Property Management Blog

Long-Term or Short-Term Rental


Bob Preston - Thursday, August 2, 2018
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One of the most common questions we get at North County Property Group from property owners thinking about renting their home is what type of rental should I plan to offer? From my perspective, there are two different ways owners can go, long-term rental or short-term rental. Let me provide my definition and most basic synopsis for both:

Long-term rental: this is the most common type of rental property and involves finding a tenant for a long-term lease on a home that is normally unfurnished. The typical websites used to advertise a long-term rental include Zillow, Trulia, Hotpads, Homes.com, and Realtor.com. The tenant moves into the property along with his/her possessions and furniture, usually remaining in the home for a year. on a 12-month lease. The tenant typically pays all utilities. Long-term rentals provide owners with the most secure and steady cash flow while keeping their overhead as low as possible. Pros: steady cash flow, tenant pays utilities, property is rented unfurnished, overhead relatively low. Cons: tenancy is formed after 30-days, eviction process will be required if tenant stops paying rent.

Short-term rental: another distinct category of rental property is a second home that is offered as a furnished short-term rental (sometimes referred to as a vacation rental). In this scenario, the home is furnished with all utilities and amenities provided by the owner. The marketing websites for short-term rentals include AirBnB, VRBO, HomeAway, and FlipKey. Renters book reservations in the property while on vacation for a short duration, perhaps nightly or for a week at a time. While cash flow can be good on a short-term rental during Summer months, there may also be vacancy gaps between seasonal highs and lows. The wear and tear can also be high on the property, with greater potential for damages, due to multiple rental turns. Pros: higher income during peak seasons, home can be used by you for vacation and personal stays. Cons: property is more susceptible to damage, gaps in income can occur during off-season dates, home must be furnished and all amenities paid by owner, relatively high overhead, neighborhoods may object to the constant turn of renters.

You may be asking yourself, “which approach is right for me?” We are asked this question several times each week by owners trying to determine the best way to generate income from their property. Especially in North County San Diego, many property owners have heard stories of the riches to be made offering a home for rent during the running of the Del Mar Thoroughbred Race Track months as a “race season rental”. Some have also heard neighbors bragging about how they are “killing it” with their furnished rental on AirBnB!

Let me offer a quick guide to determining your strategy in Table 1 below. This guide attempts to outline the two differing profiles of success factors pertaining to both long-term and short-term rentals. If you see yourself fitting with either one of these profiles, it is our recommendation that you adopt that rental strategy.

Table 1 – Long-term or Short-term Rental?

Owner Profile

Long-term Rental

Short-term Rental

Reason for buying/owning the property.

Investment income and appreciation OR my permanent home I’m vacating temporarily.

Personal enjoyment of a second home in San Diego County I plan to use with my family on vacation.

Income goals and cash flow needs from rental program

Steady cash flow needed to support my lifestyle or pay the mortgage and other bills so I can keep the property.

Rental income would be “nice-to-have” when we are not using the property but is not a “have-to-have” for me and my family.

Cash resources available for ongoing property maintenance and upgrades

Low-Moderate

High

Risk tolerance

Low

Moderate

 

Here is another insight from years of experience in this business, and helping property owners take a pencil to the math. If you take time to calculate the overall finances (factoring in rent rates, gaps/vacancies, overhead and expenses), you will likely determine it is a 50/50 proposition. What we mean by this is that the net income obtained will likely be about the same. So, all things being equal, go long-term unless you fit well within the Short-term Rental profile in Table 1.



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