At North County Property Group, we provide property management services for two distinct categories of rental homes. One would type is the long-term unfurnished rental and the other is furnished vacation rental homes. When we meet with a new Real Estate investor client, they will often ask, which way should I go, long-term or vacation rental? And, which way would provide the best rate of return? We are dedicating this video update to distinguishing between these two types of rentals and how we make our recommendation on which strategy to adopt for an investment rental property.
Let’s start with the long-term rental. This is the most common type of rental property. It's the majority of North County Property Group’s rental portfolio and involves finding a tenant for a long-term lease on a home that is typically unfurnished.
The websites we use to advertise long-term rentals would include Zillow, hot pads, homes.com and realtor.com. Along with others, there are a bunch of them, hundreds of different sites. The tenant typically moves into the property along with their own possessions, usually remaining in the home for a 12-month lease. Typically, the tenant would pay all the utilities and other expenses along the way. Such long-term rentals provide owners, in our opinion, with the most secure and steady cashflow while keeping their overhead as low as possible. So, the pros of long-term rentals would be the steady cashflow, tenant pays utilities, the property is rented unfurnished and the overhead is relatively low. The cons are that tenancy is formed after 30 days. If you have a bad tenant or you want to get the renter out of the property, an eviction process will typically be required.
Next, let's discuss the other category, short-term rentals, sometimes referred to as vacation rentals. In this scenario, the home is furnished, fully equipped, with all utilities and amenities provided by the owner. The marketing websites for vacation rentals would include Airbnb, VRBO, HomeAway, TripAdvisor and other vacation rental websites.
Renters book reservations for a vacation for a short-term duration, possibly nightly or for a week at a time. Sometimes the cashflow can be good on a short-term rental, especially during high season vacation periods like summer months or Christmas vacation or spring break. But there also may be vacancy gaps between seasonal highs and lows. The wear and tear can also be quite high on a vacation rental and greater potential for damages due to multiple rental turns and people having a good time while on vacation.
The pros of a short-term rental property are higher income during peak seasons. The home can be used by the owner when you're on vacation and for personal stays for your own enjoyment. Cons, the property is likely more susceptible to damage. There could be gaps in income during off season dates. It also requires the owner to fully furnish the property and all amenities are paid by the owner, and there's also relatively high overhead because you're also paying for the WiFi, cable, heating and more. Be aware what we're seeing more of in certain communities are neighbors objecting to the constant turn of renters coming in and out of the property. Typically, the property management fees for a short-term rental are typically higher on a short-term rental because of the constant turning and cleaning of the unit and preparing it for the next arriving renter.
Now, what should you do with your investment property? Should you make it a long-term rental or a short-term vacation rental? We typically guide prospective clients for North County Property Group based on a set of questions that we ask them and then help them decide what is right for them based on their answers.
1. Why did you buy, or why do you own this property? If it's for investment income and appreciation on a steady basis over a long period of time, or perhaps it's your permanent home that you're vacating temporarily, then that would lean towards renting it on a long-term basis.
If the home is clearly a second home purchase, primarily for your personal enjoyment in San Diego County, and you also plan to use it with your family on vacation, well, that might lean towards keeping it as a short-term rental.
2. What are your income goals and cashflow needs from the rental program? If you're seeking steady cashflow coming in every month and it's needed to support your lifestyle or pay the mortgage or other bills, so you can hang onto the property, that's more oriented towards a long-term rental approach.
If rental income is a “nice to have” when you're not using the home, but it's not a “have to have” for you and your family. That's another good reason to keep it as a short-term rental.
Take time to calculate the overall finances factoring in rent rates, gaps in the rental, stays vacancies, the overhead and expenses on both approaches, you'll likely determine that it comes out in the wash as a 50/50 proposition. All things being equal, go long-term unless you fit well into the short-term rental profile.