Investing in Long-Term vs. Short-Term Rentals: What you Should Know

What is a long-term rental?

A long-term rental is a property leased for an extended period, typically 12 months or more. This rental agreement is standard for residential properties like apartments and houses. Long-term rentals offer stability and predictability for both landlords and tenants. The landlord can count on a steady income stream, while the tenant knows they will have a place to live for their lease.

The pros and cons of long-term rentals for landlords

As a landlord, you may wonder if renting your property out on a long-term or short-term basis is better. Each option has pros and cons, and it’s important to weigh them carefully before deciding.

Long-term rentals offer stability and predictability. You’ll have the same tenant in your property for an extended period, making it easier to manage. You’ll also be able to charge a predictable monthly rent with a long-term rental since the tenant will be committed to paying for an extended period.  This makes financing a property easier to forecast as the cash flows are predictable.

However, long-term rentals can also be riskier. If your tenant stops paying rent or causes damage to your property, you may have difficulty evicting them. And if the market changes and you need to raise rents, your tenant may not be able or willing to pay the new amount.

Marketing long-term rentals

As a landlord, you should know that marketing your rental property as a long-term rental has its benefits. For one, it can provide a more stable income stream since you won’t have to worry about finding new tenants every few months. It can also help you build goodwill with the community since you’ll be considered a more responsible property owner.

Of course, some challenges come with marketing your rental as a long-term option. For instance, you may have to do extra work to find qualified tenants willing to commit to a lease for an extended period. 

Here are a few tips to help you market your rental property as a long-term option:

1. Use online listings: One of the best ways to market your rental property is by using online listings. Many websites allow you to list your property for free, making reaching a large audience of potential tenants easy. Include plenty of photos and detailed information about your rental in your listing.
2. Advertise in local publications: Another effective way to market your rental property is by advertising in local publications. This could include newspapers, community newsletters, or flyers posted around town. Just be sure to include all the important details about your rental, such as the address, square footage, monthly rent price, and any special features or amenities you offer.
3. Utilize word-of-mouth: In addition to traditional marketing methods, don’t forget about the power of word-of-mouth. If you have happy tenants who are satisfied with their living situation, they’re likely to tell their friends and family about your rental property. This can be a great way to generate leads and find qualified tenants for your long-term

What is a short-term rental?

A short-term rental is a property leased out for a period shorter than the traditional lease agreement. These leases are typically for 30 days or less. Short-term rentals can be an excellent option for those looking for a place to stay for a short time, such as vacationers or business travelers. When considering a short-term rental, such as the time you need the property, and if the rental agreement allows for subleasing, there are a few things to keep in mind when considering a short-term rental.

The pros and cons of short-term rentals for landlords

There are a lot of factors to consider when you’re deciding whether or not to rent out your property on a short-term basis. Here are some of the pros and cons to think about:

Pros:

1. Short-term rentals can be more profitable than long-term rentals. This is because you can charge higher rates for short-term stays, and you’re likely to have a higher occupancy rate since people are always coming and going.
2. Short-term rentals can be an excellent way to try different pricing strategies. You can experiment with different rates and see what works best for your property.
3. Short-term rentals can be a good way to attract new tenants. If you have a vacancy, renting out your property short-term can help you fill it quickly.

Cons:

1. Short-term rentals are more work than long-term rentals. This is because you’ll need to clean and prepare the property between guests, and you may need to deal with more noise and disruptions than long-term tenants.
2. Short-term rentals can be riskier than long-term rentals. This is because you never know who you’ll get as a tenant, and there’s always the potential for damage to your property.
3. Short-term rentals may not be allowed in your area. This is something you’ll need to check with your local laws before you start renting out your property on a short-term basis.

Marketing short-term rentals

There are many benefits to short-term marketing rentals, especially in generating income. Here are some tips to get started:

1. Use platforms like Airbnb and VRBO to list your property.
2. Use social media platforms like Facebook and Instagram to market your rental.
3. Use search engine optimization techniques to ensure your listing appears as high up in the search results.
4. Offer discounts and promotions to encourage bookings.
5. Create a website for your rental property, including clear photos and information about the property, amenities, and rates.

Regulation differences between short and long-term rentals

Regarding short-term rentals, there are a few critical regulations you should be aware of. First and foremost, most municipalities have laws limiting the days a property can be rented out. This is typically done to prevent properties from being used as full-time hotels or Airbnbs. For instance, the limit is 120 days per year in Los Angeles.

Another key regulation to be aware of is the requirement for a business license. In most cases, if you’re renting out your property for less than 30 days at a time, you will need to obtain a business license from your city or county. This is usually a simple process, but it’s important to ensure you comply with the law. To research the regulations in most major cities, use our short-term regulation database. 

In contrast, long-term rentals are subject to different regulations. Perhaps the most important difference is that there is no limit on the number of days that a property can

Tax differences between short and long-term rentals

When it comes to taxes, there are some key differences between short and long-term rentals that you should be aware of.

• Short-term rentals are generally considered taxable income, whereas long-term rentals may be eligible for some tax breaks. For example, if you own a long-term rental property that you live in a part of the year and rent out for part of the year, you may be able to take advantage of the mortgage interest deduction.
• Short-term rental income is often subject to self-employment tax, whereas long-term rental income is not. This means that you may have to pay Social Security and Medicare taxes on your short-term rental income but not your long-term rental income.
• If you own a short-term rental property, you will likely be required to collect and remit state and local taxes, such as hotel taxes. However, if you own a long-term rental property, you may not be required to collect and pay these taxes.
• If you rent out a room in your primary residence on a short-term basis (less than 15 days per year), you may be able to take advantage of the “safe harbor” provision in the tax code and avoid paying taxes on that income.
• When you sell a short-term rental property, you will likely have to pay capital gains tax on any profit you make. For long-term rentals, you may be able to avoid capital gains tax by doing a 1031 exchange.
• Depreciation rules may differ between short and long-term rentals. With a short-term rental, the entire property is considered one asset, and depreciation is taken on the entire property. However, each unit (such as a room) can be depreciated separately with a long-term rental.

Knowing the tax implications of both short and long-term rentals can help you make the best decision for your situation.

Conclusion

Ultimately, it’s up to you to decide whether investing in a long-term or short-term rental property is right for you. Both have their pros and cons, so be sure to do your research before making any decisions. If you take the time to weigh your options and make an informed decision, you’re sure to find the investment that best suits your needs.