Short-Term Rental vs Long-Term Rental – 3 Important Factors to Consider 

Short-Term Rental Vs Long-Term Rental

Real estate investing offers a wide array of potential strategies in order to make the most of an investment property. These can range from a variety of short- and long-term investment plans, but how do you know which one is best for you. 

Whether short-term rentals or long-term rental properties are best suited to your individual investment portfolio varies due to a variety of internal and external factors. Each of which can greatly impact which option will be right for you. 

So, to help you decide if you should utilize your rental properties for short- or long-term rentals, here are three factors for you to consider. But first, you should take a moment to consider which lenders will finance certain properties. After all, some lenders will not finance a short-term accomodation.

So, to explore your lender options and requirements, click the link below to book a free strategy call today.

Cash Flow Potential 

One of the first things you need to consider when deciding between short- and long-term rentals is the cash flow potential of the property under each system. Your cash flow is essentially the money left over after you collect rent each month and paid off all of the monthly property expenses. 

Long-term rentals make cash flow very easy to calculate because you have an exact figure to refer back to for both the property expenses and rental income. For example, if the monthly expenses on a property such as the mortgage and insurance payments reach a total of $1200 per month and the property makes $1600 each month in rent payments, that property generates a positive cash flow of $400. 

For short-term rentals, the calculation is more complicated. While your monthly expenses for the property may remain roughly the same, the income generated by the property is harder to estimate. Ideally you need to find the average cost per night that short-term rentals charge in your city through websites such as Airbnb and VRBO, as well as the average occupancy rate for short-term rentals in the area. With that information, you can determine a rough estimate of how much you can expect to make each month by operating a short-term rental

If the average cost per night for a rental in your city is $200, and the average occupancy rate is about 33% – or 10 nights each month – then you can expect the rental income for the property to be approximately $2000. With that income, you can expect the property to earn $400 more – or $800 total – in cash flow compared to the $400 it earned as a long-term rental. However, if the occupancy rate changes, you may find yourself making more or less each month than you estimated. 

Property Management Requirements 

Another factor you need to consider when debating between the type of rental property you should be operating is the property management needs that you will be facing. Even if one investment option makes more than other, if the property management needs do not suit you, then you may want to consider another option. 

Typically, long-term rentals have less frequent property management demands than short-term rentals. This is because as long as the property is in good condition and rent is coming in on-time there are very few reasons to interrupt the lives of your tenants.

Naturally, you will need to perform the occasional maintenance task or bring in inspectors to check on the property, but these are usually few and far between. However, with long-term rentals there is the concern that your tenants may stay quiet about certain problems with the property and allow them to worsen over time, leading to larger, more expensive repairs. 

With short-term rentals, you are normally going to be expecting to spend more time on property maintenance, meaning you will need to spend more on property managers if you are not doing your own management. This is because the unit needs to be reset and re-evaluated between each guest to ensure it stays in peak condition, on top of any maintenance checks and tasks that are required.

Additionally, short-term rental tenants frequently are less careful than long-term tenants because unlike their counterparts, they are not looking at the property as their home. As well, short-term rental guests are frequently more inclined to mention any small concerns they could have, which will require you to take the time to respond to and potentially rectify the situation. 

However, short-term rentals do have the advantage of you being able to access the unit more frequently which means you can catch small concerns early such as leaks before they can evolve into larger problems. This ability to make brief, frequent checks can potentially save you thousands in larger repairs. 

Discover How To Rent A Property With This Step By Step Guide

Local Laws and Regulations 

Finally, one of the main things you should consider when choosing between short- and long-term rental investing, are the local laws and regulations. 

With short-term rentals, many cities have key restrictions and licensing requirements around the licensing of these types of rentals in order to prevent them from harming the local market. These can range from limiting the number of short-term rentals, requiring each property to be licensed or limiting the types of properties that can be used as a short-term rental. If you try to operate a short-term rental outside of these laws and regulations, you will run the risk of being forced to pay hefty fines as well as potential legal action. 

Long-term rentals usually come with fewer unique laws and restrictions to differ them from short-term rentals, but you should aways take the time to double check your municipal and provincial restrictions to ensure that you are always in the clear. 

Bonus: Ask Your Lender 

Sometimes, the only factor that matters in whether you do short-term on long-term rentals on a property is the lender. Certain lenders refuse to lend on short-term rental properties due to their increased risk and if the best lender you qualify for will not permit a short-term rental, then your decision will already be made for you. 

Of course, to help keep the choice in your hands, at LendCity we work with a wide network of lenders so that even if one lender will not lend on a short-term rental, we can try to find you one that will if it is what you truly want to do. To apply today and go over your options, visit us online at LendCity.ca or give us a call at 519-960-0370. Alternatively, click the link below to book a free strategy call at the link below.

What You Need To Know Before Running A Short Term Rental, With Scott Dillingham