Short-term Rental vs. Long-term Rental: The Pros and Cons of Both

If you have invested in a second property, you may be wondering about the difference between short-term rentals vs. long-term rentals. You have spent time and money on your property and it is important that you consider the best option. On one hand, short-term rentals can generate up to 40% more income than the traditional long-term rental model. On the other hand, long-term rentals are a secure way to guarantee a consistent month-over-month income.

Short-term rental vs. Long-term rental: What is the difference?

Short-term rentals: Home-share platforms like Airbnb have sparked the popularity of the new short-term rental concept. A short-term rental is a property that rents for anywhere between one day to one month. These rentals operate similar to a hotel, offering guests amenities, ongoing customer service and cleaning assistance. This can be a very lucrative option, but it does require a lot of upfront investment and ongoing administration. 

Long-term rentals: This is a more traditional way for second homeowners to bring in a second income. With this rental model, tenants often sign a year-long lease, furnish the property and pay monthly rent. This is a great way for homeowners to generate a consistent income and requires little-to-no ongoing effort on their part. On the downside, this model is likely to generate less yield than the short-term rental model.

What are the risks?

Short-term rentals come with a unique set of risks since there will be a higher volume of tenants living in your space. 

1. Property damage: Since short-term rentals are fully furnished and equipped by the homeowner, there is a higher risk of property damage. You will need to factor in more ongoing maintenance costs and expect the unexpected.

2. Inconsistent income: Although short-term rentals can generate more income than long-term rentals, the income can be inconsistent. Running a lucrative short-term rental business requires both a smart pricing strategy and marketing and advertising. You must guarantee your property is full throughout the year, especially if it’s in a vacation destination where tourism is seasonality-dependent.
   
3. Local laws and regulations: Since the short-term rental model is fairly new, local governments change their short-term rental laws frequently. If you do not stay on top of local laws and regulations, you may run the risk of losing your property.

Long-term rentals are commonly seen as the less risky option, however, they also come with their own set of risks. Here are the most common:

1. Less flexibility: Once you sign a one-year contract with your tenant, you will not be able to adapt your property’s pricing to market demand. In addition to financial flexibility, you will not be able to easily access your property as easily. If you want to host friends, family members or use the property yourself, you will not be able to do so as easily.

2. Less maintenance control: In most cases, you will only be able to know if there is a maintenance issue with your property if your tenant reports it. Many long-term renters do one maintenance check per year, discovering several problems that could have been resolved much sooner.
   
3. Wear over time: Similar to maintenance control, if you rent out a furnished apartment, many of your investments like furniture and appliances can be damaged due to consistent wear and tear over time. In contrast, with the short-term rental model, you will be able to check in on your property every few days and make necessary repairs.

What are the advantages?

Short-term rentals come with a lot of perks if you are willing to put in the time and effort  (See this Redfin blog post with tips on how to manage successful vacation rentals). Many homeowners opt to work with property management companies like Naya Homes. They will manage all short-term rental operations for a small commission. 

1. Personal vacation use: If you own a property in a vacation destination, you likely want to enjoy it yourself. The benefit of short-term rentals is that you will be able to easily manage your reservation calendar and stay there yourself 

2. More rental income: When managed well, short-term rentals can generate up to 40% more than the long-term rental model. You will have more flexibility around pricing and you will be able to host several paying customers per month.

3.  Less wear and tear: Although there is a risk of property damage with every rental model, wear and tear is less likely with shor-term rentals. You will be able to inspect the property after every stay and ensure your assets are in good condition.

Long-term rentals will generate less revenue but they are less difficult to manage overall. 

1. Easier to manage: Long-term rentals require very little day-to-day maintenance. After the lease is signed, most of the responsibility — including monthly water and electricity consumption bills — are in the responsibility of the renter. 

2. Consistent cash flow: If your property is located in an area that has seasonal highs and lows, long-term rentals guarantee a consistent and predictable income all year long. 
   
3. Minimal guest/tenant assistance: In addition to day-to-day maintenance management, customer service can be an overwhelming task on its own. Between answering customer support questions and writing online reviews, long-term rentals can eliminate the need to be in constant communication with your guests or tenants. 

Short-term rental vs. Long-term rental: Recap

Whether you choose to rent your property short-term vs. long-term is up to your own personal lifestyle and needs. Although short-term rentals generate a higher income, they also come with their own set of management needs and daily challenges. Long-term rentals, however, generate less yield but require a lot less work.

It is important to mention that property management companies like Naya Homes have entered the short-term rental market, eliminating all the common short-term rental cons. Property management companies will take a small commission in exchange for full-service management.

Naya Homes is Mexico’s newest and fastest-growing property management company for three main reasons:

• We take a sophisticated approach to revenue management and data analysis
• We are reliable, trustworthy and provide homeowners with transparent reports
• We care for your home and your guests as if they were our own

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