long-term rental can be financially rewarding, but it also comes with risks that can hurt your bottom line and cause you stress.
Two issues frequently arise in long-term rentals: tenants who fail to pay their rent and tenants who cause severe damage to the unit. However, these unpleasant scenarios are more avoidable if you own a short-term rental property.
The risk of travellers reneging on payment is low, as they’ve likely already accounted for this expense in their vacation budget. Plus, their commitment isn’t ongoing. And since your guests will occupy your rental unit only for a brief period, there’s less chance of them damaging it significantly.
Short-Term Rental Cons
1. Your Rental Income Can Fluctuate.
Your rental income may vary widely with a short-term rental property. At times, you’ll be booked for months in advance, but there’s also the possibility that your unit will remain vacant for part of the year.
2. You’ll Spend More On Cleaning Costs
With a higher turnover rate, you can expect to dish out more money to keep your rental unit tidy and presentable. Every time a tenant moves out, you’ll need to get your hands dirty and thoroughly clean your rental. The resulting expenses can easily hurt your bottom line, even if you outsource the work to a cleaning company.
3. You May Need To Hire A Property Manager
Because you’ll be renting your property to new tenants frequently, you must repeatedly check your appliances, sinks, and toilets to ensure they function perfectly. No one will want to rent a home with a broker refrigerator or one rife with plumbing issues. So, you’ll have little choice but to conduct such inspections or risk garnering a slew of negative reviews.
You’ll also need to continuously market your rental, deal with questions and complaints from tenants, and adjust your rates to ensure you generate a profit at year-end. Not surprisingly, you can find yourself overwhelmed quickly.
The only solution may be to hire a property manager to attend to these day-to-day tasks. However, doing so can significantly inflate your expense budget. The higher turnover of guests ensures the property manager will be far busier, keeping your rental in top shape. Thus, you can expect a hefty bill from them each month.
Long-Term Rental Pros
1. You’ll Earn Steady Income
The primary benefit of a long-term rental is predictable and reliable income, usually for at least a year. As a result, you can better ensure your property’s financial security and further scale your rental operation by acquiring more units.
2. You Might See Fewer Maintenance Fees
With a low turnover rate, your rental will demand much less time, effort, and money when it comes to maintenance. You won’t need to pay a cleaning company to tidy up your property too often, as your tenants will likely remain living there for a while.
3. You’ll Have Fewer Responsibilities
There’s far less work involved in successfully managing a long-term rental property than one that caters to short-term guests. You won’t need to constantly market your property, monitor your listings on rental websites, perform tenant credit and background checks, draft lease agreements, perform inspections, etc.
At most, you may need to perform these tasks only once per year, should your tenant choose not to renew their lease.
Long-Term Rental Cons
1. You’ll Have Less Flexibility In Adjusting Your Rental Rates
When you rent out your property for the long term, the rent price you set must remain fixed for the period specified in the lease agreement.
While this ensures a consistent and reliable income, you forego the ability to increase your rate until the lease agreement expires. As a result, you won’t be able to adjust your monthly rent to cover a sudden spike in your operating costs. Nor can you increase it to capitalize on a surge in demand for rental spaces in your location.
2. Your Tenants Will Live In Your Rental For A Long Time
Depending on the types of tenants you have living at your property, they could spur endless headaches and sleepless nights for you. Problem tenants can:
- cause severe damage to your property
- neglect their cleaning responsibilities,
- engage in petty quarrels with neighbours
- routinely miss rent payment deadlines
To help you avoid troublesome tenants, SingleKey offers a thorough yet easy-to-read Credit and Background Check. Our screening report gives you the information you need to feel comfortable with who is living in your rental property.
As a landlord of a long-term rental, you’ll be able to exercise less control over your property. The tenant will have more rights when they occupy your property than if they lived in a vacation rental.
As a rule of thumb, you’ll need to treat your tenants as though they’re the rightful owners of the property. For example, you can’t simply show up unannounced to conduct an inspection – you must provide them with written notice.
Further issues can arise if you need to kick out a tenant. Each province has specific laws and procedures you must observe concerning eviction. The entire process can be cumbersome and drawn-out and cost you a considerable sum in legal fees, court fees, etc. Try our eviction calculator to see how much you can end up paying.
Key Takeaways
Short-Term Rental Pros
- Potential for big financial gains
- You can use the property as well
- Limit some risks of renting
Short-Term Rental Cons
- Income can fluctuate month to month
- Higher cleaning costs
- May need to higher property manager
Long-Term Rental Pros
- Earn steady income
- Fewer maintenance Fees
Long-Term Rental Cons
- Rental rates are locked in
- Harder to evict bad tenants
Short-Term vs Long-Term Rental: How To Decide Which Option Is Right For You
There’s no easy answer when choosing between a short-term and long-term rental. Both types offer their share of advantages and disadvantages. But, you may find that you naturally prefer one of the other once you evaluate each on various factors.
Before arriving at your decision, you should consider your budget, your profit targets, and the amount of time and effort you’re willing to dedicate to maintenance, repairs, and tenant interactions (and arguments, too!).
Suppose you prefer a hands-on approach, enjoy the day-to-day tasks of managing a rental property, and don’t mind periodic fluctuations in your income. In that case, you should opt for a short-term rental.
Let’s say your goal is to generate consistent income over many years. And, you wish to avoid the hassle of constantly searching for tenants, doing paperwork, and fixing clogged sinks. In this case, you’d be better off with a long-term rental.
Whether you rent out your property for three months or three years, one thing hinges on your success or failure more than anything else: the quality of your tenants. Choose the right one, and you’ll earn a steady income for years to come, trouble-free. Choose the wrong one, and you find yourself in court, desperately spending time and money in an attempt to evict them.
A thorough background check can help you find perfect tenants for your property. Book a call to learn more about SingleKey’s Tenant Credit report for landlords.
