In the sea of real estate investment asset types and strategies, two tend to pique the public’s interest more than others: short-term and long-term rentals. But how do these two stack up against one another?

For simplicity’s sake, short-term rentals in this discussion refer to single-family vacation rentals, Airbnb’s, and SFRs rented out to college students on a semester basis.

The Short- and Long-Term Rental 6-Point Showdown!

Point #1 – Income

Short-Term:

Typically, short-term rentals are charged at a higher rate than long-term rentals. This is because they tend to target travelers and are considered a luxury asset. The exception is for college rentals, which may be cheaper to appeal to cash-strapped students. However, a shorter lease can be used to justify a higher price. Overall, though, the cost per stay is determined by demand. During off-seasons or decreased tourist activity, income may drop. The earning potential is high but not necessarily reliable.

Long-Term:

The word here is consistent. While the rental rate for a traditional SFR – a traditional home – is lower than that of a short-term rental, turnover is far less frequent. Most residents also share a sense of pride and ownership over the rental. Overall, income is steadier and more predictable. It doesn’t fluctuate with seasons because it’s not a vacation luxury.

Point #2 – Management

Short-Term:

Managing bookings, cleanings, and guest communications can be time-consuming and, nine times out of ten demands professional property management. These guests often have a much higher standard than the average renter. Management could field multiple maintenance calls during a one-week stay. Short-term rentals can vary in size, but larger properties also demand more maintenance. A beach house with room for 20 people isn’t easy to manage!

Long-Term:

Passive real estate investors will utilize a management team. However, it’s a much more predictable process because SFRs are similar in size and lease terms. Beyond that, the management gets to know and invest in the property’s residents. A strong rapport benefits your bottom line.

Keep Reading: What Should You Know About SFR Investing?

Point #3 – Turnover

Short-Term:

Short-term rental owners will see vacation rentals changing residents every few days, usually with stays ranging from a weekend to a week long. Sometimes more, but rarely exceeding a month. Turnover is expensive. Between residents, cash flow stops. At the same time, the property must be professionally cleaned, restocked, and inspected.

Long-Term:

Traditional SFR leases most often have a one-year lease. This can be negotiated based on circumstances, both increasing and decreasing the terms. Investors seek to retain quality renters for as long as possible. Management will check in and address maintenance, but there are fewer instances where they must intervene.

Point #4 – Market Sensitivity

Short-Term:

Short-term rentals, like short-term investments, are more sensitive to market conditions. Demand – and thus, profits – ebb and flow with the seasons. They can also be impacted by specific weather conditions and global events. The pandemic, for example, stunted the tourism industry and shrunk demand for vacation rentals.

Long-Term:

Individual markets experience a variety of conditions. SFR demand will change. However, it tends to be more stable than that of short-term rentals. This is because SFRs are essential to the real estate market alongside traditional housing. If investors diligently select stable, reliable markets, they’ll fare just fine.

Point #5 – Maintenance

Short-Term:

Maintenance needs for short-term rentals vary, but investors must remember that they’re not just dealing with the property’s structure and condition. Furnishings are involved, too. High traffic means higher wear and tear on furniture. These must be replaced over time – not to mention the risk of damage. Certain types of properties may experience added maintenance challenges. For example, a beachfront property will contend with extreme weather conditions and salt air.

Long-Term:

Every property needs diligent maintenance to maintain its value. Long-term rentals don’t typically include furnishings, however, reducing the list of things to maintain, repair, and replace. The focus is on the structure of the property itself, prioritizing safety and mitigating significant future expenses.

Point #6 – Price Differentials

Short-Term:

Both types of properties will see price variations. The cost of a vacation property largely depends on its size. They can range from tiny homes to sprawling beach houses, and the cost reflects that disparity! Investors really need to know what they want before they jump in. It could cost $200,000 or $2,000,000. Be realistic about what you want and need. That said, a short-term rental for college students will fall more in line with the price of a typical SFR.

Just remember, again, the cost of buying, replacing, and maintaining furnishings.

Long-Term:

Investors should generally aim for the median home price in their given market. This isn’t a hard and fast rule. The important thing is targeting a high-quality investment property over a cheap property. This is where the market comes in because the cost of a property will vary wildly depending on where you invest!

Don’t know which way to go? Talk to your REI Nation advisor today.