Short-term rentals are all the rage in the real estate investment world right now. An investing strategy that’s really only taken root in the last five years or so, it’s an attractive method of enhancing cash flow and speaking to your creative side in your portfolio building. And while there are many advantages to the STR strategy, it’s important to understand the difference between short and long-term rentals and how the pros and cons align with your goals. Let’s compare the two and help you decide which is right for you.
First, a short-term rental, as the name suggests, is a property rented out for short periods of time – generally speaking, anything less than a year, but more commonly a few days at a time. A long-term rental, on the other hand, is leased for 12 months or more. There are benefits and drawbacks to both investment strategies and ultimately it comes down to what you’re looking to achieve with your real estate investing.
If you’re looking for immediate cash flow and don’t mind putting in some extra work up front, a short-term rental might be the right strategy for you. You’ll likely make more money per month with an STR than you would with a long-term lease but keep in mind that you’ll also have higher vacancy rates and higher upfront costs. Running an STR is much like running a hotel. You have a lot more to think about in terms of supplies, furnishings, turnover etc. On top of that, there are many more pieces to manage with a short-term rental. Cleaning and lawn care, internet and utilities, everything that keeps your property in top-notch form at all times is your responsibility as the owner, whereas many of these expenses are passed on to the tenants in a long-term lease.
Long-term rentals, by contrast have their own set of positives and drawbacks. For starters, it’s a much more passive form of real estate investing. You’re not responsible for the day-to-day management and upkeep of the property and you have fewer expenses to worry about. In addition, it’s generally easier to find tenants for a long-term lease than an STR – especially in markets where short-term rentals aren’t as attractive to visitors. Your cash flow is much more predictable in a long-term rental. However, you will likely make less per month and it takes much longer to see a return on your investment.
So, which is the best strategy for you? It depends on your goals as an investor. If you’re looking for immediate cash flow and are willing to put in the extra work, a short-term rental might be the right fit. If you’re looking for a more passive form of real estate investing with predictable monthly cash flow, a long-term rental is likely your best bet.
Still not sure which strategy is right for you? Talk to one of our investment specialists today and we’ll help you make the best decision for your portfolio.