Long-term vs Short-term rentals: A comparison for property owners
Leasing property is nothing new. The concept has been around for as long as anyone can remember but how owners manage these assets have evolved and progressed over the years.
In this article, we’ll focus on the differences between LTR (long-term rentals) and STR (short-term rentals), as well as go into detail about their pros and cons.
The allure of long-term Rentals
Long-term rentals have been around for ages and most consider them as the more consistent type of rental investment. Let’s take a look at the benefits and setbacks a property owner may come across when going for LTR.
One of the biggest factors why investors go for LTR is cash flow consistency. This holds true for these properties as rent is typically collected on a monthly basis. The rate is mostly fixed for the duration of the contract as well, so the owner’s income is easier to determine over a longer period of time. While the stable cash flow is positive, it’s still worth noting that this is offset by the generally lower earning potential of LTRs.
Longer rental terms mean fewer people to meet on a regular basis as the tenants will mostly stay the same for the duration of the agreement. This also means less cleaning, less paperwork, fewer guest communications, and overall, less work on a daily basis. The only downside to this is you won’t be able to monitor the state of your property as closely and some maintenance issues may not be brought to your attention right away, which can mean more damage before it is addressed.
Easier or cheaper management
Since LTR tenants are given more accountability to their place of residence, most will treat it as their home and will not expect amenities such as toiletries and linen changes to be the responsibility of the owner. It is easier to manage and track the expenses and income since dynamic pricing will not be applicable. Overall, LTRs will not need a hands-on approach as much as an STR will.
Paid utility bills
Tenants of LTRs will typically shoulder their utility bills since they stay for a longer duration. This could mean saving up on these expenses especially during the summer and winter seasons. STR property owners usually take care of these bills themselves and will have to deduct it from their monthly income.
The upside of short-term rentals
Short-term rentals experienced a boom in the real estate industry following Airbnb’s global success. It allows owners to make more out of their investment while maintaining the flexibility of the property available for personal use. Let’s take a look at some of the advantages of STRs:
While STRs may not offer a stable cash flow that LTRs provide, it offers more room for revenue growth. Guests of STRs are more open to paying higher rates since they somehow expect some level of service during their stay. Though occupancy may fluctuate, STRs can easily offset the difference during peak seasons when it is even more acceptable for the owners to charge a premium rate unlike for LTRs where the price is fixed no matter the season or occasion.
Speaking of charging premium rates, it’s much easier for a property owner to adjust the nightly rates of STRs than to adjust the rate of a LTR property. Most contracts of LTRs have a fixed rate as mentioned earlier, and therefore, it will not be feasible for them to adjust the rates as easily as someone in the STR market.
Personal use of property
Some investors like staying in their own property from time to time whether for leisure or business. STRs allow property owners to still make use of their properties personally as blocking off dates on the Airbnb app is easy and they can enjoy their own spaces when it has not been booked.
Since STRs are not occupied throughout the year, property owners can also expect less wear and tear. Maintenance issues will be picked up immediately as the property is cleaned and inspected before the arrival of another guest. This avoids long-term issues like a leaky geyser damaging cupboards and ensure you always have an eye on your property. All these lead to a property that will be better maintained over the years and will be guest-ready throughout the seasons.
Both long-term and short-term rentals have their pros and cons so it’s smart to do some research before venturing into one. As a property owner, it’s best to weigh up both options along with its pros and cons before making a decision.