Airbnb Vs. Long-term Rental: What is More Beneficial for your Investment?

Deciding exactly how to rent an apartment can cause you a dilemma. On the one hand, the long-term residential route promises stable passive income within a specified time. On the other hand, the Airbnb format may be more suitable for you as a person who is ready to adapt quickly to consumer needs and receive high profits rapidly. There are several factors to consider in this decision, and this article may help you choose.

Benefits of Airbnb business

The higher potential return on investment

A short-term rental allows you to charge a higher price per night than if you rented the same property monthly, based on days. Moreover, even under the condition that you do not rent the object all year round but only, for example, during the peak season, your profit may still be higher than that which you would receive from the long-term lease. But keep in mind that profits can be affected by the situation in the real estate market, taxes, and real estate costs.

Many tenants are better than one

Renting on Airbnb allows you to charge your rent more often because guests are short-term stays. Each guest makes up a small percentage of your total rental income. If one cancels the booking or doesn’t pay, it may have less effect than a situation with a renter who lives for months. In other words, renting to multiple guests reduces risk.

Minimum wear

Of course, a lot depends on the tenants, but as a rule, tenants who move in for several days do not cause significant damage to your property. Travelers and people who come for business often spend time away from your property. On the contrary, those who plan to stay for a long time perceive real estate as their home. Accordingly, appliances and furniture are more often used and worn out.

In addition, short-term rental assumes that after each guest, you inspect and maintain the apartment. Finding and fixing problems is more manageable, and you are more likely to spend less on property repairs.

Flexibility

A big plus of Airbnb leasing is that you can refuse unsuitable guests, offer accommodation for rent at a convenient time, and determine the period for which you are ready to rent a property. In addition, the pricing strategy for short-term rentals can also vary and is determined by you. But remember competitors and consider their rental prices.

You can even use your home as a second home, for example, if you want to relax with your loved ones. Taking advantage of a property is a huge advantage when buying a vacation rental over a long-term rental.

Lots of tools

The Airbnb rental industry is increasing, and with it, the number of tools that will come in handy for property management is growing. Now, a homeowner can choose from automated systems that simplify the process of booking, communicating with tenants, scheduling cleaning, bookkeeping, and much more. Moreover, help can be obtained from specialized companies such as Hearthomes, where skilled workers provide services to run the Airbnb business.

Disadvantages of Airbnb business

Once again, we note that any rental housing has its pros and cons, so you should pay attention to both sides. Regarding the Airbnb business, we have identified the following disadvantages.

Regularity of additional and unforeseen expenses

After guests, you need to clean, restock and replace items (such as towels, bathrobes, toilet paper, etc.). In other words, you need to take care of your property maintenance and its utilities more often. 

Sometimes, if you take a chance and provide a home as a venue for a party, you may be disappointed by the extent of the damage done to your property. You will have to pay for repairs and change amenities in this case.

As one of the solutions, we see an option to draw up rules for living on your property, where fines for property damage will be spelt out. Then you will have a reason to show them the check and cover some costs.

Seasonality

Seasonality has a significant impact on vacation rentals. For example, in resort towns, houses and apartments can stand idle for up to 9 months a year, which is quite an impressive financial cost.

Of course, there are situations that we cannot foresee. These include natural disasters or a pandemic. Then, even during the expected peak seasons, the number of bookings is sharply reduced or completely disappears. Unforeseen events can leave you without income for a long time, mainly if your property depends on seasonal tourism. This may be risky if you rely on rent as your primary source of income.

Cancellation can also be a problem. If your next guests cancel at the last minute, it’s unlikely that someone else will book with such short notice, leaving you with no money.

Severity of laws

Before you start short-term rental housing, check local laws. Some regions have strict rules and regulations that make it difficult for investors to own and manage short-term rentals. Others have set a limit on the number of nights you can rent on Airbnb, forcing you to deliberately leave your property unoccupied at certain times throughout the year. This may negatively affect your business.

Need for promotion

A successful Airbnb business assumes you know how to generate interest in your offer among potential tenants and maintain it. Marketing takes a lot of work. It starts with content, namely with high-quality photographs of housing and all rooms, so that future residents have a complete picture of the object. Much attention is paid to the description of the accommodation and indicated amenities. You should convince tenants that your property is what they are looking for. In addition, on platforms where you post information about a property, you need to monitor reviews, view ratings, update information and, if possible, run ads. All these actions are not only costly financially but also require time and knowledge.

Pros of long-term rental

Now let’s delve into the topic of long-term leases. By it, we mean the delivery of a property for a month or more. Let’s start with the advantages of this type of rental.

Stability

Renting your property for the long term protects you against market fluctuations. This allows you to have a stable real estate investment strategy. With long-term rentals, you can lock in the set rate for an extended period. For the duration of the contract, the tenant will pay a fixed rent for the entire term, regardless of market trends. Of course, if the conditions become unfavorable for the tenant, he will most likely refuse your offer and move out. But in this case, you can specify in the contract the minimum period of residence, for example, three months, to which you agree.

Another significant advantage of a long-term lease is that it is not subject to seasonal fluctuations. With a long-term lease, you are sure your rent will be the same every month of the year, making budgeting easier.

Careful choice

A reliable tenant promises you comfortable cooperation in the future. Therefore, you can be more selective in the selection process, weeding out problem tenants. You can take the time to conduct proper background checks and review a potential tenant’s credit history.

Cheaper overhead

When you rent out a property for the long term, you also tend to incur lower overheads. This is because you don’t have to worry about advertising or turnover costs, which are essential when renting short-term.

You also charge a security deposit for issues beyond normal wear and tear, and you don’t have to pay for home improvement.

Cons of long-term rental

Significant damage

While tenants can deal with minor household problems on their own or call a master, serious breakdowns or damage caused by the tenants themselves, but which they chose not to report, can end up being your headache. The risks increase if you allow families with small children or animals to stay for a long time. Repairing can quickly escalate, especially if the property isn’t properly managed during the lease term.

Less flexibility

You may be unlucky with a tenant you can’t find an approach to. In this case, the time he will live in your house will last forever. Moreover, over time, your tenant may turn into a picky and demanding person who will call you on any issue. Therefore, we strongly recommend that you take a responsible approach to selecting tenants.

You will also not be able to use your property whenever you please, so this type of renting may not suit your needs. 

Conclusions

We hope the information provided in this article will be helpful to you. Whatever type of rental property you choose, remember that running a rental business is a laborious process, but with the right approach and effort, it pays off.

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