VACATION RENTAL VS. LONG TERM RENTAL

Update May 27th, 2020

Investing in a property you won’t be living in brings a whole set of factors to consider. With the goal of maximum return, you will be looking at your options from a more financially strategic point of view. Today, the short term rental space is experiencing increasing challenges due to the current market shutdown. Airbnb has reportedly dropped its internal valuation to $26 billion as the coronavirus halts travel worldwide. This brings obvious concerns from investors due to the major slow down in travel and the uncertainty about when the tourism industry will recover.


Nevertheless, there will be opportunities for this industry to start picking back. For instance, since large hotels are closing, this will leave the field open for short term rentals to take some of that market share.


Our recommendation for those Airbnb hosts suffering from the effects of COVID-19 is to look around. For instance, if your rental property is located near hospitals or emergency rooms, you could approach healthcare workers. They may be afraid to go home after being exposed to the virus. These people can rent your property long-term, which can protect your investment while the economy recovers.


It is time to think outside the box and consider taking a lower monthly income. You can turn your property into a long-term rental, which will reduce the risk of not being able to pay the mortgage in the coming months.

So what is the difference between the two options? In this article, we will consider a few factors in the long term and vacation rental options, so that you can make the best decision in terms of ROI and personal preference.

LONG TERM RENTAL FACTORS

Traditionally, long term rental agreements have been a viable option due to the following aspects:


  • Stability

With a long term tenant, you are guaranteed a stable income and don’t need to advertise as much. Under ideal circumstances, you will have your notice period in which to find a new tenant. Rental homes are always in demand and you are almost certain to find a replacement in time.


  • No Utility Headaches

This is so convenient, you may not even have factored this in. A long term tenant will be responsible for utility payments, leaving you with no extra commitments to cover on a regular basis. Normally, all water, sanitation, and electricity supply costs are taken care of without your involvement in any way. It all depends on the contract put in place.


  • Lower Management and Involvement

A longer lease period will require less inspection and ongoing, hands-on management. A good tenant may even take care of minor maintenance and issues, while you choose the frequency of inspecting the property. Remember, you need to keep some cash in hand for major repairs or natural disasters that could happen in the area you invest in.


SHORT TERM RENTAL FACTORS

Companies like Airbnb and Homeaway have made it possible for holidaymakers and frequent travelers to stay in beautiful homes or apartments at lower costs than hotels and holiday resorts. At the same time, property owners have been given a new opportunity to tap into higher rental revenue. This may not be the option at the time, but we need to understand the key factors.


  • Consider your location

According to this list of the best places to buy vacation rental property, “Not all short-term rental markets are created equal”. Their analytics show Orlando, Fl, to be a short term rental investment haven. The information is based on the daily performance of 10 million Airbnb and HomeAway (VRBO) listings across 80,000 markets globally. They rate destinations on factors such as rental demand, revenue growth, seasonality, and regulation. Orlando scores high on all these points.


  • Higher return on investment


It is just a fact that vacation rentals bring in higher rental income than a long'term lease property. What is more, when the season is high, or vacation places are in high demand, you are in a position to raise the price.


  • Finger on the pulse


Because you have a high turnover of tenants, you will have constant updates on the condition of your property. Minor maintenance issues will not be covered, allowing for major concerns.


Platforms like Airbnb allow you to rate your tenant, which results in a smaller likelihood of property damage or misuse. In most cases, you will be able to screen a tenant before allowing them onto your property.


Not being tied down to the same tenant can be a good thing. With even the best screening techniques, life still happens and a poor paying tenant can still slip through the cracks. With a vacation rental, payment is usually collected prior to the stay.


Then, there is the freedom from a long lease. Should you decide to sell, you simply can, without worrying about your tenant and their lease. Or, you could block out times of the year that you would like to use your property for a getaway. You are in full control.


Worried about property management?


Even with the ease that vacation rental platforms bring to the game, property management still needs to happen. Some owners live in a different location, and others are simply not up for constant rental management. Our agents specialize in the short term and vacation rental management, leaving you to enjoy the benefits without the constant hassle of involvement. You can schedule an appointment with us to discuss your expectations.


WHICH PLATFORM TO CHOOSE?

We looked into a few features of available platforms that would matter to a host.


Airbnb

  • Listing a property is free

  • Fees are deducted automatically from bookings, making it hassle-free. These fees are currently set at 3%

  • Airbnb is popular with business or frequent travelers, enduring high traffic from this genre of guests

  • Airbnb has the added advantage of listing popular and noteworthy activities and experiences. It ads a cultural flair and attracts those that would want a different experience to the normal holidaymaker.

  • Allows third-party property management

  • Lists all possibilities, such as rooms or sections of homes


VRBO

  • Listing a property is free

  • Hosts have a choice between an annual subscription of $499 or a per-booking fee of 8%.

  • Known for its listing options in popular tourist destinations, which would ensure the attraction of holidaymakers in a place like Orlando, Fl.

  • Allows third-party property management

  • It only lists unoccupied properties, and not segments of the property, such as rooms or sections.


Booking.com

  • Listing a property is free

  • Fees are deducted from your bookings, making it hassle-free. Fees are set at 15%

  • Hosts have no control over who is accepted - once a booking is made, it is automatically accepted.

  • Collecting payment have been known to be more complicated than with Airbnb and VRBO

  • A very large market with no set type of traveler. This means the property will be highly visible, but hosts won’t know who their guests are

  • This option is not set up to allow third-party property managers

  • Now that you know more about the options and factors involved, you are better able to decide on your rental strategy. Contact our property management specialists for more information on our services.



Now that you know more about the options and factors involved, you are better able to decide on your rental strategy. Contact our real estate consultants for more information on our services.


Blog Produced by 360° SensoMedia


SOURCES:

https://www.fortunebuilders.com/airbnb-vs-renting/?utm_term=article2&utm_medium=email-newsletter&utm_campaign=newsletter&utm_type=button&utm_source=newsletter&utm_content=12192019

https://www.fortunebuilders.com/airbnb-vs-vrbo/

https://www.forbes.com/sites/forbesrealestatecouncil/2019/07/01/what-you-need-to-know-about-long-term-vs-short-term-rentals/#15ff253d3254

https://www.fool.com/millionacres/real-estate-investing/articles/short-term-vs-long-term-rental-properties-which-better-way-invest-real-estate/

Bookings.com

Alltherooms.com

VRBO


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