Investments serve the primary purpose of making money and securing your future. Everyone strives to use investments as a tool to further their lifestyle and save money. There are innumerable investment options that are open to us. Many people focus on stock markets and investing in the stock market. While the stock market can be a significant investment, it has risks. Real estate investments are a much safer bet.
Choosing between short-term rental and long-term rental used to be simple. Long-term rentals are those types of investments where you had a tenant for 90 days or more. Short-term rentals, as the name implies, had tenants for a minimum of a few days to weeks.
Examples of short-term rentals would be Air BnB and VRBO. Short-term rentals have become a huge hit because you can generate income in a short amount of time. If you are looking to use the rental property as a long-term investment, then you will want to look into rental property investment. Rental property investment is when you purchase a property and rent it out to tenants.
This blog will explore things you should consider before investing.
Investing in a Short-Term Rental vs. Long-Term Property
1. Know the Property
There are a few key factors to consider when determining whether a property is more suited for short-term or long-term rental. One of the most important is the location of the property. If it is in a highly sought-after vacation destination, it will likely be more successful as a short-term rental. On the other hand, if it is in a more stable, residential area, it is better suited for long-term rental.
The state of the property is a vital consideration as well. If it requires significant repairs or updates, it will probably not be attractive to potential renters and is better suited for long-term rental. However, if the property is in good condition and is move-in ready, it may be more successful as a short-term rental.
If you are looking for an easy process for short-term rental investment without consuming your time, you can use a short-term rental investment platform. Techvestor is a short-term rental investment platform that helps you make the most of your money.
A professional can help take your hands off the worry of choosing the correct location for your rental property, sourcing the right clientele, collecting the rent, fixing the price, maintaining, etc. You invest the money and they take care of the rest.
It allows you to invest in a property for some time and start earning profits as a passive income. It is a great way to make money if you have an investment.
You need to understand your own goals and objectives with your investment. Long-term rental property investment is probably the better option if you are looking for a steady income stream. However, short-term rental property investment may be the better option if you want to generate a higher return on investment in a short period of time.
2. Tax Laws
There are a few things to consider when deciding if a short-term or long-term rental investment is suitable for you based on tax laws. The first thing to keep in mind is the capital gains tax.
If you sell a property that you have been renting out long-term, you will be subject to capital gains tax on the profit you make from the sale. However, if you sell a property you have been renting out short-term, you will not be subject to capital gains tax.
It would help if you also considered the income tax implications. With a long-term rental, you will be taxed on the rental income you receive. However, with a short-term rental, you may be eligible for the vacation rental deduction, which would allow you to deduct a portion of the rental income you receive.
3. Financial Differences
The primary financial difference between investing in a short-term rental and a long-term property is the return on investment. The return on investment is typically lower with a long-term rental property than with a short-term rental.
This is because long-term rental properties are typically less expensive to purchase and maintain and generate income over a more extended period. However, long-term rental properties can appreciate over time, providing a higher return on investment.
Another financial difference between these two types of properties is the cash flow. Short-term rentals typically generate more cash flow than long-term rentals. This is because short-term rentals are usually rented at a higher rate than long-term rentals.
Additionally, short-term rentals are often rented for a shorter period, meaning they are vacant for a smaller portion of the year. Also, there is the flexibility to change the rent depending on the season, and availability.
When deciding which type of property to invest in, it is crucial to consider both the return on investment and the cash flow. For some investors, the higher return on investment of a short-term rental may be more appealing, while for others, the stability and lower costs associated with a long-term rental may be more appealing.
4. Maintenance and Upkeep
The debate between investing in a short-term rental or long-term property is a hot topic for many would-be investors. Both types of investments have pros and cons, and the right choice for each individual depends on various factors. One key consideration is maintenance and upkeep.
Short-term rentals generally require more frequent and intensive cleaning and maintenance to meet the higher standards of cleanliness and comfort that guests expect. This can result in higher costs in terms of both time and money. On the other hand, long-term rentals may require less frequent cleaning and maintenance, but the costs of repairs and renovations can add up over time.
Another vital factor to consider is the amount of personal involvement you are willing to take on. If you are a hands-off investor, a short-term rental might be a better fit, as you can hire a professional property manager to take care of the day-to-day operations.
If you are looking for a more hands-on investment, a long-term rental might be a better option. You will have more control over the property and can build a closer relationship with your tenants.
Ultimately, the decision of whether to invest in a short-term rental or long-term property comes down to various personal and financial factors. Maintenance and upkeep are just one of the factors to be considered as you make your decision.
5. Depreciation Value
There are a few key factors to consider when deciding whether to invest in a short-term rental or a long-term property. One of the most important is the depreciation of value. Short-term rentals tend to depreciate more quickly than long-term properties.
This is because they are used more frequently and often suffer wear and tear. Since the rent charged for a short-term rental is higher, your clientele would expect top-notch maintenance as well. With long-term properties however the owner is expected to repair/maintain usually at the end of the lease period.
Ultimately, the decision of whether to invest in a short-term rental or a long-term property comes down to a matter of personal preference. If you are willing to put in the extra work, a short-term rental can be a more profitable investment. A long-term property may be a better option if you prefer a hands-off approach.
Final Thoughts
If you’re considering investing in a rental property, you’ll need to decide whether you want to go the short-term or long-term route. There are pros and cons to both, and it’s essential to research before deciding.
Short-term rentals, such as vacation homes, can be a great way to earn extra income. However, they also require more work, as you’ll need to regularly clean and maintain the property. You’ll also need to be comfortable with having strangers in your home.
Long-term rentals, on the other hand, are a more passive investment. Once you find a tenant, you can sit back and collect the rent. Of course, you’ll still need essential maintenance and repairs, but it’s generally not as much work as this can be managed by professionals.
So, which is right for you? It depends on your circumstances and goals. If you’re looking for a hands-off investment, a long-term rental might be the way to go. But if you’re willing to put in the extra work, a short-term rental can be a great way to earn some extra income.
