When investing in real estate for vacation rental purposes, owners have to decide what they want to do with their new home.
There are many factors that can help owners and managers weigh up whether they should opt for long or short term vacation rentals. Most of the time, this decision is made easily, and depends on the nature of your property itself and what you want to achieve. There are, however, a number of advantages and disadvantages to these two rental strategies.
If you need help deciding whether short or long term renting will suit your home best, you’re in safe hands. Sit tight while we outline the pros and cons of both types of vacation rental strategy.
What is a short term vacation rental?
Before anything else, let’s familiarize ourselves with the definition of a short term rental.
A short term rental (commonly referred to as a vacation rental), is the leasing out of a furnished property on a short term basis. Depending on the owner, rental location and a number of other factors, these properties are rented by the week or by the night.
Many owners of short term vacation rentals rent their property for the majority of the year when they are not using it themselves.
They have become a hugely popular alternative to hotels in the last 20 or so years, most notably with the surge of sharing economy websites such as HomeAway, Airbnb and VRBO.
Pros of short term vacation rentals
1. More flexibility
For owners who rent their properties short term, there is a lot more flexibility involved for you and yours. You can specifically block off calendar periods that you want to keep free for your personal use without inconveniencing anyone.
2. Less wear and tear
In general, vacation rental contract lengths range from a few days to a few weeks maximum. Receiving guests in short bursts like these ensure that guests are simply visiting your property, and so won’t be thinking about redecorating or rearranging furniture.
3. Higher rental income
Not only can you set fluctuating rates depending on your area’s high and low season, but you can also set minimum tenancy lengths for your most popular times of year to ensure you receive maximum profits.
4. Tax breaks and deductions
Many vacation rental owners are entitled to certain tax breaks or even deductible property expenses because the property isn’t being let long term. Be sure to check your local authority’s rules and regulations on this.
5. Contribute to the sharing economy
We hear a lot these days about the sharing economy and its positive effects on wider society. By letting your property short term to vacationers, you’re showing that you’re an innovator who is helping contribute to this modern way of living and thinking.
Cons of short term vacation rentals
1. More maintenance and upgrades
When your business is vacation rentals, you need to maintain a great general upkeep of the property or you could receive some really negative reviews. Not only does this include things such as regular cleaning, maintenance such as drain unclogging and paint fixes, it also takes into account changing technologies and modern inventions. You’ll need to update your rental amenities every so often to include all the essentials and more for a pleasant stay – and this can come with a hefty price tag.
2. Not guaranteed income
One frustration many vacation rental owners face is the effect of seasonality on their business. While their high season is fully booked, off-peak bookings are scarce which can ultimately cause them to lose money. While rates can be adjusted to compensate this seasonality (cheap deals off-peak and more expensive during peak times), income and bookings are not always guaranteed.
3. Competition from surrounding properties
Unlike the housing market, whereby apartments and houses are swamped with interest by renters, the vacation rental or short term market sees many more homes listed than travelers searching. This may put some owners at a disadvantage (again, depending on location and availability) because competition for vacation rentals could be rife in your area.
4. Too many things to manage
While for some owners, vacation rentals are a retirement hobby-turned-vocation, for others they’re a full-time job. There are plenty of tasks to keep you occupied throughout every guest’s stay. From ensuring calendar availability is correct to facilitating a smooth booking process, plus a simple and easy check-in and check-out, and not to mention cleaners, gardeners and the rest – vacation rentals can be hard work if you don’t have the right tools.
What is a long term rental?
Unlike short term vacation rentals, long term accommodation typically refers to that which is leased for periods of one month or longer. In general, renters pay the homeowner each month, and typically take care of other expenses such as utility bills.
Pros of long term rentals
One of the key advantages to renting your property on a long term basis is knowing that you have a monthly rental income that you can rely on. This can help take the pressure off new homeowners who have a lot of other expenses to worry about. Additionally, long term renters are generally responsible for paying monthly and quarterly utility bills for electricity, gas, water and even internet.
2. Less turnover
If you’re renting to long term guests, you’ll find you’ll have less to worry about when it comes to administrative tasks such as paperwork, key handover, and even marketing. Once your renter signs the lease, you know how long (to a certain extent) you can expect them to stay. You only need to worry about filling the house again once you know it will be vacated.
3. There may be no need to furnish
Some (though not all) long term guests come with their own furniture in tow. This can make the decision easy if you’re thinking about leasing your unfurnished property. Not only will you have a guaranteed monthly rent payment coming in, but you also won’t need to fork out on new furnishings for your home.
4. You can charge a high security deposit
If you’re worried about the finer details of renting, such as insurance, rental agreements and security deposits, then there’s no need to panic. For long term rentals, you can usually charge quite a high security deposit, which will be returned to the guest at the end of the tenancy unless in case of property damage. These deposits can give owners a lot of peace of mind when it comes to renting out their properties.
Cons of long term rentals
1. Owner has less flexibility
Unfortunately, in the world of long term rentals, there are no spontaneous trips to your mountain lodge, or July 4th getaway to your beach hut for celebrations. If you have a tenant in your home, you can’t ask them to leave for a weekend here and there. This can be a huge turnoff for many owners who are renting out their property simply to gain some extra income in the months and weeks it’s not used.
2. Less control over property
Most of the time, nothing goes wrong during a rental stay. There is, however, a big difference between the short term and long term options when it comes to checking up on your property.
For short term rentals, owners benefit from being able to inspect the property between each guest, to check everything is in working order and that nothing is broken or damaged. For long term rentals, however, it’s a bit more complicated. It’s likely you would have to give considerable notice (from 24 hours to one week) before dropping by for routine maintenance and security checks.
3. Restrictions in your neighborhood/city
Depending on your property type and it’s location, there will be different laws, restrictions and licenses you need to take into account before leasing it out long term, which can often be stricter and more costly than short term renting.
4. Lengthy process to find the right tenant
When someone is going to stay in your home for a long time, you want to make sure they’re a good fit. But when you consider the time you’ll spend vetting and checking references before drawing up the contract, this can soon turn into a very long process. In contrast, for short term renting it’s generally a much easier process – especially with tools like instant booking.
Overall, there are plenty of benefits to both long and short term renting, which go above and beyond those listed here. Provided you have the right vacation rental software, short term renting is a great option to bring more income and flexibility, while at the same time contributing to the collaborative economy, getting to know guests from all over the world and taking advantage of tax breaks.