If you own extra property, you may decide that renting it out is a great way to earn some extra income. However, renting does come with its challenges.
You’ll need to decide what type of rental you want to offer and what will be included. Other essential factors include ensuring your home is adequately covered with policies like vacation rental insurance.
Beyond the amenities and insurance, one of the biggest questions will be whether your rental is short-term or long-term. It can be difficult to choose between the two since they each have pros and cons. If you’re struggling with deciding what’s best for you and your property, these comparisons may help you decide.
What’s the difference between a short-term and long-term rental?
Before diving into which rental option you may prefer, it’s essential to understand the differences between short and long-term rentals.
Short-term rentals are typically vacation homes or month-to-month leases. Tenants are not signing a long-term rental agreement and typically only stay a few days, weeks, or months at a time.
On the other hand, long-term rentals are meant to be over an extended period with the same tenant occupying the property. Most long-term lease agreements last 12 months, though circumstances may allow for longer or shorter terms.
Positives and Negatives of Short-Term Rentals
There are advantages and disadvantages to renting to different tenants on a short-term basis.
Pros of Short-Term Rentals
If you own a home in a highly sought-after location, such as near a beach or heavily touristed area, you may see a much higher income offering short-term rentals than more extended terms.
You also have the opportunity to make more money with a short-term rental. Renting on a per-night basis often allows you to charge a higher rate than renting the property for months at a time. Since market values can fluctuate throughout the year, you can make a higher profit per month than you likely would through a longer-term rental.
Between renters, you may find it easier to keep your home clean since you can do deep cleanings more frequently. Short-term rentals also offer more flexibility as you can skip weeks for rental offerings, and it is easier to sell your home if you decide you no longer want it.
Cons of Short-Term Rentals
While there are some excellent pros to offering short-term rentals, they are not without cons. You may find your rental less frequently occupied during slower times of the year. Fewer guests may mean less consistent income.
Short-term rentals can also cost more out of your own pocket since you don’t have consistent tenets to make your property their home. You will likely have to pay for the utilities in your short-term rental since you can’t include them in your nightly rate.
Items like furniture, toiletries, cleaning supplies, dishes, and cooking utensils will also likely come out of your pocket, as people typically expect these things in a short-term rental. Though you’re not required to purchase them, you may receive less interest on your property without them.
You could also pay more for insurance coverage owning a short-term rental property. The more frequently your property is used by different renters, the higher rates you will likely have. If your home is in a popular tourist destination, you may see extremely high insurance rates to keep your property protected.
Positives and Negatives of Long-Term Rentals
Having a long-term tenant in your property has many pros, but it’s not without its cons.
Pros of Long-Term Rentals
A long-term renter in your property typically ensures a continuous income stream for at least a year. However, if you are lucky and find a great renter who loves your place, you may have guaranteed income for years to come.
A consistent and planned income stream allows you to easily set aside monthly money for expenses like repairs and maintenance. It also offers better peace of mind knowing you won’t have to wonder if your property will be occupied or not.
You will also likely spend less out of your own pocket for a long-term renter. Since the tenant is making your property their home, they will take care of expenses like furnishing, utilities, cleaning, and lawn care. These costs can add up, so the savings will be significant.
Insurance prices are typically lower for long-term renters since the risk is lowered by having only one tenant occupy the property. Long-term renters should also purchase their own policy to protect their belongings, so your coverage won’t have to extend to personal property the way short-term renters coverage would.
Cons of Long-Term Rentals
The pros of long-term rentals are strong, but they aren’t without their faults. When you sign a lease, you are tied to that price for your agreed-upon time. So even if the rental market prices increase, you can’t raise the rent until the lease expires.
It’s also more difficult to evict a long-term tenant compared to the simplicity of canceling short-term rental agreements. While the laws may vary in each state, you may have to head to court in order to evict a long-term tenant from your property if they choose not to leave.
With long-term rentals, you have less opportunity to catch severe problems before they get out of hand. Since you are accessing the property on a limited basis, some issues may arise that go undetected by you and the tenant. For example, if problems such as leaks go to look without being fixed, they can cause serious and expensive water damage that you’ll be responsible for paying to repair.
Deciding if Short or Long-Term Renting is for You
If you own spare property and are trying to decide whether short- or long-term renting is better for you, these pros and cons may help you. While both can be profitable, one may be more suited for your situation than the other.
Short-term rentals offer potentially higher monthly profits but also have higher expenses and insurance costs. Long-term rentals can ensure your revenue stream for extended periods of time, but your tenants may give you trouble when you try to evict them.
The best option for your property will depend on your personal needs, location, and plans for your home.
Alexandra Arcand writes and researches for the insurance comparison site, ExpertInsuranceReviews.com. She is a rental owner who researched her property options extensively and enjoys sharing her knowledge with others.