As a landlord with one or more rental properties, it might seem like the obvious thing to do is rent them out as traditional long-term rentals. Having tenants generates consistent income that can be quite lucrative, depending on your particular situation. With the growth in popularity of the use of Airbnb and VRBO for temporary lodging, you should give serious thought to renting out your properties as short-term rentals or vacation homes. There are important advantages and disadvantages to ponder with each scenario.
Key Differences
When weighing traditional rental versus short term lodging, it is important to understand some key differences. When offering long term rentals through leases, you’re a landlord and your business is primarily one of real estate. When you’re offering your property as short term lodging, you’re a host and your business is primarily one of hospitality. An industry leader and expert like Will Obeid can tell you that real estate and hospitality aren’t mutually exclusive concepts, but it’s important to keep this in mind as your approach to tenants and guests. This difference dictates how you market your properties and the level of sweat equity and involvement.
Income Potential
Generating income is the main goal of owning rental property. With a traditional long-term rental, a tenant signs a lease and agrees to pay a particular amount each month for a length of time. This income is consistent. Depending on the terms of the lease and the building, tenants may pay for some utilities separately to a provider. When hosting a residence, you may see significantly higher income as the nightly rate may work out to bring in more income when compared to a long-term rental for the same length of time. With hosting, you may not see the consistent income as guests may not stay more than a few days at a time. When you host through a company, some of the profit will be shared with the company; however, you’re guaranteed payment when a guest checks in and cleaning fees and cancellation fees are other opportunities for income.
Location Considerations
The location of your property may dictate whether you can offer it as a long-term rental or short-term lodging. If your rentals are located in a residential area that is not close to the areas that attract visitors, offering them as lodging may not be profitable. Similarly, if your homes are in an area known for tourism, you may not get much traction offering them as traditional rentals. Just as you’d do research to figure out what a property can be sold for, you’ll need to do some type of comparative market analysis that considers the residence and neighborhood to determine pricing.
Occupancy and Marketing
One major difference between being a landlord vs a host is the occupancy rates. Traditional renting involves having a tenant occupy your property for a specific period of time, usually several months or more. With vacation homes and short-term lodging, you might not see consistent occupancy. Many guests rent places for no more than a week. During certain seasons, you may be able to rent your spaces for a month or more, but that depends on whether they’re located in places that see visitors on a more consistent basis. As a host, you’ll probably have to be more creative about how you market your spaces to maintain an occupancy that is more akin to traditional renting. If you’re hosting through a company, you’ll use that company’s resources to advertise your properties to travelers, as opposed to the marketing tools available to landlords looking for tenants.
Insurance and Involvement
Whether you’re a landlord or a host, as a property owner you’d secure insurance to cover certain types of damage. Companies such as HomeAway offer insurance to help hosts cover left by guests. When you’re hosting, you’ll have a higher turnover when it comes to the number of different guests in your home. While this comes with a higher potential for damage, you do have more opportunities to check on the condition of your spaces. A traditional landlord usually only offers a home for tenant use. As a host, you have to provide furnishings, home goods and other services to guests who expect certain hotel-style accommodations. This means that you’ll have to make sure your spaces are properly cleaned and replenished of essential supplies such as toilet paper and bed linens between guests. Some landlords use property managers to help them manage their rentals. There are also service providers to help you manage hosting. Owning rental properties can be very lucrative. The consistent income from tenants who pay their rent fully and on time makes real estate investment a great asset for your portfolio. The advent of short-term lodging companies makes it worth your while to consider offering your spaces for travelers looking for temporary accommodations. There are pros and cons that come with both types of rentals that require careful planning and research.
