Your choice to pick long-term rental property leases or short-term ones will have huge implications for your rental business. Your selection can shape your income for years to come. In this article, we’ll break down the pros and cons of each type so you can make a more informed decision.
Main Takeaways
- In terms of the long-term rental vs. short-term rental debate, each has its pluses and minuses. Long-term rental property leases let you maintain a steady income, but they can limit your ability to raise the rent at will. On the other hand, short-term rental leases let you raise the rent during peak times, but that rent can be much more inconsistent.
What is a Long-Term Rental vs. Short-Term Rental?
Our Northern Virginia property managers know that what separates a long-term rental vs. a short-term rental is the lease length, level of tenant screening, and furnishment.
As the name implies, a long-term rental property lease agreement typically lasts 12-24 months. Here, landlords emphasize thorough tenant screening because tenants will be using the property for so long. Also, they’ll make it their own home, so there’s no need to add furnishings. Additionally, since the tenant will be using the property for a while, tenants emphasize thorough tenant screening.
On the contrary, short-term rental leases usually go by the day or week. Tenant screening isn’t as extensive because they stay so briefly. Moreover, these properties are often used for vacations. Their appeal is that they’re a home away from home, so landlords normally furnish them.
Pros of a Long-Term Rental Property Lease Agreement
- Steady, Stable Income: A long-term rental property lease agreement lets you earn a steady income throughout the years. This means you can plan out your finances more clearly. It could even accelerate your retirement. All in all, it provides more security.
- Fewer Vacancy Expenses: On a related note, a long-term rental property lease doesn’t just give you more steady money. It saves you money. The consistent cash flow better covers your property maintenance expenses. After all, even when your units are just sitting empty, you still have to maintain them. That means you’re putting your own money down the drain with no ROI. Needless to say, you want to avoid this outcome as much as possible, and long-term leases help you achieve that.
- Fewer “New Tenant” Expenses: With less turnover, you also can spend less money on marketing and preparing the property for new tenants. In addition, you don’t have to go through the tenant screening process as much.
- Opportunities for Fostering Customer Loyalty: As tenants stay throughout the years, you have more time to develop a rapport with them. This fosters trust. Furthermore, you can provide incentives and property improvements that encourage tenants to stay even longer.
Cons of Long-Term Lease Agreements
- Less Room to Raise Rental Rates: Unless your lease agreement and local laws permit it, you cannot change rental rates in the middle of a long-term lease. Even if changing it is possible, it might be a bad idea. Long-term lease tenants rely on consistency. Your property is their home, so they expect the same amenities, rates, and other features as a constant of daily life. As such, they may go elsewhere once their lease is over.
- Risk of Unpaid Rent or Lease Violations: As time passes, tenants could experience unexpected hardships. Unfortunately, these hardships could affect you in the form of unpaid rent. On the other hand, a tenant could end up being irresponsible and violate their lease. If you don’t choose your tenants carefully, they could cause significant financial and legal trouble.
- Less Usage Flexibility: You can’t use a long-term rental property for yourself, renovate it, or sell it if tenants are occupying it. So, you have to understand that long-term leases limit your options.
Pros of Short-Term Rental Leases
- Ability to Offer Better Rental Rates: Tenants are typically more willing to pay higher rates for short-term rental leases than they are for long-term rental property leases.
- More Ability to Raise Rental Rates: Different times of the year bring on different levels of rental demand. For example, one of the prime times tenants want short-term rental leases is the holidays. Since tenants don’t keep your rental occupied for long, you can strategically make it available for these periods. Then, you can raise the rent to reflect that demand.
- You Can Use the Rental Yourself: With short-term rental leases, you can fit in time to use your rental yourself. You can use it as your own personal vacation home and profit from it at the same time.
- Reduced Risk of Unpaid Rent and Evictions: Short-term tenants come and go from your property so fast that there’s less time for problems to start brewing. Also, they usually use secure online platforms to pay rent ahead of time. Because of that, it’s less likely you’ll deal with problems like unpaid rent or evictions.
Cons of Short-Term Rentals
- Less Background Checking: Many sites that list short-term rentals for tenants, like Airbnb, don’t have the most robust tenant screening measures. You certainly can’t comb through their background for red flags as thoroughly as you could in a long-term rental. With long-term rentals, you can oversee tenant screening yourself, to your standards.
- Income Can Be Inconsistent: As we said before, short-term rental leases can have different levels of demand during different times of the year. While this means you can make bigger profits during those times, it also means other periods may be quieter for business. In turn, your income may fluctuate wildly throughout the year.
- More Maintenance: Because you can get new tenants more often, you will also have to prepare the property for their arrival more. This includes cleaning the property, getting supplies ready, monitoring online inquiries, fixing surprise structural issues before the next guest comes, and other extra work.
- Emerging Regulations: As the short-term rental industry develops, regulations are catching up with it. You never know when any of these regulations may hit a stag in your business. So, it’s critical to stay alert for current and incoming regulations on the local and federal levels.
Set Your Rental Business for Success with PPM Northern Virginia
The long-term rental vs. short-term rental debate can be boiled down to a few points. Short-term rental leases give you flexibility. They let you offer higher rates at high-demand times or use the property for yourself. Still, they also could give you inconsistent income during quiet business times. Conversely, long-term rental property leases can give you more consistent income, but they also can give you less ability to raise the rent as you’d like. There is no one correct type for everyone. It really depends on your unique investment goals, lifestyle, and needs.
However, if you need help deciding, we can support you. Our property management company has over a decade of experience in the rental industry. To give you a glimpse, our reach expands all the way from Georgia to Boston. That’s why we can strategize your game plan for success in every market, for every kind of tenant.
What’s more, we can take over the day-to-day burdens of running a rental business on your behalf, such as:
- Repairs
- Property maintenance
- Legal compliance
- Lease renewals
- Accounting
- Inspections
- Rent collection
So, contact us today to maximize your profit potential!