Having some type of investment never hurts. It is one of the ways to grow your capital and ensure financial stability in the future. While markets like stocks, commodities, or cryptocurrencies are notoriously known for their insane volatility (say, riskiness), the real-estate market stands firmly on the ground with the value of properties only increasing over years.
If you want to become a property investor, your options will primarily revolve around vacation rental or long-term rental homes. The final decision may be hard to make as both rental strategies have their unique benefits, as surely as some pitfalls. To facilitate your choice, we compiled the list of pros and cons of both types of property investment, so read on to find out which strategy may work best for you.
What Is A Vacation Rental?
A short-term rental (also known as a vacation rental) means that you lease out your fully-equipped accommodation for quite a short period, for instance, a couple of nights, weeks, or a few months. With the advent of booking marketplaces like Airbnb, the demand for short-term rentals has dramatically surged. This is so because Airbnb homes offer a great value for guests while being significantly cheaper than hotel stays.
Pros of Vacation Rentals
An ongoing flux of money
A lovely, well-conditioned short-term rental will always appeal to travelers. And if you set self-adjusting prices based on the seasonality and upcoming events in your area, you will avoid gaps in your occupancy rate and will constantly receive booking requests.
Short-stay rental owners have more flexibility when managing their properties. Using appropriate Airbnb management software, it is possible to block certain dates from the availability calendar, so you will never confuse your prospects.
Less utilization of your property
Generally, people who book a property for a short burst just need convenient space to spend a night, while the rest time, they will be exploring the city or doing their business. It means that your rental home will not be heavily exploited and guests will not attempt to redecorate or rearrange the interior design.
Modern technologies make it possible to automate 90% of operations every vacation rental host has to struggle with every day. From guest communication and task distribution to Airbnb SEO and payment processing, the niggly time-grabbers eliminate if you integrate a robust property management system like Hosty into your short-term rental business.
Cons of Vacation Rentals
Some concerns kick in when you commit to investing in a short-stay rental property. The main of them are compliance with local tax legislation, property maintenance, and off-season periods. However, some other problems may manifest when you are running a short-stay lodging.
You will have to spruce up your property after every deal. Things get harder if a client books your property for a few weeks, so you will need to arrange cleaning, maintenance, and supply restocking several times during a week. It may be nerve -and budget-breaking. But if you fail to maintain your rental amenities in excellent condition, an unhappy guest can leave a negative review, which may ruin your entire short-term rental business.
Seasonality does matter in the vacation rental business. During a high season, you may be awash in bookings (and money), but when the peak is off, your deals may get very scant, so the expenses on maintaining the property may even outweigh the cash it brings.
Depending on your location, the competition in your area can be very aggressive. Sometimes, it may be very hard for a beginner vacation rental owner to make their presence known, and it may take a long time before the accommodation starts attracting clients.
Too many things to manage
Homeowners have to devote lots of time and effort to make their vacation rental shine. There are galore of things to be managed, arranged, and controlled in this type of enterprise. From keeping the availability calendar updated and ensuring seamless check-ins/check-outs to tackling housekeeping, restocking, guest communication, and frequent rental turnovers, without the right management tool, the job of a short-term rental host can turn into a nightmare.
What Is A Long-Term Rental?
As the name suggests, a long-stay rental property is leased out for extended periods, generally, for months or even years. Sometimes, long-term rentals do not have any furniture or appliances at all, so that tenants can move their belongings from the previous home. But typically, these accommodations are fully furnished to ensure comfortable living. Tenants generally take care of such property: they pay utility bills and do cleaning/repairs/re-decorations as they continue to live in your rooms.
Pros of Long-Term Rentals
One of the benefits of investing in a long-stay rental is that you have peace of mind that every month, you will receive a rent payment from your tenants. You also know that your renters will be responsible for covering utility expenses which is a great financial help.
A big burden falls from your shoulders as you start leasing out for an extended timeframe. Now, you do not need to worry about marketing, arranging check-ins & check-outs, and doing tidy-up after every guest. Once the contract is signed, you know for how long your property is going to be occupied and when it will be vacant again.
If you worry about the safety of your long-term rental home, you can charge a security deposit from your clients. If your tenants bring damage to your property, the deposit may provide decent coverage for the losses, otherwise, you will return the deposit if the property remains intact when the lease expires.
Cons of Long-Term Rentals
The earning potential of long-stay rentals is smaller compared to Airbnb units because the application of elevated rates during a hot season is not feasible.
The most apparent disadvantage when comparing short versus long-term rentals is that long-term houses cannot be easily used for your own needs. Long-stay accommodations are usually occupied for a prolonged time, so you cannot ask your guests to leave for a while when you want to make a little weekend escape. The situation is pretty the contrary with vacation rentals when you can easily block particular dates from the calendar, so your spaces will be unavailable for booking without bringing inconvenience to anybody.
As a long-stay property is supposed to be leased out over a protracted period, a failure to find good, responsible tenants can cost you much. Imagine your home being occupied for months or even years by fringe groups or criminally-inclined ones… In this context, vacation rentals are more advantageous as you can always read reviews about guests on platforms like Airbnb before accepting the booking request.
As a hospitality entrepreneur, you must comply with certain laws and regulations to be able to lease out your rooms. For example, some regions mandate homeowners to collect written agreements from their neighbors before they can start a long-term rental business. You also must ensure compliance with the local tax legislation. Before you plunge into action, it is in your best interests to learn the regulations in your area to avoid possible legal issues.
How to Choose?
It is impossible to give a definite answer to the question "Vacation Rental vs. Long-Term Rental: What Is More Profitable?" Both ventures have their benefits and drawbacks.
A vacation rental property published on booking marketplaces like Airbnb or VRBO grants you more flexibility. You can adjust your rates based on the demand, assess potential clients by reviews, and determine the dates when your property cannot be booked. At the same time, vacation rentals demand more overseeing, and costs associated with cleaning and maintaining can be very high and even outweigh the potential gains.
A long-term rental investment scheme may be more desirable for people who prefer to deal with the same tenants for a long period, thereby handling less intense booking turnover. A long-term renter can even help provide a more stable flow of dollars, although the occupancy rate can be a little harder to fill compared to a short-stay Airbnb home. Most importantly, investors should take a close look at the vacation market in which they are competing and consider which strategy will be most favorable to generate a consistent income throughout the year.