How do you know if Long-Term or Short-Term is Better for Your Property Investment?

To determine if long-term or short-term rentals make the most sense for an investment property, compare expected return on investment models factoring market rates, achievable occupancy, regulations, and costs associated with each option.

❗The main differentiator comes down to long-term rentals providing more predictable and stable income through consistent tenancy, while short-term allows for potentially much higher but more variable returns.

❗For example, long-term rental income may only amount to $1,500 per month.

✅However, if leveraged properly as a short-term rental targeting high-traffic weekends and events, the unit could earn $200-300+ per night after fees and taxes, exceeding the long-term model.

✅But short-term requires more effort, flexibility to enable self check-in, and marketing to maintain higher occupancy.

✅Other factors to weigh include nearby competition levels, municipal restrictions that tightly regulate home sharing rentals, and capital costs to furnish for transient guests vs basic fixtures for long-term tenants.

Estimating total ROIs based on realistic KPIs for both options considering the location market can reveal if superior returns of short-term warrant the higher management needs or if consistent long-term rents make most sense.

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George Nicola

George is a seasoned interior designer and property marketing strategist with over 13 years of experience. He specializes in transforming properties into visually stunning spaces, helping clients recognize the potential and beauty in each property. With an impressive international client base of exciting projects throughout Europe and America.

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TL;DR When to invest in short-term (STR) and when in long-term rentals?

Invest in STRs when:

  • The property is in a popular, high-demand tourist destination
  • Higher nightly rental rates can exceed long-term income potential
  • There is flexibility to enable frequent guest turnovers and self check-ins
  • Additional capital is available to finance attractive furnishings/updates

Invest in long-term when:

  • The property has an appealing location for consistent tenant demand
  • Lower maintenance costs and turnover efforts are priorities
  • Steady base income levels are favorable even if lower ceiling
  • Local regulations heavily restrict short-term licensing/operations

The core tradeoff is between maximizing total return potential from higher transient rates versus minimizing effort through stable long-term tenants. Locations drawing travelers enabling higher nightly STR pricing tend to offer the best ROI upside if operated legally and managed efficiently. 

Less touristy areas may yield better landlord outcomes sticking to annual leases despite more work.

Long-term vs Short-term Rentals

When it comes to renting out a property, property owners have two primary options: short-term rentals and long-term rentals. 

Each option has its own set of advantages and disadvantages, and deciding which one is better depends on several factors. In this article, we will explore the differences between short-term and long-term rentals, and help property owners make an informed decision based on their goals and needs.

Two businessmen shaking hands in front of a house, discussing potential long term rental.
Two businessmen shaking hands in front of a house, discussing potential long term rental.

Short-term rentals are typically rented out for a few days to a few weeks, and are popular among vacationers and business travelers. They offer higher income during peak seasons, and the flexibility to align nightly rates with demand. 

However, short-term rentals require more maintenance and management, as guests come and go frequently. Additionally, there may be legal restrictions on short-term rentals in certain areas, and property owners may have to obtain special permits or licenses.

Long-term rentals, on the other hand, are typically rented out for several months or years and are popular among families and individuals looking for a permanent housing solution. They offer a more stable income, as tenants are usually committed to staying for a longer period of time. Long-term rentals also require less maintenance and management, as tenants are responsible for basic maintenance and repairs.

However, long-term rentals may not generate as much income as short-term rentals, and property owners may have to deal with tenant turnover and vacancy periods.

Short term vs long term vs rent hacking

Short-Term Rentals

  • What it is: Renting your property for short periods (nights, weeks) often through platforms like Airbnb or Vrbo.
  • Pros: Potential for higher income, flexibility to use the property yourself, quick turnover to address issues.
  • Cons: More management-intensive, income can be less predictable, potential for stricter regulations.
  • Best for: Locations with high tourist demand, owners seeking flexible income and control over the property.

Long-Term Rentals

  • What it is: Renting your property to tenants on leases (typically 6-12 months or longer).
  • Pros: Stable income, lower management burden, potential for established tenant rights depending on location.
  • Cons: Less income flexibility, can be harder to remove problem tenants, potential for vacancies between leases.
  • Best for: Areas with strong renter demand, landlords favoring a more passive investment approach.

Rent Hacking

  • What it is: A strategy where you rent a property and then sublet rooms or portions of it to cover your own rent or even generate profit.
  • Pros: Can drastically reduce or eliminate your housing costs, potential for additional income.
  • Cons: Requires careful tenant selection, potential legal or landlord restrictions, can be more management-intensive.
  • Best for: Those in high-cost-of-living areas, people comfortable with shared living situations, and those willing to navigate potential legal complexities.

The best approach depends on factors like capital, location, risk tolerance, and desired effort levels. Short-term rentals offer higher potential profits but require more work. Long-term rentals are more passive but limit income growth. Rent hacking enables earning rental income without owning the property.

The Bottom Line: There’s no single “best” option. The ideal choice depends on:

  • Your Goals: Prioritize income, flexibility, or minimizing your own housing costs?
  • Local Market: Tourist hotspot vs. strong renter demand?
  • Regulations: Are STRs restricted? Are sublets allowed in your area?
  • Your Skills & Tolerance: Are you comfortable with frequent guest turnover or managing multiple roommates?

Long-term vs Short-term Rentals Examples

At TALLBOX we determined 9 most common rental types and their typical characteristics:

  • Short-term rentals: Renting a property for short stays, typically nights or weeks. Examples include vacation rentals, apartments, and houses. They are often used by tourists, business travelers, and people on temporary assignments.
  • Monthly rentals: Renting a property for a month or longer. They are typically used by people who are relocating to a new area or who need a place to stay for a few months.
  • Furnished rentals: Rentals that come with furniture and other essentials, such as dishes and linens. They are a good option for people who do not want to bring their own furniture or who need a place to stay for a short period of time.
  • Unfurnished rentals: Rentals that do not come with furniture. They are typically cheaper than furnished rentals, but tenants will need to bring their own furniture or rent it from a furniture rental company.
  • Pet-friendly rentals: Rentals that allow pets.
  • Vacation rentals: Rentals in popular tourist destinations that are typically rented out for short periods of time.
  • Corporate housing: Furnished rentals that are specifically designed for business travelers.
  • Service apartments: Furnished apartments that offer hotel-like amenities, such as housekeeping and laundry service.
  • Rent to rent: A strategy where someone rents a property and then sublets it out to others in order to make a profit.

Defining Long-Term and Short-Term Rentals

When it comes to becoming a landlord and renting out a property, there are two main options: long-term rentals and short-term rentals. Long-term rentals typically refer to leases that last for a year or longer, while short-term rentals are typically rented out for a few days to a few weeks at a time.

Long-term rentals are often preferred by tenants who are looking for a stable, consistent living situation. They are also preferred by landlords who are looking for a steady, reliable source of income. Long-term rental agreements usually involve a lease that outlines the terms and conditions of the rental, including the monthly rent, security deposit, and any other fees or charges that may apply.

Short-term rentals, on the other hand, are often used by travelers who are looking for a place to stay for a few days or weeks. These types of rentals are often found on vacation rental websites such as Airbnb or VRBO. Short-term rental agreements are typically much less formal than long-term rental agreements and may not involve a lease. Instead, they may involve a rental agreement that outlines the terms and conditions of the rental, including the nightly rate, cleaning fee, and any other charges that may apply.

It is important to note that there are some key differences between long-term and short-term rentals, including the level of income potential, the amount of maintenance required, and the level of risk involved.

These differences should be carefully considered when deciding which type of rental property to invest in.

Investment Considerations

When deciding between long-term and short-term rentals, there are several investment considerations to take into account. Here are some of the most important factors to consider:

Rental Profitability

Short-term rentals may generate higher profits compared to long-term rentals.

According to TALLBOX, a short-term rental property may generate 2 to 2.3 times the amount of monthly rent at 80% occupancy in a 30-day period compared to a long-term rental. However, this may vary depending on the local market demand and conditions.

Here are key factors to analyze to recognize if a local rental property market has higher demand potential for short-term or long-term rentals:

To gauge short-term rental demand:

  • Research vacancy rates on platforms like Airbnb to assess existing supply/demand balance
  • Look at tourism market data—is it a popular destination or emerging hot spot? High search volumes?
  • Identify major events, attractions, corporations that drive visits
  • Search trends for comparable higher priced hotels that travelers could substitute for a rental
  • Evaluate the location’s walkability, safety, access to amenities that travelers value

To gauge long-term rental demand:

  • Study current apartment vacancy rates and average days on market
  • Research rent growth trends signaling tenant demand is outstripping supply
  • Identify major local employers, education centers or economies fueling housing needs
  • Assess infrastructure like public transit supporting commuters and working professionals
  • Look for signs of heavy investment into residential/mixed-use developments

Comparing indicators of transient guests versus steady tenants can reveal if a market and specific property is better positioned to capitalize on short or long-term housing demand, guiding optimal rental strategy. This demand analysis is key for maximizing returns.

Rental Cash Flow

Cash flow is another important factor to consider when investing in rental properties. Short-term rentals may provide higher cash flow due to the higher rental rates.

Long-term rentals may provide more stable cash flow since there is less tenant turnover and fewer expenses associated with marketing and cleaning the property.

According to Rentometer, property management fees for long-term rentals typically range between 8-10% per month.

Appreciation Potential

Appreciation potential is the potential increase in the property’s value over time.

Long-term rentals may have higher appreciation potential since they are typically located in established neighborhoods with stable property values. Short-term rentals may have lower appreciation potential since they are often located in tourist areas that may experience fluctuations in demand and property values.

Rental Risk Factors

Both long-term and short-term rentals come with their own set of risks. Short-term rentals may experience fluctuations in occupancy rates depending on seasonal demand, local events, or tourism trends. On the other hand, long-term rentals may come with the risk of having a tenant who does not pay rent or damages the property. It is important to assess the risks associated with each type of rental and have a plan in place to mitigate those risks.

The decision between long-term and short-term rentals depends on the investor’s goals, risk tolerance, and local market conditions. It is important to carefully consider all investment considerations before making a decision.

3 books on long-term real estate investing

bedroom furniture for rental
bedroom furniture for rental

Short-Term Rental Furnishing

Focus on Aesthetics:

  • First impressions are key with STRs. Aim for stylish and inviting decor that stands out in listing photos.
  • Consider a cohesive theme or style to create a memorable guest experience.

Functionality & Comfort:

  • Offer comfortable furniture arranged to maximize the perceived space of the rental.
  • Provide all the essential items guests expect: beds, linens, towels, kitchen basics, etc.

Durability:

  • Opt for sturdy furniture that can withstand frequent guest turnover.
  • Choose easy-to-clean fabrics and surfaces for a low-maintenance rental.

Little Extras:

  • Small touches like fresh flowers, local artwork, or welcome baskets elevate the guest experience.
living furniture for rental
living furniture for rental

Long-Term Rental Furnishing

Prioritize Neutrality:

  • Stick with neutral colors and simple designs, appealing to various renter tastes and styles.
  • This lets tenants personalize the space and feel more at home.

Emphasize Essentials:

  • Focus on providing the core furnishings renters need: beds, basic seating, dining table if applicable, and major appliances.

Consider Durability:

  • Choose long-lasting furniture as renters will likely use it for extended periods.

Minimize Clutter

  • Keep the space uncluttered for showings and to let tenants make the space their own.

Additional Tips

  • Budget: Set clear budgets for both STR and LTR furnishings. STRs might justify slightly higher spending for appeal.
  • Local Regulations: Check for specific furnishing requirements for either rental type in your area.
  • Target Market: Tailor your furnishing choices to your ideal guest (luxury STR vs. a student-friendly LTR).

Remember, the goal with STRs is to create a ‘wow’ factor that attracts guests, while LTRs should provide a clean and functional base for a long-term tenant to make their own.

How to furnish short-term vs long-term rental?

  • An excellent guide for both beginners and experienced investors.
  • Provides a strong foundation on how to find, evaluate, finance, and manage rental properties for long-term income.
  • Covers strategies like BRRRR (Buy, Rehab, Rent, Refinance, Repeat).

  • Focuses on building a substantial real estate portfolio for long-term wealth generation.
  • Outlines strategies for finding undervalued properties, building a successful team, and scaling investments.
  • Written by the founder of Keller Williams Realty, offering insight from a seasoned industry leader.

  • While not exclusively focused on real estate, this book offers a powerful shift in mindset about wealth building and investing.
  • Emphasizes the importance of assets (like rental properties) that generate passive income.
  • A great starting point for those new to the concept of financial independence through real estate.

Rental Market Demand Dynamics

The market demand for long-term and short-term rentals varies based on several factors, including seasonality effects, location dependency, and demographic trends.

Seasonality Effects

Short-term rentals tend to be more popular during peak travel seasons, such as summer or holidays, while long-term rentals are in demand throughout the year. This is because short-term rentals are often used for vacations or business trips, while long-term rentals are used for more permanent housing solutions. Property owners should consider the seasonality effects when deciding whether to invest in long-term or short-term rentals.

Location Dependency

The demand for long-term and short-term rentals also varies depending on the location. For example, short-term rentals may be more popular in tourist destinations, while long-term rentals may be more popular in urban areas. Property owners should research the local market demand before investing in a rental property to determine the best rental strategy.

Demographic Trends

Demographic trends can also impact the demand for long-term and short-term rentals. For example, younger generations may prefer short-term rentals due to the flexibility and convenience they offer, while older generations may prefer long-term rentals for stability and security. Property owners should consider the demographic trends in their target market when deciding on a rental strategy.

The market demand for long-term and short-term rentals is influenced by several factors, and property owners should carefully consider these factors before making investment decisions.

Operational Aspects

When it comes to operational aspects, there are key differences between long-term and short-term rentals that landlords need to consider.

Maintenance and Upkeep

Short-term rentals require more maintenance and upkeep due to the high turnover rate of tenants. Cleaning and restocking supplies after each guest leaves can be time-consuming and costly. Landlords need to ensure that the property is in top condition before each new guest arrives, which can be challenging.

On the other hand, long-term rentals require less maintenance and upkeep. Tenants are responsible for keeping the property clean and in good condition. However, landlords should still conduct regular inspections to ensure that the property is being maintained properly.

Tenant Turnover

Short-term rentals have a higher turnover rate than long-term rentals. This means that landlords need to spend more time and money on advertising and finding new tenants. Additionally, landlords need to ensure that the property is ready for new guests each time someone checks out.

Long-term rentals have a lower turnover rate, which means that landlords can enjoy a more stable income stream. However, landlords need to be prepared for the possibility of longer vacancies between tenants.

Management Requirements

Short-term rentals require more management than long-term rentals. Landlords need to be available 24/7 to handle guest inquiries, check-ins, and emergencies. Additionally, landlords need to manage the cleaning and maintenance of the property after each guest leaves.

Long-term rentals require less management, as tenants typically stay for longer periods of time. However, landlords still need to be available to handle tenant inquiries and emergencies. Additionally, landlords need to conduct regular inspections to ensure that the property is being maintained properly.

Landlords need to carefully consider the operational aspects of both long-term and short-term rentals before deciding which one is right for them. While short-term rentals offer higher income potential, they also require more maintenance, turnover, and management. Long-term rentals offer a more stable income stream, but landlords need to be prepared for longer vacancies and less management requirements.

Legal and Regulatory Environment

When it comes to renting out a property, both short-term and long-term rental options come with their own legal and regulatory requirements. It is important to be aware of these requirements before deciding which option to pursue.

Zoning Laws and Regulations

Zoning laws and regulations are put in place to govern the use of land in a particular area. In many cases, zoning regulations can impact the ability to rent out a property on a short-term basis. For example, some cities may prohibit short-term rentals in residential areas, while others may require a special permit or license.

Long-term rentals, on the other hand, are typically subject to fewer zoning restrictions. This is because long-term rentals are generally viewed as a more stable and consistent use of the property.

Tax Implications

Another important consideration when choosing between short-term and long-term rentals is the tax implications. Short-term rentals are subject to a variety of taxes, including occupancy taxes and sales taxes. These taxes can vary by location, so it is important to research the specific requirements in your area.

Long-term rentals are also subject to taxes, but the tax structure is generally more straightforward. In most cases, landlords are responsible for paying property taxes and income taxes on the rental income they receive.

It is important to note that tax laws and regulations are subject to change, so it is important to stay up-to-date on the latest requirements in your area.

Overall, both short-term and long-term rentals come with their own legal and regulatory requirements. It is important to carefully consider these requirements before deciding which option to pursue.

Financial Incentives and Drawbacks

Long-term and short-term rentals offer different financial incentives and drawbacks. Here are some of the most important ones:

Tax Benefits

Long-term rentals can provide significant tax benefits. The IRS allows landlords to deduct expenses related to their rental property, including mortgage interest, property taxes, and depreciation. Depreciation is a non-cash expense that reflects the wear and tear of a property over time. It can significantly reduce a landlord’s taxable income.

Short-term rentals also offer tax benefits, but they are different. According to Trout CPA, short-term vacation rentals can be classified as businesses, which means landlords can deduct expenses such as cleaning fees, advertising expenses, and insurance. However, short-term rentals are subject to a different set of tax rules than long-term rentals, and the tax benefits may not be as significant.

Financing Options

Financing a rental property is an important consideration for any landlord. Long-term rentals are generally easier to finance than short-term rentals. Because long-term rentals provide a more stable income stream, lenders are more willing to offer favorable loan terms. Landlords can usually obtain a conventional mortgage with a lower interest rate and a longer repayment period.

Short-term rentals, on the other hand, are riskier for lenders. They are subject to more volatility and uncertainty, and the income stream may be less predictable. As a result, lenders may require a higher down payment, a higher interest rate, and a shorter repayment period. Landlords may also need to obtain a commercial loan instead of a conventional mortgage.

Both long-term and short-term rentals offer financial incentives and drawbacks. Long-term rentals provide tax benefits and are easier to finance, while short-term rentals offer different tax benefits and may be more difficult to finance. Landlords should carefully consider their financial goals and circumstances before deciding which type of rental property to invest in.

Personal Goals and Lifestyle

When deciding between long-term and short-term rentals, personal goals and lifestyle are important factors to consider. Here are some aspects to keep in mind:

Flexibility

Short-term rentals offer more flexibility than long-term rentals. Renters can choose to stay for as little as one night or as long as a few weeks, depending on their needs. This is ideal for those who have unpredictable schedules or who want to travel frequently. Short-term rentals also allow property owners to adjust their rental rates based on demand, which can be beneficial for maximizing income.

On the other hand, long-term rentals require a commitment of at least several months, which may not be suitable for everyone. However, long-term rentals offer more stability and predictability. Renters can settle into a routine and not have to worry about finding new accommodations every few days or weeks. Property owners can also rely on a steady stream of income, without having to constantly market their property.

Long-Term Commitment

Long-term rentals require a longer commitment than short-term rentals. Renters typically sign a lease for six months to a year, sometimes longer. This can be advantageous for those who want to establish roots in a community or who need a stable living situation for an extended period of time. Long-term rentals also offer more opportunities to personalize the space, such as painting or hanging pictures.

However, long-term rentals can also be limiting. Renters may find themselves stuck in a lease that no longer suits their needs or wants. Property owners may also be locked into a lease with a problematic tenant. In contrast, short-term rentals provide more flexibility to adjust to changing circumstances, such as a sudden job transfer or a desire to travel.

Personal goals and lifestyle should be carefully considered when deciding between long-term and short-term rentals. Both options have their advantages and disadvantages, and the decision ultimately depends on individual preferences and circumstances.

Conclusion

In conclusion, the decision between long-term and short-term rentals largely depends on individual circumstances, financial goals, and personal preferences. As discussed earlier, short-term rentals offer higher income during the peak season, while long-term rentals offer a much more stable income whether it’s peak season or off-peak season.

✅One important factor to consider is the level of involvement required from the property owner. Short-term rentals typically require more attention from the owner, as they need to constantly manage bookings, handle check-ins and check-outs, and ensure the property is clean and ready for the next guest. 

✅On the other hand, long-term rentals require less involvement from the owner, as tenants are responsible for maintaining the property and paying for utilities and other expenses.

✅Another factor to consider is the level of risk involved. Short-term rentals are often riskier, as they are subject to market fluctuations, cancellations, and damage caused by guests. Long-term rentals, on the other hand, offer more stability and predictability, as tenants are usually required to sign a lease and provide a security deposit.

👌Ultimately, the decision between long-term and short-term rentals depends on the owner’s goals and priorities. 

Owners who prioritize stable income and minimal involvement may prefer long-term rentals, while those who prioritize higher income and don’t mind more involvement may prefer short-term rentals. It is important for owners to carefully consider their options and weigh the pros and cons before making a decision.