I’ve helped a dozen homeowners weigh the pros and cons of running a short term vs long term rental. And, believe me, the conversation simmers down to the profitability of the investment. Hi, I’m Cali Bowen – ex-Director of Operations, overseeing all aspects of the business who managed over 130+ properties in the recent past.
I saw both short term rentals (think Airbnb) and more traditional long term rentals bringing income to home-owners. Running an Airbnb can be an experience. A long term rental might be more hands-off. Before you decide, think about the time investment, upfront costs, and liability you are willing to grant.
I’ve learned a lot working in STR market shaped by tightening property regulations, a major pandemic, and fast-changing guest needs and I’ll gladly share those ‘gold nuggets’ of wisdom before you hand over the keys to your first tenant.
Long term rental vs a short term rental: The difference
How short is short term when it comes to renting property? The answer matters, particularly when different rules apply to short term and long term rentals.
Short term rentals and Airbnb
In the United States, a short term rental (STR) is a property rented out for fewer than 30 days at a time (but this number can vary from state to state).
Typically marketed as vacation rentals or listed on platforms like Airbnb – STRs are flexible, safe investments with high income potential.
What is a long term rental?
Long term rentals usually host tenants for six months or more. Typically, a tenancy is at least a year long. For property managers, long term rentals (LTRs) offer more stability – and they tend to be fairly hands-off in terms of management.
Which strategy is best?
I always ask the homeowners and peers what’s important for them: flexibility, involvement, stability, or income. So focus on what’s important to you and where you want to spend your time, money, and effort.
STRs have a reputation for making more money on average – but they also have a reputation for requiring more effort and time investment on the property manager’s part.
However, as Bob Dylan once said, “The Times They Are A-Changin’,” and this seed of wisdom is not irrelevant to the property market. With the availability of services like Superhog, property managers now have access to more efficient ways to screen guests, and can take further steps to prevent costs from damages.
Looking a little closer at what STRs and LTRs involve, here’s our analysis of vacation rental vs long term rental pros and cons – from an investor’s perspective.
Pros of short term rentals
1. Higher income potential
Short term rentals often generate higher income than LTRs, particularly in high-demand locations. This is because they can generally charge much higher nightly rates. Recent analyses have shown that short term rentals can generate up to 2-3 times more income than long term rentals in prime locations.
According to Forbes, some of the top money-making STR hotspots in the US are “vacation areas where the weather is usually warm year-round” – which makes locations like “Tampa, Florida, Kahuku, Hawaii and San Antonio, Texas” ideal. Warm-weather locations are less likely to show ebbs in profits that result from seasonal demand. For a property owner, a rental that can be filled year-round can translate to significant profits.
2. Flexibility for property owners
Want to host your friends or family for a weekend? One of the many benefits of short term rentals is that owners can block off particular dates on their online property listing for personal use – whenever it suits. That means there’s no waiting for a long term tenancy to end before the property is yours to use how you like.
3. Tax benefits
Short term rentals offer specific tax advantages in the US.
The IRS allows property owners to deduct specific costs, which may be related to “mortgage interest, real estate taxes, casualty losses, maintenance, utilities, insurance, and depreciation.”
And on top of these deductions, STRs can also benefit from the 14-day rule. This rule allows homeowners to rent their property for up to 14 days each year without paying federal taxes on their rental income. As long as the total rental period is fewer than 14 days annually, property managers can benefit from tax-free rental income.
4. More comprehensive security options
STRs come with advanced options for screening and vetting guests, which can enhance the security of an investment property.
Third-party platforms like Superhog’s Know Your Guest allow hosts to verify guest details before they stay. A comprehensive screening process helps protect property owners from fraudulent bookings or problematic guests. Additionally, Airbnb allows hosts to implement mandatory ID verification for guests.
With tools like these, hosts can confidently reduce risks, ensuring a safer and more secure rental experience for all parties involved.
Cons of short term rentals
1. Higher operating costs
Though short term rentals tend to yield a higher income, they also come with their fair share of costs. Frequent guest turnover means more regular cleans – and these cleaning fees add up. However, regular cleans and guest turnover can actually help to identify and address maintenance issues promptly – preventing them from turning into larger (and more expensive) problems over time.
While LTRs can often be listed unfurnished, there is an expectation that a property used for a vacation or short term stay will be furnished with all the basics – and more. Coffee, toiletries, and high-speed internet are becoming standard in Airbnbs. Keeping the property well-stocked and sparkly clean is part of what’s expected.
2. Variable demand and low occupancy periods
Fluctuations in demand due to low seasons, economic downturns, or global events can leave STR properties unoccupied for long or short periods – which can do some damage to overall profits. The COVID-19 pandemic’s restrictions to travel led to an unprecedented decline in short term rental bookings – an event that property managers could not have predicted.
3. Local regulations and legal risks
Across the world in Barcelona, the local government recently made the decision to ban short term rentals. The full impact of this ruling is yet to be fully realized – on property managers, tourists, and residents. In New York, new regulations on short term rentals have meant that numerous property managers have had to completely change their strategy. Across the world and in numerous states in the US, local governments have been cracking down on short term rental rules to free up property for long term tenancies. It’s clear that regulations can change at any time – and their results can sometimes be catastrophic for property managers who can’t adapt.
Some short term rental rules in the US require property managers to be living at the property in order to rent it to guests, whereas others limit how many days in the year tenants can stay for. A new STR license may also slow down the process of putting a rental property on the market. It’s important to be aware of current and changing regulations to ensure a successful short term rental business. Take a look at Denver’s Airbnb regulations or San Diego’s short term rental rules to learn more.
4. Increased wear and tear
The more frequent turnover of guests in short term rentals can result in more wear and tear on the property. Appliances, furniture, and other amenities specific to STRs often require regular replacements and repairs.
Pros of long term rentals
1. Predictable and secure income
A significant advantage of long term rentals is that once a lease is signed, a property manager’s income is stable and secure until the end of a tenancy. Reliable monthly payments allow for better financial planning and fewer worries about vacancy gaps.
Since leases usually last six months to a year (or longer), long term rentals offer less risk of vacancy. Even in down markets, long term tenants are less likely to move frequently, ensuring a steady cash flow.
2. Lower management overhead
For many investors, the Airbnb vs long term rental decision comes down to how much management is involved.
With infrequent turnovers, long term rentals typically involve less management than STRs. Regular inspections and cleaning are not necessary, freeing up time for property owners. On the other hand, an Airbnb host might be almost ‘on-call’ – providing anything from restaurant recommendations to luggage storage services to guests. LTR managers can step back and leave communications to a real estate agent.
3. Fewer regulatory hurdles
Unlike the constantly evolving regulations for short term rental properties, long term rentals face fewer legal restrictions in most parts of the US. The laws pertaining to traditional LTRs are typically more stable, offering landlords peace of mind and reducing the risk of unexpected regulatory changes.
Cons of long term rentals
1. Lower earning potential
While long term rentals provide stability, they tend to generate less income than short term rentals. They also don’t benefit from dynamic pricing, which means you won’t earn more in peak periods.
For properties in popular tourist areas, missing out on significant peak-season profits is far from ideal. Locations like Miami or San Francisco usually offer much higher returns for short term vacation rentals during prime travel months, compared to leasing the property long term.
2. Reduced flexibility
When renting long term, owners lose the ability to use the property freely and spontaneously. If you want to use your rental yourself, or have family and friends stay, you’ll have to work around tenancies that are often years long.
3. Risk of problem tenants
Having a problematic tenant can be a costly and time-consuming headache. Evictions can take months in some tenant-friendly states, such as California or New York, during which time property owners may lose rental income while covering court costs. This makes tenant screening and proper background checks crucial.
For STRs, the story is (thankfully) a bit different. Superhog can assist in tenant verification, helping to mitigate risks from problematic tenants and ensure your property stays protected.
Which makes more money: long term or short term rentals?
For property owners focusing purely on profit, short term rentals generally yield higher income than long term rentals, particularly in high-demand areas. According to Statista, short term rentals in prime vacation destinations can outperform traditional rentals by 30-50%.
Long term rentals offer dependable, consistent income with lower management overhead. They are a safer bet for investors seeking stable returns without the additional hassle of frequent tenant turnover or the uncertainty tied to short term booking platforms like Airbnb. However, once you’ve committed to managing an LTR, you’re also saying goodbye to the benefits of dynamic pricing and increased nightly profits.
Conclusion: what’s right for you?
Ultimately, the choice between short term rentals and long term rentals depends on your financial goals, available time, and risk tolerance. If maximizing income in a popular vacation spot is your priority – and you don’t mind the extra back-and-forth with guests – short term rentals could be a better fit. On the other hand, if you prefer a steady stream of income and hands-off management (even if profits aren’t as high), an LTR might be the way to go.
The pros and cons of short term rentals and long term rentals also vary from state to state, due to unique markets and regulations. So make sure to stay on top of what’s happening in your local area before you make your decision.