Short Term and Long Term Rental

Today, we’re going to talk about PROS AND CONS OF LONG TERM AND SHORT TERM RENTALS.

As an investor and owner of your property, one way of earning the sweet fruits of your investment in your real estate is via having a rental income. Now, as far as rental income is concerned, there are two types of rental that we have to deal with if you are lasing your property out. We have the short term rental and we also have the long term rental.

Today, we’re going to discuss the advantages and disadvantages of doing both. So that you as an investor will be better equipped with the information and knowledge and what things there are to expect when you are trying to let your property out. Because as you would imagined, some people think that when they buy the property, they would rent the property and they will not have to work for the rest of their lives.

This is always a myth because any property that will give you income or any business or anything that will give you income or that matter will always require some sort of management.

And today, we will be discussing the pros and cons of long-term and short-term rental.

The first difference between the short term and the long term rental property is the upkeep.

What is upkeep? This simply means the maintenance of the property. When it comes to short term rental, you will have to do a more active upkeep. Meaning to say, you have more tasks that need to be done.

Say for example, we’re talking about short term daily rentals like AirBnb or renting out a hotel room, if you own the property. You’re going to have to worry about cleaning the toilets, cleaning the property, making it shiny or dust-free, changing the bedsheets, changing the towels, making sure that everything is working, no sinks are clogged, windows are clean. All of these things will have to happen every day. Not to mention, you need to have a receptionist that will welcome all of your guests. You’ll also need a person that will help people bellhop their luggage to their rooms.

So, it’s basically an active type of renting property. As with the case of AirBnb, it might be a lighter load compared to running a full fledge hotel but renting a property on a short term daily, weekly, or even monthly basis could still entail you a lot more work more than renting it out on a long term. Also, for short term leases, the items inside or the furniture inside the lease premises will also need to have higher upkeep because they get to be used more often. Say for example, you might need to change the bedsheets and the towels or the mattresses more often than a long-term property because different people are using it every day. And you have to keep it fresh for the new person coming in everyday to maintain a certain quality of standard. As with the long-term property, the upkeep is so much less. If you’re renting a property for a period of one year, say for example, all you have to do is give the keys at the turnover after signing the contract and it’s good to go. What you have to do is make sure that the property is clean at the turnover.

Then, you might need to do some routinary maintenance work, and that’s it. Nothing much. So, as far as long term rental is concerned, you don’t have to do active management as far as a daily routine is concerned. You’re gonna have to do some regular work but it’s not as often.

Next is in terms of income.

For the short term rental, the income is definitely higher on a per day basis because they are going to be renting the property on a shorter term. So, the regular lease rate becomes higher if we divide it by the number of days.

To say for example, you’re staying in a hotel, you will be paying probably in or between 3,500 to 10, 00 pesos, or sometimes even more, depends on the grading of the hotel per night. There’s no way you can pay that much if you’re renting on a long term basis because for sure you will be able to negotiate the rate down. So, as far as rental is concerned, if you are the owner of the property, definitely, you’ll have a higher rate of return if you are renting on short term. But you run the risk of not having a rental income on certain days of the month. Say for example, you’re renting your unit in AirBnb, it will not happenIt may or may not happen that everyday you have a tenant. There will always be some vacant days that you’re not serving anyone.

For short term rental, you have this risk of not having cashflow on certain days. Also, you will be subject to availability in seasons and reviews. If your unit is not well-kept, not tidy, and reviews are bad and you have this reputation that this particular unit sucks, nobody would be enticed to lease the unit. So, there will be vacant seats on certain days. Now, versus long term rent, the rental is slightly lower compared to the daily rate of a shorter term rental. Or in some cases, it could be really lower but you have a steady stream of income that goes into your bank account on a monthly basis. So, the income is steadier when you’re doing long-term rental.

Also, the last point but not the least is security risk.

When you’re talking about a short term rental property, there is slightly a higher risk of security because people who will be going in and out of your property are people you don’t know. And you also don’t have a chance to screen them, not that we’re doubtful all the time. But renting a property entails letting another person into your home.

With short term rental, you have no chance to actually do a character investigation or a background check on the tenant ‘cause they will only be staying there for a day, so it’s practically useless, not unless you really wanna do it, but very rare. The applications or portals have the ability to do this. If you’re a hotel, as long as they’re paying the fees and they’re checking in with their correct IDs, you just have to accept them and then that’s it. But if you’re dealing with long term rental, since your tenant will be there for a longer amount of time, say for example, a year. Before accepting his offer for the rental of the property, you have an opportunity to do a quick background check on where he works, what does he do for a living, who are gonna be the occupants, how many occupants are gonna be living there? You also have the ability to set house rules ahead of time.

In short term, yes, you also do have the house rules but where do you have a chance to do a background check? So, as far as security is concerned, long term will provide you a better security because you have the ability to do a background check on your tenant before you accept them. No, as far as short term rental is concerned, if you are talking about security cause many people are going in and out of your unit and you don’t know them and you don’t have a chance to actually screen them, you also run the risk of letting people in that you don’t know who might, you know, who might be okay or who might be dubious at times, who knows? But as far as security in concerned, you have slightly higher risk when you’re doing short term rental versus people who are doing long term rentals. And also if people are presenting documents to you: company documents (normally they do that), certificate of employments also, and proper background documents when they do the long term check.

Your properties’ relatively safer and is also usually well-taken cared of. Of course, this is entirely relative and it truly depends highly on who your tenant is and how you deal with them but as far as the standards are concerned, if you’re doing it properly, you’ve done your background check. Then, your property will be relatively safe.

So, what did we learn today? Today, we learned that there are benefits to renting your property and the benefits of renting will be up to you depending on the risk that you’re willing to tolerate and depending on the goals that you wanna achieve for your property. But I hope today’s topic was able to give a lot of ideas as far as the advantages and disadvantages are concerned, with long term and short term rentals. Thank you and we look forward to seeing you again here.