Long Term VS Short Term Vacation Rentals
How To Determine Your Real Estate Investment Strategy
Once you invest in a real estate property, the next question to consider is how to best maximize your investment. Many property owners face the decision of whether to rent their property long-term or short-term. To make the most educated and informed decision there are some factors to consider. It matters where you home’s located, the condition of the home, and what your goal is with the property.Any property has the potential to generate rental income, but what matters is getting the most from your investment. In this article, we’ll cover some common questions investors have and give you some more clarity on how to proceed with your investment property.
What makes short-term vacation rentals advantageous?
The vacation rental platform, Airbnb, has proven to be a very profitable rental strategy for many property owners. Airbnb allows landlords the option of renting their home for one night up to one month. Guests using this service have preferred it to hotel stays because of the added privacy, extra space, and more affordable price. As a landlord, creating an Airbnb listing is simple to do. You take several photos of your home, craft a property description, set the availability of your rental, and just like that, you’re an Airbnb host! Whether you own a casita, loft, townhouse, or single family home, you’re property has great earning potential. Primarily because you can set nightly and weekly rates, which opens the door for making more than a long-term rental.
Furthermore, as an Airbnb host you have flexibility, the ultimate benefit. You can set your own rental schedule and the nightly rate. If there are no bookings, you can enjoy the home during that time. Another financial advantage of listing your property as a short-term vacation rental is not having to pay taxes if you rent the property less than 14 days during the year.
Lastly, a critical point to make about listing on Airbnb is the protection insurance they offer hosts. Starting in 2015, Airbnb added a liability insurance program for property owners and their listings.
Are there disadvantages to having a short-term rental property?
In one word - seasonality. During peak seasons and holidays, Airbnb rentals experience high demand. Yet, during slower months you can have gaps in your bookings. A useful strategy to combat the slower months is to adjust your pricing. Raise your rates during peak seasons, then lower your rates when it’s slow season.
Secondly, you’ll have to consider the frequency of maintenance and cleaning. Because rentals might be for a night or two, making sure the home is spotless for the next guest is critical. And everything must be in working order at all times, so proper maintenance is also vital. Because the standing of your reviews tend to drive demand, these two factors can be the key to your success.
Finally, each city has their own regulations for vacation rentals. As the property owner, the responsibility falls upon you to ensure you’re in compliance with all local laws.
What makes long-term rentals for landlords advantageous?
For hundreds of years, it has been the norm to rent an investment property on a month to month or yearly basis. That has been the benefit of owning real estate, to have a monthly stream of revenue to count on. Not having to wonder how much money will come in each month, can be an advantage over short-term renting. We call this a conservative investment strategy.
One of my favorite benefits of long term rentals is that your tenants pay for the properties expenses that you will otherwise be responsible for in vacation rental such as; electricity, water, garbage disposal, internet etc which can substantially reduce your overhead and increase your NET revenue.
Referring specifically to a market like Tulum, you can find long term rentals quite attractive due to the fact that the demand outweighs the supply. The high demand for a long term rental (6 months, 12 months, 2 years) is mainly due to the fact that everyone wants to offer their property as vacation rentals. This provides the perfect opportunity to take advantage of the market segmentation and demand for long term rentals. The majority of the long term leases in Tulum charge roughly 20% above market price per month.
Lastly, with a long-term rental property, the landlord handles repair and maintenance. But, they can charge tenants for any damages with their security deposit.
Now, couple this with the fact that renting long term frees up your time to spend on making money in other areas. You have yourself a formula for a successful conservative investment
When you do the math the ROI on a long term rental in a market such as Tulum you will notice a desirable return one that closely challenges the most efficiently ran vacation rental on the market.
Are there certain challenges with a long-term rental property?
As compared to a short-term rental, there is much less flexibility with your long-term rental. Additionally, the landlord has less control over how their tenants decide to use the rental. It can also take longer to rent out your property than it would with a short- term rental. More people tend to show interest with shorter rental commitments.
When it comes to rental income, a long-term rental property generates about 40% less than a short-term rental.
So, how do you decide what’s the best strategy for you?
In short, there’s no right or wrong answer. It comes down to personal preference, and what works best with your life. Make your space comfortable so guests can feel like they’re in a ‘home away from home.’ During your trial period, you’ll get a sense of whether this is right or not for you. If it doesn’t work out, and you prefer more consistent rental income, switch to renting your property for long-term use.
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Ryan Gravel
Ryan Gravel is an American real estate broker and developer. He began his career at a young
age working for his family owned construction company.
After graduating college at the University of Central Florida with a degree in business,
Ryan set out to find untapped prolific markets around the world. His search landed him in
Playa del Carmen, Mexico where he founded Virgin Realty Mexico and co-founded the Saatal
Development Group one of the fastest growing development companies in the Riviera Maya.
With extensive market knowledge, professionalism, etiquette, innovation and integrity Ryan
is known as one of the most highly respected real estate advisors in the region.
