How Can I Get Started in Real Estate Investment?
One of the best places to invest within the real estate market is vacation rentals, especially in popular destinations with a hot vacation market. There are two main options for vacation rental investing: short-term and long-term vacation rental. Before selecting an option, you should explore the pros and cons of each choice and determine which is best for you.
Options for Investing
The main difference between short-term and long-term vacation rentals is the duration of stay for renters. Short-term vacation rentals are rented for one or more nights, and long-term are rented for at least one year. Airbnb rentals, HomeAway, and VRBO are an example of short-term rentals.
Let’s explore short-term and long-term vacation rental investing pros and cons.
Short-term Vacation Rental Investing
Advantages
- Great potential for more income – Short-term vacation rentals, especially in popular vacation destinations, are priced higher than long-term vacation rentals because vacationers are willing to pay more money nightly. A short-term home rental presents greater income potential as it can net twice the amount of income versus a long-term vacation rental in the same area.
- Price flexibility – Unlike long-term vacation rentals, short-term vacations are not restricted by yearlong leases; as such, they do not need a standard price. The pricing for short-term rentals fluctuates depending on supply and demand; for instance, you can increase the price of a coastal rental during summer and reduce costs during winter.
- Better maintenance – There are always constant visitors entering and leaving short-term vacation rentals, similar to a hotel, making it easier to identify damages and provide frequent professional maintenance.
- Owner use – Investing in a short-term vacation rental in your desired destination gives you the advantage of having an accessible vacation location that you can use anytime.
Disadvantages
- Competition – Short-term vacation rentals face intense competition from rental owners using applications such as Airbnb and HomeAway, alongside hotels. Therefore, you must ensure you have unique features that offer your property a competitive advantage.
- Maintenance and repairs expenses – Having several tenants increases wear and tear frequency, which increases maintenance and repair expenses.
- Off-season vacancies – You may have to deal with consistent vacancies during the off-peak vacation and tourism season, which lowers gross annual income.
- Legislative restriction – Landlords are required to comply with state and city laws that restrict the duration individuals are allowed to rent out vacation rentals on order to avoid lawsuits.
Long-term Vacation Rental Investing
Advantages
- Lower operating and maintenance costs – Renters for long-term vacation rentals take care of most operating and maintenance costs, such as electricity, water, regular cleaning, and pest control, reducing landlord expenses.
- Consistent cash flow – Long-term vacation rental tenants pay frequent rental fees for a long duration, providing landlords with consistent income.
- Easier management – You can self-manage or hire professional property management for long-term vacation rentals at low costs because tenants stay longer and cover most of the maintenance costs.
- Low turnover – Fewer tenants enter and leave long-term vacation rentals due to commitment to long-term lease agreements, which minimizes management and maintenance costs.
Disadvantages
- Less income – Long-term vacation rentals generate less income than short-term rentals because they are rented for an extended period of time, for a set fee, rather than being able to take advantage of renting for a short period during peak times on order to charge more.
- Maintenance problems – You will be responsible for wear and tear after tenants have occupied for a longer period. This may result in larger repairs due to limited viewing of the property in order to address any issues sooner.
- Regulations – Some states have laws preventing landlords from evicting stubborn and uncooperative tenants who fail to pay rent, therefore, creating a larger risk of loss.
The vacation market is a tremendous opportunity to build wealth while also bringing in passive monthly income. If you’re interested in learning more about real estate investing, let’s chat!