Investing in Short-Term vs. Long-Term Rental Properties

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Posted on July 12, 2019 by Laura Lucky

Investing in real estate has been the impetus for wealth for many. No doubt, smart property investments can significantly boost your portfolio. When it comes to buying rental properties, there are two different strategies that have their own pros and cons. Read on to learn what may be best for you.

Short-Term vs. Long-Term
As you know, short-term rentals are homes that are available to tenants for a limited time such as a matter of days to weeks. The popular platforms of Airbnb, VRBO and HomeAway have made it easy for vacationers to find a short-term rental that fits their needs. Long-term rentals refer to the more traditional model where a renter signs a multi-month (or longer) lease to occupy the home full time.

Pros of Short-Term Rentals
The income potential may be higher because you’ll earn a higher nightly rent than you would in a long-term lease. Buying property in a location (yes, Scottsdale!) where the demand for vacation rentals is strong, offers good opportunities for high occupancy rates – important for your ROI model. As an added bonus, if your property is in a locale you’d like to vacation in as well, you’ll be able to block off some rental days for yourself.

Cons of Short-Term Rentals
There are many HOAs around the Valley that restrict homes from short-term use. If you invest in a location where it’s not restricted, you may have the ongoing concern that it could be outlawed at a future date. The initial financial investment will be high, as you’ll need to completely furnish and stock the home for guests. You’ll be responsible for monthly utility payments and there’s the ongoing work to be done with guest bookings and turnovers.

Pros of Long-Term Rentals
With renters paying a consistent amount per month, your yearly budget and income projections may be more reliable. With a multi-month or longer lease, the stability and predictability of who your tenants are is an important consideration. Additionally, your tenants will be providing all of the furnishings and paying the monthly utility bills, keeping your initial investment and monthly expenses lower.

Cons of Long-Term Rentals
With the monthly rent amount locked into the lease, you’ll face limitations on the rent you may charge which could mean a missed opportunity if demand and prices in your area rise. If you have tenants that need to be evicted, it can be a long, drawn-out legal process that could eat up your profits.

We’ve literally helped hundreds and hundreds of investors purchase property. Let us guide you with our market knowledge and expertise. Contact us for a no-obligation consultation! or 602.320.8415

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