There are many things to consider when determining whether to list your property as a long-term or short-term rental. To optimize returns on your investment property, it’s important to understand the benefits and drawbacks to both options.
Location is a top factor. Short-term rentals are becoming a popular alternative to traditional hotels for many vacation-goers in popular touristy areas. If you have a property in the heart of San Diego or a coastal city like Carlsbad or Encinitas, then you might consider a short-term rental for the premium nightly rates and abundant tourists. On the other hand, a long-term rental provides more stability with consistent yearlong tenants.
Here is a guide to some of the pros and cons of short-term and long-term rentals.
BENEFITS OF SHORT TERM RENTALS
A short-term rental is a condo, home or apartment that is rented anywhere from one night to one month. On average, short-term rentals are occupied for a few days at a time. Below are some pros of investing in a short-term rental.
GREATER EARNING POTENTIAL
Normally, short-term rentals in destination areas charge higher prices than long-term rentals. Especially during holidays, big sporting events, concerts, and high-season, renters expect to pay premium rates. As the property manager, you can change your nightly rates depending on demand. This can increase the income you are making at a faster pace.
VACATION FLEXIBILITY
Since renters only stay at your property for a few days at a time, you have more flexibility to use your home for yourself. You can block off periods where you know you’ll be using it, or have a spur-of-the-moment trip if no one is currently renting the property.
MAINTENANCE AND REPAIR UPKEEP
If you live near the property and prepare the home for each new guest, then you’ll be able to catch and fix repairs quicker since you’ll be on-sight more often.
TAX DEDUCTIONS
If you plan to rent your place for 14 days or less per year, then you could qualify for the 14-day rule. It states a property owner will not have to pay taxes on their rental earnings if they only rent 14 days or less a year. You are also allowed to deduct expenses related to the rental like insurance, maintenance, and utilities.
POSSIBLE CONS OF SHORT TERM RENTALS
STRICTER REGULATIONS
Some areas have strict rules for short-term rentals. Escondido and other cities in San Diego County require a transient occupancy tax for short-term rentals, occupancy limits, and other requirements.
MAINTENANCE COSTS
Since short-term rentals are considered more like hotels, guests expect a fully furnished home. Because the turnover rate on short term rentals is much higher, you will find yourself with more cleaning fees as well as re-stocking towels, sheets, paper goods and more. This can make a dent in your profits.
FLUCTUATING DEMAND
Most renters will only stay in the property for a few days, so there will likely be periods where no one is renting the property, especially during out-of-season.
LONG TERM RENTAL BENEFITS
A long-term rental is a condo, home or apartment that is rented out for longer than a month. It’s common for long-term rental owners to have tenants sign a yearlong lease. Below are some benefits of having a long-term rental property.
MORE CONSISTENT REVENUE
Less turnover means a consistent income for the duration of the lease. There is also no seasonal variance or off-seasons with long-term rentals because a typical lease is one year.
YOU CAN HIRE A PROPERTY MANAGER
Hiring a professional team of seasoned property managers will save you time, money and headaches in the long run. Property management companies typically handle everything from tenant screening and placement, to being compliant with state and federal laws, and managing all things maintenance and repair. Leaving the property owner with more time, money and peace of mind.
LESS ADVERTISING COSTS
Unlike short-term leases that need constant advertisement because of their high turnover, long-term leases only need advertisement when the tenant is moving out.
NO UTILITY EXPENSES
Long term renters are usually responsible for taking care of their utility expenses like water and electricity. Renters may also be responsible for some lawn maintenance.
LESS CLEANING AND MAINTENANCE EXPENSES
A lower turnover rate means you will typically spend less time cleaning and prepping your property for new guests. Less time inspecting, showing and servicing things that the tenant would be responsible for.
CONS OF LONG TERM RENTALS
RISK OF DAMAGE
More time spent in a property usually means more risk of causing damage. Tenants could create more wear on appliances, flooring and walls - especially if they have pets or young children. Make sure to include a damage clause within your renters contract and collect a deposit.
LESS FLEXIBILITY
Without proper tenant screening, you could find yourself in contract with a poor tenant. Unless certain conditions qualify for the eviction process, a DIY landlord may be dealing with a headache of issues. It also means no spur-of-the-moment vacations, since your property will most likely be rented out the majority of the year.
We know deciding whether to rent short-term or long-term isn't simple. Our expert team is here to help you make the best personal and financial decision for your rental property.
If you’re interested in finding out how much you can rent your space for - fill out our FREE Rental Analysis and receive an in-depth market report on your property.
John Boruff, licensed real estate agent and managing broker, is the founder and president of Palomar Property Services. John’s experience in property management and real estate goes back to 1984, when he began leasing and managing multiple properties, including warehouses, small manufacturing plants and office buildings. He ventured into the business of residential property management by purchasing multiple single-family homes in the Oak Hill development of Escondido in 1990. John’s investment experience spans as close to home as Escondido, CA, the greater San Diego County region, and as far as St. Louis, MO. A talented negotiator, he can navigate even the most challenging real estate transactions with an intuitive ability to close the deal.
John has consistently served real estate investors with the highest level of property management services for over 12 years, and at Palomar Property Services, John and his team of licensed agents have become a one-stop, full-service real estate company. With customer service, efficiency, and state-of-the-art technology a priority to John, and combined with his extensive real estate knowledge, Palomar Property Services is second to none in San Diego County.
John consistently shows an unparalleled work ethic, earning him respect among both regional and local realtors. Throughout his professional life, honesty and integrity have been the building blocks of John’s success in his careers, resulting in one of California’s most premier property management companies.
