Benefits and Challenges of Short-Term vs. Long-Term Vacation Rental Properties

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Short-term vs. long-term vacation rental ownership

According to Wells Fargo, vacation rentals are currently a $100B+ industry globally, expected to grow to $157B by 2020, during which time the segment should grow its share of total worldwide accommodations to 21%. In the U.S., private accommodations are 8% of the $368B travel market and 17% of the $140B lodging market. With this surge, online vacation rental marketplaces it’s any wonder so many people are interested in listing their property (or properties) on websites like Airbnb, Homeaway and VRBO. It seems it is easier than ever to rent your vacation property to tourists, business travelers or locals needing a staycation and earn extra income – or is it? Yes, you can snap a few pictures of your property, return potential guest emails, and clean before and after your guest’s stay but it often times homeowners forget the challenges that come along with renting their property. These challenges can greatly hinder success by impacting your search rankings, reviews, and bottom line due to overspending (e.g., property care, vendors, etc.) 

Before you consider getting started (or if you’re wanting to improve your “business” of being a vacation rental homeowner) two of the biggest decisions you’ll have to make when renting out a vacation property are 1) determining if you want to rent it to short-term or long-term tenants and 2) who will be doing the all of the work.

These decisions will greatly impact your success. Every homeowner’s situation is unique, so study the pros and cons of each before determining what is right for you and whether or not you want to hire a property management company to ensure the experience your property provides is truly competitive. 

Short-term vacation rental benefits 

In some communities, a short-term vacation rental is often referred to as an STR, transient rental, or resort dwelling unit. A short term vacation rental is a home, apartment or condo that is rented for as little time as one evening up to one month. Usually short term rentals are occupied for a few days at a time. Here are some benefits of buying and managing a short-term rental provide homeowners with extra income, flexibility, and tax deductions.

  1. Earning Potential: Short term rentals can be extremely lucrative. As the property manager you are able to raise prices as you see fit depending on the demand. If there a music festival, popular sporting event or convention in town you can easily double or triple your regular nightly prices for that time period. Travelers expect to pay premium prices over holidays, special events or high-season, so you can make the bulk of your income during these times.
  2. Flexibility: Short term rentals offer the homeowner flexibility. If no one is staying at your property, you use it for an impromptu vacation. You can also block off periods of time in the future when you know you will want to use your property.
  3. Tax Breaks: Homeowners wanting to rent their place for 14 days or less per year might qualify for the 14-day Rule. The tax rule states that a property owner does not have to pay tax on the income earned from a short term rental of 14 days or less. You can also deduct expenses like cleaning, maintenance, insurance and utilities.  

Short-term vacation rental challenges to consider

When listing a rental in the short-term market often include local ordinances, property maintenance, and slow seasons. 

  1. Red Tape: Check the short-term rental regulations in your area. Some local municipalities are cracking down on short term rentals by insisting on a three-month minimum, while others cap the number of days a dwelling can be rented.  
  2. Maintenance: Reviews are the bread-and-butter of the rental industry. To ensure great reviews, you will need to keep up with issues such as bugs, drain clogs, leaks and deep cleaning. As more and more guests stay in your vacation rental, the more potential there will be for wear and tear on your property. This can be a full time job for a property owner. 
  3. Slow Periods: When renting your property on a short-term basis you will likely bump into slow periods when the property sits empty and you’ll likely need to put in extra time and resources to ensuring it stays rented or take the hit financially. An empty property does not bring in any money. You can lower your rates to compensate for the low season, but bookings are still not guaranteed unless you’re fully aware of market demand, 

Long-term vacation rental benefits

Rent your property long-term and take on the responsibilities of a modern-day landlord unless you work with a property manager that is fully equipt to tackle the following concerns. A long term vacation rental is a home, apartment or condo that is rented for one month or longer. Among the many desirable benefits of listing a long-term vacation rental includes a steady revenue, limited turnover, and fewer utility bills.

  1. Consistent Income: One of the main advantages of a long-term vacation rental is the guaranteed income. Even if the income is lower than it would be in peak season, the predictable income can give the owner peace of mind, which is priceless.
  2. Less Turnover: The fewer number of people you are renting your vacation property means the less cleaning, less paperwork and less hassle. Also, you will not be constantly tied to your computer or smart phone answering emails from possible upcoming tenants.
  3. Bills: When a tenant rents a property for several months at a time it is customary for them to pay the bills. The electric, internet, phone and cable can add up to a hefty number every month. By having the tenants pay these bills for you it can offset the money you lose by not charging the premium prices you would for short term rentals.

Long-term vacation rental challenges to consider

Challenges worth recognition for long-term vacation rental properties provide owners with less earning potential, higher vacancy rates, and reduced flexibility for personal use.

  1. Earning Potential: Vacation properties that are rented over a long period of time are generally discounted by up to 40 percent. It is also not feasible to charge premium rates for certain popular time periods.
  2. Less Income: The number of people looking for a long-term vacation rental is lower than the number of people looking for a short-term vacation rental, especially during the off-season. You may have an empty vacation rental for weeks on end if you only rent to long term renters.
  3. Less Flexibility: No more quick spontaneous trips up to your vacation rental for a romantic getaway. If you have a long-term tenant staying at your vacation property, you will not be able to use it as often as you might like.

Will you work with a vacation rental property manager or FRBO? 

A major growth driver of the vacation rental market will be the increasing role of professional management. Again, according to Wells Fargo, the percent of U.S. vacation rental properties managed professionally is expected to grow to 55% in 2020 from an estimated 40% in 2016. Vacation rental management companies (VRMCs) generate approximately 8X better unit economics than rent by owner (RBO) websites since they allow for you to maximize each and every benefit of a short or long-term rental while expertly handling each and every challenge so you don’t have to worry about a thing.

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