If you own a second home that's currently sitting empty and not generating income, you may find yourself at a crossroads. Should you rent it out to long-term tenants or explore the potential of short-term vacation rentals? Both options have their merits and can seem appealing at first glance—one promises higher profits, while the other offers more consistent income.
Determining which type of rental is the best fit for your financial and lifestyle goals requires careful consideration. But don't worry, we're here to help! In this comprehensive blog post, we'll examine the perks and drawbacks of both long-term and short-term rental strategies, equipping you with the knowledge to make an informed decision.
Let's start by looking at short-term rentals, often referred to as vacation rentals. These are furnished residences typically rented out to travelers looking to stay for shorter durations, ranging from a single night to a month, depending on your market. Guests are drawn to vacation rentals as an alternative to hotels because they offer more space and residential conveniences, such as a fully equipped kitchen and a washer/dryer.
Short-term rentals offer several advantages worth considering. One of the biggest benefits is the high profit potential. With the flexibility to align your nightly rates with demand, you can maximize your earnings. For instance, special events, high seasons, and local attractions can all be reasons to charge higher rates. In contrast, long-term rental leases usually cap your earnings and lock you into a fixed monthly rent amount.
Another advantage of short-term rentals is the freedom to decide when to rent out your property and when to use it for personal purposes. Since guests only stay for short bursts of time, you'll have more flexibility to book your own vacations or enjoy impromptu getaways when there are gaps in reservations. With a comprehensive vacation rental management company like ours, you can easily block off periods on your calendar as much or as little as you like.
Maintenance and upkeep are also less of a concern with short-term rentals. Guests don't occupy your property on a daily basis, so it takes longer for noticeable wear and tear to accumulate. Long-term renters, on the other hand, live in your property day in and day out, potentially leading to more maintenance and repairs from overuse.
From a financial standpoint, short-term vacation rentals may offer deductions and tax breaks. You could potentially write off expenses such as property management fees, cleaning, maintenance and repairs, utilities, marketing commissions, and more. Be sure to consult with a tax professional to determine which expenses are eligible for deductions.
Thanks to advancements in technology, owning a vacation rental can be a hands-off experience. Smart locks replace the need for physical key exchanges, while smart thermostats allow you to remotely set temperatures and save energy. For a truly hassle-free experience, working with a full-service vacation rental management company can handle everything for you—cleaning, marketing, rate setting, guest service, and more.
Despite the advantages, short-term rentals come with their own set of challenges. Regular maintenance and cleaning between stays are essential to maintain positive reviews and future success. Additionally, rental income can fluctuate based on the on and off seasons of your destination. However, there are strategies to increase off-season bookings, such as offering desirable amenities like hot tubs or implementing targeted marketing campaigns to stay top-of-mind with potential guests.
Managing a vacation rental can be time-consuming and overwhelming. It involves marketing your property, responding to guest inquiries, setting rates to match market demand, conducting repairs and maintenance, and more. To alleviate these responsibilities, many homeowners choose to partner with vacation rental management companies like ours, allowing them to enjoy a hands-free investment while professionals handle the day-to-day operations.
Before venturing into short-term rentals, it's crucial to familiarize yourself with local regulations and restrictions. Some jurisdictions may impose limitations or outright bans on short-term rentals, so be sure to do thorough research and comply with all applicable laws.
Now let's shift our focus to long-term rentals. These involve leasing your property to tenants for extended periods, typically one year or more. The biggest advantage of long-term rentals is the reliable monthly income they provide, regardless of the season. Once you find a tenant and establish a lease agreement, you can collect rent with minimal effort. Long-term residents often take care of their own utility bills, reducing your responsibilities further.
With long-term rentals, there's also less day-to-day management involved. You no longer need to actively market the property, prepare it for new guests, or handle frequent turnovers. Long-term tenants generally take care of their own bills and contribute to some of the property's upkeep. Your main involvement would be addressing repairs and maintenance as needed.
Unlike short-term rentals, long-term rentals typically don't require extensive furnishings. Tenants usually bring their own furniture, saving you the expense of furnishing the entire home.
Another advantage of long-term rentals is the ability to collect a security deposit from tenants before they move in. This deposit provides reassurance against potential damage to the property, and it can be returned in full once the tenant vacates if no damage is present.
On the flip side, long-term rentals do have some drawbacks to consider. The income potential is generally lower compared to short-term rentals since rates are set and remain fixed throughout the lease term. Long-term tenants also expect to pay significantly less than travelers would for a short-term vacation rental. This means that a property currently renting for $1,000 a month could potentially command several hundred dollars a night as a vacation rental, depending on the location, amenities, and demand.
With long-term rentals, you'll need to sacrifice the ability to use your property for personal vacations. Once you have a tenant in place, the property is off-limits for personal use, except for repairs or maintenance.