Over the past few years there has been a notorious growth of short- term rental platforms such as Airbnb, VRBO, HomeAway. For many homeowners there is an internal debate between renting long-term versus short term. Contrary to a long term rental, a short term rental is a property that is rented out furnished / turnkey for days or weeks (similar to a hotel). According to a recent article in the Harvard Law & Policy: “short-term rentals reduces the affordable housing supply by distorting the housing market in two interconnected mechanisms (…) any housing unit that was previously occupied by a city resident, but is now listed on Airbnb year round, is a unit that has been removed from the rental market and has essentially been added to the supply of hotel rooms”.
While there is significantly more turnover with short term rentals, owning this type of investment could mean significantly more rental income per year than long-term rentals. While that sounds exciting, there are many things to take into account before making the switch. What’s entailed in switching from long term to a short term rental? Does it really make more money than long term rentals? How much more? What are the risks? These are just a few of the factors that homeowners and property management companies need to investigate prior to getting into the short term rental business. If you are planning to own a property for short term rental you should analyze both the advantages and disadvantages of these investments.
Disadvantages
1.Time consuming
Managing a short-term rental can be very time consuming, and can sometimes become a full time job. There’s a large customer service piece to short term rentals that is often overlooked. Hosts need to manage check ins and check outs, answer any questions guests or potential guests may have, the property needs to be cleaned and stocked between reservations, utilities need to be paid, and the repairs need to be addressed. Most of this is very time sensitive as well.
2.Less consistency in payments
Short-term rentals have a much higher vacancy rate than long term rentals. Short term rentals are much more susceptible to seasonal vacancy, renters canceling last minute, and sometimes market saturation or excess competition.. This all leads to a very unpredictable market. The COVID-19 pandemic is another great example of what could affect the short term rental market. Once the Coronavirus Pandemic started, demand for vacation rentals plummeted and put a lot of owners out of business. If your main goal is to receive a steady income, consider yearly rentals.
3. Higher risk
Depending on what platform you’re advertising your short term rentals on, it may be true that short-term renters are not thoroughly screened. With long-term rentals, landlords and property management companies typically carry out an extensive screening process that will include an employment and current landlord verification, credit history, background check, and more. There’s no standard screening process with short term-rentals so most of the time you need to rely heavily on their online reviews.
Advantages
1. Great earning potential
Real estate investing is all about maximizing your return on investment and like we mentioned, short-term rentals can have the potential to be extremely lucrative. Rent for short term rentals can often be 2-5X what the same unit would rent for as a long term rental. For example, a long term rental that rents for $1,000 per month may earn as much as $2,000 - $5,000 per month as a short term rental. Not only are the earnings great, there are lots of common deductions for Rental Owners. With enough deductions, you could record a loss and avoid taxes altogether.
2.Less damage to the property:
This may sound surprising but the fact of the matter is, when renters go in and out frequently, you can treat small repairs on the moment, before they turn into bigger issues. You will have a cleaning crew in the unit every few days so it’s much easier to keep an eye on things and take care of issues as they arise. Nothing can guarantee that your tenants will take care of your investment, but this option does allow you to have more control over cleaning, preventative maintenance, and damage mitigation.
3. Flexibility
Having a short-term rental gives you a lot of flexibility. Every decision is up to the owner. They can adapt the nightly rates depending on the time of year, type of property and demands of the city. They can also set a minimum-night stay for higher demanded dates such as the weekends, holidays and special events. In Chicago for example, it may mean that rates will be higher during baseball or football season. They can also black-out dates for homeowners who wish to have access to the property occasionally.
Short-term rentals can be much more lucrative than long term rentals but can also be much more time consuming and carry additional risks. Make sure you do your homework and contemplate all the pros and cons of owning a short-term investment.
Named one of the Best Property Management Companies in Chicago, Landmark Property Management is a full-service brokerage with a reputation for going the extra mile for our clients. If you need help, have any questions, or are interested in learning from the best property management company in Chicago, don’t hesitate to reach out! You can contact us at Landmark Property Management via phone at 312-313-8553 or send us an email at office@landmarkrgc.com.
