Purchasing a property and renting it out is a great way to make passive income while also building equity in the property. Before you list your rental property on the market you will want to decide whether you are going to turn the property into a long-term or a short-term rental. Both of these options do have the ability to be successful but it is good to know the differences between the two and what would work best for your personal business style and ability.
The difference between long-term rentals and short-term rentals
A short-term rental is a property that provides accommodations for guests looking to stay for less than one month at a time. Most often this type of property is referred to as a vacation house rental. The short-term rental market has seen large amounts of growth in the past decade, especially in the Coachella Valley area. But there have also been new regulations put in place to help keep a balance in the market and continue to provide a pleasant living atmosphere for locals.
Long-term rentals are properties that are focused on tenants wanting to stay for an extended period of time most often longer than six months. There are some vacation rentals that can still fall under the long-term rental category. In most cases however long-term renters are looking for housing and the standard lease agreement for a long-term rental is about 12 months.
The benefits of running a short-term rental
Short-term rental properties can generate lucrative income, especially in hotspots like Palm Springs. Especially if your vacation rental is well loved and always occupied. If you own a vacation property in a highly desirable spot it can generate even higher rental prices.
With a short-term rental, you are also able to utilize the property yourself as the property owner. You can decide to make blackout dates for the property where you are only able to use it or you can decide to take a quick vacation during a slow season when there are no reservations.
Short-term rentals limit a lot of the risks of being a landlord. For example, it is more likely that a tenant will not pay rent or will cause damage to a property when renting it out long-term. It is also more likely for them to ignore small issues that turn into big ones on the property.
The benefits of long-term rentals
There is less demand for your time with a long-term rental. Being a landlord for any type of property does demand your time unless you decide to hire property management, but a long-term rental will demand much less time as compared to a short-term or vacation rental.
With a long-term rental you can have a tenant sign a lease agreement for a solid block of time this allows you to better predict how much income you will generate on your rental property. To further maximize occupancy and rental income, consider leveraging platforms like Diggz to offer rooms for rent. This approach can attract a wider range of tenants and allows for flexibility in lease durations, often leading to higher earnings than renting out the entire property.
Long-term rentals rarely ever run into issues where they are impacting the happiness of other property owners surrounding the rental. Short-term vacation rentals can often cause some disappointment when vacationing guests can forget that they are in a residential neighborhood while they are having a good time on their trip.
How to determine what type of rental is best for you
There’s no easy cut-and-dry answer to which type of rental is ultimately better. The type of rental that you should choose for your investment property really depends on your personal preferences and ability to give attention to the property. And you may find that you just naturally gravitate or prefer one business model over the other.
Before deciding which type of rental you should offer on your property make sure that you are gleaning advice from real estate professionals about the property itself including the neighborhood, the type of home, etc.
Some properties may be excellent choices for short-term vacation rentals while others might have characteristics and attributes or be in a location that is much more suited to long-term rental.
For more information on owning a home and short term rentals, contact your local real estate agent.
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