The Pros & Cons of Short-Term Rentals (STRs) vs. Long-Term Rentals (LTRs)
We’ll start out by emphasizing that these factors are based on our opinions and experiences, and that whether you opt to invest in short-term rentals or long-term rentals totally depends on your goals when it comes to growing your real estate portfolio. If you want to tune in live, you can watch Sean’s video at this link or below!
But first, what’s the difference between an STR and an LTR? Simply put, short-term rentals generally last 31 days or less and come furnished while long-term rentals typically come with a 12-month lease and unfurnished. That being said, let’s take a look at the pros and cons of short-term rentals versus long-term rentals:
Pros of Short-Term Rentals
From our perspective, there are several pros that short-term rentals offer that long-term rentals simply cannot compete with - here’s the breakdown:
STRs are more lucrative: When you use a dynamic pricing strategy like we do, you can earn more money from short-term rental properties. As a property manager, you have the ability to control the income the property is earning. This is often determined by multiple factors, including: reviews, how uniquely your property is set-up, repeat guests, and more.
STRs tend to appreciate in value more than LTRs: Because short-term rentals tend to be in more desirable markets like coastal, lake or mountain communities, they tend to be a more valuable asset in the long-term.
STRs are more well-maintained: After every guest checks out, an STR is professionally cleaned and any maintenance issues that crop up are taken care of ASAP before the next guest arrives.
STRs are more fun: You can use the property yourself or with family and friends when they happen to be vacant (though the goal is always increasing bookings and occupancy rates, of course!)
Additionally, there is little risk of a tenant not moving out of an STR because there aren’t any leases associated with the rental, just contracts. Of course, we always recommend that you consult with an attorney if you’re having legal issues regarding owner and tenant rights.
Cons of Short-Term Rentals
When it comes to the cons of short-term rentals, we identify two notable points. Here are the details:
STRs are not passive: It’s true; STRs are a full-time job. You must manage every aspect of the rental from cleaning and maintenance to managing bookings, addressing guest feedback and more. If you have a solid team in place, potential challenges should be fewer and farther between.
STRs tend to come with higher upfront costs: Consider factors like closing costs, downpayment on the property, furnishing the property, and installing hardware (like smart locks and Ring cameras, etc). You’ll also have to consider what you’re envisioning for partners: do you have room for an assistant, maintenance person and cleaners in your budget?
A Key Pro of Long-Term Rentals
There is one major benefit to LTRs that STRs do not typically possess:
LTRs are more passive: It’s easier to build a portfolio of long-term rentals and to self-manage these properties, because they don’t require as much work on a day to day basis as short-term rentals do.
Cons of Long-Term Rentals
Here is a look at a few of the standout cons of long-term rentals:
LTRs are not as well-maintained as STRs: Because tenants of long-term rentals tend to sign leases that are a minimum of 12 months, these properties are rarely professionally cleaned until said tenant is out of the lease.
LTRs pose a risk that STRs do not: With an LTR, there is always the risk of a tenant not moving out when the lease expires or the tenant not paying on time. These situations were especially exacerbated during the pandemic.
LTR rental amounts are determined by the market: Due to this factor, owners of long-term rentals have less control over rental amounts and how much the property can earn.
What are some pros and cons that we might not have mentioned? We’re eager to hear what your short-term rental and long-term rental investments have exposed you to and revealed to you!