When you first started to consider investing in rental property, you may have wondered whether you should aim for vacation, short-term, or long-term rentals. According to Airbnb's latest statistics, the website has over 5.6 million active listings with over 150 million people booking vacations through the site. Since the start of the website, over 800 million guests have stayed at a vacation home using Airbnb.
These numbers may sound enticing in terms of making a profit. However, there is a lot that goes into deciding whether or not you should turn your home or recent house purchase into a long-term rental property or an Airbnb.
Let's take a look at some of the differences between the two major forms of rental properties, along with some of their benefits so you can learn which investment track might be right for you.
Benefits of Long-Term Rentals
A huge benefit of long-term rentals is that there's less daily management for the property itself. Once the necessary renovations, home inspections, and tenant screenings have been made, you are able to provide a lease agreement to the tenant and be on your way. It is especially easy when you are working with a property management company that's able to handle many of these logistics for you.
Long-term rentals also provide another benefit, being that there's less of a gamble when it comes to your investment. When a tenant signs a lease agreement for at least a year, you are guaranteeing that they will pay rent to you every single month throughout the duration of the lease.
That is unless the renter is unable to pay due to unexpected events, like many landlords experienced during the COVID-19 global pandemic. On the flip side, you can not always guarantee that you will find a guest to stay at your vacation home through Airbnb.
There are more than likely durations of time where there could be vacancies which you would have to take into account for your monthly expenses. Unless your Airbnb property is in a location that is in high demand or in a thriving tourist market, you can't always be promised to have your property booked every single day of the year. You will want to do the necessary research in the housing and rental market within your property's area to get a better understanding of what could work best for your specific needs.
Benefits of Airbnb
One thing that many people don't realize is that Airbnb offers short-term rentals directly from their site. Guests who are looking to book for a week, month, or multiple months can book a short-term stay through their website. Oftentimes, guests who book longer-term stays receive a discount provided by the host.
Airbnb is also incredibly flexible with its pricing. You have the ability to alter the price of dates depending on whether or not a guest is staying over a holiday or during the weekend. With a long-term lease, you are committed to the price for the duration of the lease agreement.
You can absolutely raise the rent every year with proper notice provided to the tenant so they have the ability to decide whether or not they would want to stay at your property for another lease agreement. But that is about as flexible as pricing can get with a long-term rental.
In Conclusion
Whether you are looking for a smart retirement income strategy or are in need of extra cash flow to support your family, there's absolutely an opportunity for you to invest in rental property. But if you were to ask someone whether or not you should choose to make your rental property an Airbnb or set it up for a long-term renter, you would get substantially different answers.
Your best bet is to speak with a professional broker or lender, along with a property management company to do a proper market analysis of the area you are looking to buy.