Short-Term vs. Long-Term Rentals

Which is the Best Option for Your Second Home?

If you own a second home, chances are you’ve considered renting it as a way to earn extra income. But with that thought comes a lot of questions – first and foremost is whether to rent it on a short-term basis or on a long-term basis. Each option provides its own unique benefits. As leaders in the short-term rental industry, we at SkyRun have a strong belief that short-term rentals provide the most positives. However, we also want our homeowners to fully explore all their options, which is why we’ve put together a complete guide to help you understand the differences between the two. Our goal is always to help homeowners make the best decisions for their properties.

Short-Term vs. Long-Term: What’s the Difference?

Short-Term Rentals

Short-term rentals are the type of the rentals that you see listed on popular online booking channels – think Airbnb, Vrbo, and the like. These types of rentals are also referred to as vacation rentals, as they are often used by vacationers and other travelers who are only planning to stay in the destination on a temporary basis. Most short-term rentals are:

• Typically occupied on a nightly, weekly, or monthly basis
• Located in top vacation destinations – these are the types of markets that have the most demand
• Commonly used for tourism and temporary work assignments

Long-Term Rentals

Long-term rentals are exactly what the name implies – rentals that are occupied on a longer term. This type of rental is usually occupied by permanent residents of the city, rather than by visitors or tourists. Long-term rentals are:

• Typically occupied for 6 to 12 months at a time (or longer) by the same tenants
• Often residential apartments or family homes
• Commonly used as the tenant’s primary residence or for student housing

Income Potential

As with most people who invest in real estate, your goal of owning a rental home is likely to earn extra income. Both short-term and long-term rental options will allow you the opportunity to do this, but the income potential will vary between the two. Not to mention, revenue projections will also depend on a variety of other factors, including location, home size, finishes, etc. These are all things to consider as you make your decision. If you’re interested in the revenue potential of your home, our team can provide a free rental income projection with all the details about what your home could earn as a vacation rental.

Potential Income from a Short-Term Rental

Due to the nightly rental nature of short-term rentals, they have the potential to produce more rental income for owners. This is due in part because rates are set on a nightly basis instead of monthly. As previously mentioned, there are a lot of other factors at play that will affect your overall revenue. It’s best to keep all of the following in mind when considering the revenue your home will generate as a short-term rental:

• Higher Nightly Rates: Short-term rentals are able to charge higher nightly rates, allowing them to garner a higher gross revenue than a standard long-term rental.
• Flucutating Demands: Depending on the season, the demand for your rental will likely fluctuate. This can lead to ebbs and flows in revenue. If you’re in a popular summer destination, prepare to experience spikes in the summer and dips in the winter (and vice versa). 
• Opportunities for Dynamic Pricing: During peak season and popular events, like concerts and festivals, demand for your rental may rise. Short-term rentals provide an excellent opportunity to employ dynamic pricing, so you can earn more as demand increases.
• Income Variability: Due to the seasonality of vacation rentals, you should expect to see some income variability from your rental. Some months will be better than others, and  it’s unlikely you’ll see completely steady income year round.

Potential Income from a Long-Term Rental

Because long-term rentals are occupied for months at a time, their income potential is less than a short-term rental. There will be no changes in price due to demand or season. Rather, you’ll be locked in at one monthly rate until the contract expires. The trade off is that the income is more consistent, so long as you have a current lease holder who will be paying you rent every month. While the situation for each rental will vary, this is what you can expect in terms of income when you list your home as a long-term rental:

• Consistent Monthly Income: Because tenants are required to sign long-term leases, you’ll earn a consistent amount every month from your tenants.
• Lower Rates: The average rates for long-term rentals will always be lower than vacation rentals. This is because long-term rentals are priced on a monthly basis rather than daily, leading to lower overall rates.
• Price Limitations: Income from your long-term rental will be partially limited by lease agreements (you can’t change the price in the middle of the lease), as well as by any local rent control laws.
• Less Risk of Fluctuation: Because tenants will be using your home as their primary residence, you’ll have less risk of fluctuation in occupancy, leading to a steady income.

Operating Costs and Expenses

No matter which rental strategy you choose, you will incur some operating costs any time you rent out a second property. As the homeowner, there are some expenses that you will always be responsible for, such as the costs of major maintenance and repairs.That being said, your costs could vary significantly depending on if you choose to rent your home on a short term or long term basis.

The Costs Associated with Operating a Short-Term Rental

If you choose to rent your home on a short term basis, you may encounter higher operating costs in the form of supplies and furnishings. But remember, you’ll also be earning more. These additional costs often pay off in the form of more revenue. As a base line, here are a few of the costs associated with renting your home as a vacation rental:

• Operational Expenses: As the homeowner, you’ll be responsible for all operating costs – this includes utility bills, cleanings between guests, and restocking of supplies, i.e. paper products, soaps, shampoos, etc.
• Furnishings: Vacation rentals have to be furnished and completely ready for guests, so you’ll have to put in the up-front investment to buy all furniture and household items. You’ll also need to be prepared to replace them when they wear out in order to ensure continuing guest satisfaction.
• Property Management Fees: If you choose to put your home under the management of a professional property manager, you’ll pay a percentage of each reservation to them. If you’d like to be completely hands off with your property, this service is a worthwhile investment.

The Costs Associated with Operating a Long-Term Rental

Long-term rentals serve as the main residence for tenants, and they’ll want to make the space their own by bringing their own belongings. This means the initial start-up costs of a long-term rental will often be lower because you won’t have to furnish the space. However, these lower costs also come with lower revenue, as you will be locked into a contracted price with your tenant. These are the main ways your operating costs will differ with a long-term commitment:

• Operational Expenses: You can pass on the cost of utilities to your tenants and you won’t be required to pay for frequent cleanings or supplies. However, you may encounter larger maintenance costs because you won’t have access to the property on a regular basis to assess its condition and provide needed care.
• Furnishings: Since this is your tenant’s primary residence, they’ll bring along their own furnishings. In most cases, long-term landlords only need to provide major kitchen appliances. The rest will be moved in by the tenant when their lease begins.
• Property Management Fees: You can also choose to have a professional management company oversee your long-term rental. Property managers for long-term leases will likely charge a lower rate than those for short-term rentals. This is mostly due to the lower income potential.

Maintenance and Property Condition

Regardless of whether you choose to rent your home on a short-term or long-term basis, you will be responsible for maintaining your property. The ways in which you will do this will vary between the two options, mostly due to the amount of access you have to the property. With long-term rentals, you won’t have as much access, which will change the frequency with which you can maintain it.

Maintenance Needs for Short-Term Rentals

Regular maintenance is the best way to keep your property in the best shape possible. This requires you to be in the know about your home, so you can get the care it needs. The good thing about vacation rentals is that you’ll be able to keep a closer eye on the property. When guests depart, you’ll be cleaning and inspecting the property to ensure it’s up to standards for the next booking, which will allow you to quickly identify and address any maintenance concerns. Being proactive about maintenance and repairs will help to cut down on major repairs that stem from neglected maintenance tasks.

Maintenance Needs for Long-Term Rentals

While you won’t be responsible for regular cleaning of a long-term rental property, you’ll still be required to handle everything else. And the nature of long-term rentals makes it difficult to know when your property needs care. This is perhaps the main drawback of long-term rentals – the space is always occupied. You won’t be able to regularly check in on the property without prior consent from your tenant. This means you’re relying solely on your tenant to let you know when there are major maintenance concerns. If they aren’t communicating issues to you, needed maintenance may be put off until it becomes much worse, often leading to more expensive repairs.

Management Requirements

All rental properties will require some level of management responsibility. You’ll have to decide if you want to take this on yourself or if you’d prefer to hire a professional manager. A property manager will allow you to be fully hands-off, as they’ll take on all tasks related to managing the home. This can take a huge burden off of you and can even lead to more success for your home, as it will be backed by the skills and experience of a professional. Whatever you choose, it’s important to understand the management needs of each type of rental, so let’s take a closer look at how management of short-term and long-term properties compare.

Managing a Short-Term Rental Property

Short-term rentals require much more time and effort when it comes to managing them. It can eat up a lot of time, which can become a problem if you’re the sole person responsible and are also working a full-time job. It’s important to consider all the tasks you’ll be responsible for so you can be prepared for what you’re jumping into:

• Guest Communication: Short-term rentals require lots of guest communications, from booking to check in to check out. Plus, these rentals require someone to be on call for emergencies.
• Pricing Adjustments: To take advantage of higher demand in peak seasons, short-term rentals utilize dynamic pricing. This strategy requires specialized software or extensive time to make adjustments.
• Marketing: To keep the property filled, short-term rentals rely heavily on marketing and listings on online booking channels. 
• Coordinating Cleanings: As guests come and go, short-term rentals require constant cleaning. This means coordinating schedules of contract housekeepers, hiring an in-house team, or taking on the responsibility yourself.

Managing a Long-Term Rental Property

Long-term rentals are much less hands-on and therefore will require much less time to manage. Once you find a renter, there’s fewer obligations for you as the homeowner on a daily basis. But these rentals definitely still come with their own management obligations. Here’s some of the tasks you can expect to deal with if you choose to manage your own long-term rental:

• Finding & Vetting Tenants: Long-term rentals give you the option to more fully vet and qualify your renters, but this requires time. You’ll be responsible for advertising your property for rent, fielding inquiries, and ultimately deciding who to rent your property to.
• Lease Agreements: Though you should have the help of an experienced real estate lawyer for this step, one of your main responsibilities as the landlord will be delivering tenants with a lease each year and ensuring it’s signed.
• Maintenance: You’ll be responsible for completing any preventative maintenance as well as any problems tenants bring to your attention, including after-hours emergencies.
• Tenant Communication & Rent Collection: Unless you hire someone, you’ll be the main point of contact for tenants. This means you’ll be responsible for taking their calls and collecting their rent each month.

Flexibility and Property Use

When choosing whether to rent your home as a short-term rental or a long-term rental, one of the main questions you want to ask yourself is if you’d still like to be able to use the property for yourself. With long-term tenants there is little, if any, flexibility to stay at the property yourself, as the tenants will be living full-time at the home. With a short-term rental there is much more flexibility, which provides you the option to still use your home when you want.

Flexibility of Short-Term Rentals

If your second home is part of your family’s annual vacation plans or you use it frequently throughout the year, renting it as a short-term rental is likely the best option for you. Vacation rentals allow you much more flexibility when it comes to owner stays. You’ll have the freedom to block out the dates you’d like to use the home so that no reservations are taken. This means your family will still be able to use the property for your annual trip or holiday plans.

Flexibility of Long-Term Rentals

Long-term rentals will offer much less flexibility. Once leased, your property will have very limited personal access because your tenants will be occupying the home as their primary residence for months at a time. Not to mention, tenant rights restrict the access you’ll have to the home as its owner. If your goal is simply to own an investment property that generates income and personal use of the home is not important to you, a long-term tenant will be a great solution. If however, you want freedom to access and use your property, you may want to consider a short-term rental listing.

Which Rental Option is Best for You?

Now that you have a clearer understanding of how short-term and long-term rentals differ, it’s time to decide which rental strategy is right for you and your home. As leaders in the vacation rental industry, we at SkyRun personally believe that short-term rentals provide the best for homeowners, offering them more income potential, more flexibility, and more opportunity to turn their property into a revenue-generating investment. 

But we also understand that short-term rentals are not without their share of work. If the idea of managing everything that comes along with a short-term rental sounds daunting, we’re here to help. As a full-service property management company, we have a vast team of short-term rental experts who can guide you in the process of converting your home to a vacation rental. As part of the industry for over 20 years, SkyRun has learned exactly what helps homes succeed in the competitive vacation rental market. Ready to learn more? Our experts are ready to tell you all about how we can help your home succeed as a vacation rental!