Real estate investors who are considering entering the rental property business may find themselves asking whether long-term or short-term rental is the better strategy. Before getting into details, it’s important to note that the difference between long-term and short-term rentals is distinguished by time, not by property type. 

Long-term rentals are generally rented to a tenant with a 12-month lease term at a fixed annual rent. Short-term rentals, on the other hand, are typically rented on a daily, weekly, or monthly basis. 

Both strategies have their advantages and disadvantages. In this article, we’ll go over the pros and cons of each to help you decide which one is best for you.

Pros and Cons of Long-Term Rentals

Benefits of Long-Term Rentals

Long-term rentals are viewed as more stable and consistent investments, and for good reason. Take a look at some of the benefits long-term rentals provide:

  • Consistent cash flow
  • Utility bills paid
  • Cheaper management

Consistent Cash Flow

Because a longer-term tenant pays a consistent rental fee on a weekly or monthly basis, landlords can count on more consistent cash flow, when compared to the fluctuations of a short-term rental.

Utility Bills Paid

Utility bills can be passed on to tenants occupying your long-term rentals for a month or longer. This can create significant cost savings in certain seasons, such as during the summer or winter.

Cheaper Management

Long-term rentals require less effort to fill occupancies, so the property management fees will be much lower than those of short-term rentals. Fewer tenants throughout the year result in fewer management requests, saving money for long-term rental owners in the long run.

Disadvantages of Long-Term Rentals

Investors have consistently favored long-term rentals for their passive income potential. However, there are always cons to think about before purchasing a rental property. Here are some factors to consider before buying a long-term rental property:

  • Lower profit margins
  • Finding the right tenant
  • Landlord regulations

Lower Profit Margins

Generally, long-term units tend to have lower profit margins, making them an excellent source of passive income. However, in popular vacation destinations, such as the Emerald Coast, they may not generate the same income as a short-term rental.

Find the Right Tenant

A typical lease term is one year when looking at long-term rentals. This makes it highly important that you find the right tenants for your property. Make sure you review tenant applications for previous evictions or any red flags noted by past landlords.

Landlord Regulations

As a property owner, there are certain laws and regulations you must follow to rent out a property. Many states, including Florida, have laws requiring landlords to give advance notice before entering a property, even for maintenance purposes. There are also laws regulating the application and eviction processes. It is crucial to understand your area’s regulations before renting out a property to avoid any potential legal issues.

Pros and Cons of Short-Term Rentals

Benefits of Short-Term Rentals

Short-term rentals give their owners flexibility and greater control over their property and many other benefits. Take a look at some of the main advantages that short-term rentals offer their owners. 

  • More overall rental income
  • Less wear and tear
  • Easier maintenance
  • Flexibility with price adjustments

More Overall Rental Income

Owners are typically able to charge a higher nightly rate for short-term rentals, compared to long-term vacation rentals. Although occupancy can fluctuate, making rental income less consistent, short-term rentals tend to provide more rental income long term.

Less Wear and Tear

Short-term rentals tend to be occupied around weekends and busy tourism seasons, but not throughout the entire year. Because of this, it tends to take relatively longer to build up noticeable wear and tear on the property.

Easier Maintenance

Similar to the less frequent wear and tear of short-term rentals, these properties are often easier to maintain. Short-term rentals are cleaned and prepared for new occupants more regularly, which translates to better-maintained properties.

Price Adjustments

Short-term rentals offer their owners the ability to adjust the price of rent more often than owners of long-term rentals can. Short-term rental owners can change the price of rent in between occupants as they see fit. If there is a higher demand for their rental in the summer season, they can raise their rent and produce more income.

Disadvantages of Short-Term Rentals

Short-term rentals can provide owners with several benefits, including profit potential and personal use, but there are a few cons to consider before adopting this investment strategy. Short-term rental owners may run into the following challenges:

  • Competitive markets
  • Maintenance and repairs
  • Property management

Competitive Markets

Short-term rentals often operate in competitive real estate markets to minimize vacancies and maximize profits. However, you will be competing with other rental owners and even hotels in the area. This means you need to think about what gives your property an edge and market it appropriately to travelers.

Maintenance and Repairs

Unfortunately, renting out your property to new tenants each week could result in increased wear and tear. You may have to complete more maintenance than normal to keep the property clean and well taken care of when operating it as a short-term rental. This can increase your overall operating costs.

Property Management

Short-term rentals inherently require more involvement in terms of property management for things such as, coordinating guest check-ins, cleaners, and maintenance workers. If you do not live in the area, this can require a lot of planning. While there are many qualified property managers out there that can help with this responsibility, this will be an additional cost to consider.

Like most investment decisions, there’s no perfect answer for everyone. It all depends on how much income consistency you want, how much time you want to spend on your investments, and how you feel about the other benefits and drawbacks of each type of rental property. Choosing between a short-term or long-term vacation rental strategy can be tricky, but ultimately the choice is yours to make.