The Benefits of Investing in Long Term Rental Properties Rather Than Short Term Ones
Real estate investing is a great way to make money, regardless of the economic and financial situation.
However, with the rise of the short term rental industry, investors have faced a major dilemma: Should they go for traditional rental properties or Airbnb rentals?
While investing in vacation rentals sounds like an attractive opportunity sweeping US markets, investing in long term rental properties comes with many important benefits. Here are the most significant ones.
Stable Rental Demand
The most important advantage of investing in long term rentals is the steady demand from tenants which they enjoy.
The spread of the Coronavirus pandemic in the US market demonstrated once again the vulnerability of the Airbnb business as guests are canceling their reservations and not making new ones.
Data from the real estate data analytics company Mashvisor shows massive drops in the Airbnb occupancy rate in the major US cities as a result of COVID-19. Between March 2019 and March 2020, New York City experienced a decline of 19 percent, San Francisco of 22 percent, Austin of 27 percent, and Atlanta of 32 percent, as just a few examples.
Meanwhile, demand for traditional rental properties has remained virtually unchanged in these locations as well as in the rest of the US housing market.
While people might not be looking for new rentals at the moment, very few if any are leaving their current properties. After all, in any situation people need a place to live. From an investor’s point of view, long term rental properties provide a stable demand which makes them one of the lowest-risk investment strategies in the real estate industry.
Since traditional investment properties are rented out on a monthly or sometimes even yearly basis, the turnover is significantly less than with short term rentals. This is a major benefit for investors as it brings about predictability and a sense of stability.
Once a landlord manages to get his/her property rented, he/she can keep the same tenants for months or even years, as long as he/she performs some basic maintenance on the property.
Marketing an income property, looking for renters, and screening tenants are sizeable expenses for an investor, so he/she should aim to minimize them. That’s exactly what long term rentals do.
Reliable Source of Income
The ultimate goal of any real estate investor is to make money, and the way to make money with rental properties is through rental income.
While the truth is that Airbnb properties can bring a large income during the high season, most locations face a low season too, when the earnings of an investor drop significantly.
This variability is something which the owners of traditional rentals do not need to deal with. Because of the nature of traditional lease agreements, landlords can enjoy the constant flow of rental income month after month, without worrying about seasonality and subsequent fluctuations in rental demand. They can use their time and efforts to focus on expanding their real estate investment portfolio to make even more money with rental properties.
No Need to Adjust Pricing
Another pro of buying a long term rental property related to the point above is that you don’t need to keep changing and adapting your rental rate.
Airbnb hosts have to be flexible and adjust their pricing strategy on a weekly or even daily basis to optimize the occupancy rate and the rental income of their property. At the same time, landlords have to set up the rental property pricing with the help of rental comps once, with no need to change it for several months or even a couple of years.
They don’t have to fear that their competitors will be able to attract more tenants and leave their property vacant as the same holds true for all investors in long term rentals within the neighborhood. This makes traditional rentals a much more passive source of income than short term rental properties.
Airbnb guests are notorious for the amount of damage which they frequently cause to vacation home rentals. This is a particularly challenging obstacle for hosts in major party destinations such as Las Vegas, Miami Beach, NYC, Los Angeles, San Francisco, and others.
On the other hand, tenants treat rental properties as their own home as they spend months or even years living in the same place. Tear and wear is significantly less with long term rental property investments for this reason.
Moreover, depending on the provisions of the rental agreement, in many cases renters are responsible for the basic maintenance work on the property where they leave, while tenants have to intervene only in case of major problems.
Overall, this means that when investing in a long term rental property, you have to budget a significantly smaller amount of money for repairs and maintenance. This allows you to decrease your rental expenses, which means that having positive cash flow properties is much easier with the long term rental strategy rather than the short term one. In turn, this translates into a higher return on investment. In addition, less maintenance means less time spent on managing your rental property and more time spent on enjoying your rental income.
No Need to Pay Utilities
In most cases, tenants – and not landlords – are the party responsible for paying the utility bills.
In a rental property, utilities are one of the most sizeable recurring monthly expense which can fluctuate majorly from one month to another depending on the weather, for instance.
Not having to factor utility bills into the rental rate and the monthly expenses is a major benefit which investors in traditional rental properties enjoy, while Airbnb hosts don’t. This gives their investment property analysis more consistency and reliability.
Easier Property Management
All the advantages discussed until now mean one thing: that long term rental properties require less property management than short term ones. Once you’ve found good tenants, you can spend months in a row simply collecting rent without having to look for new renters or perform maintenance on your property.
Ultimately, traditional rentals turn into a passive real estate investment strategy very easily.
The benefits of buying long term rental properties are numerous, the most important ones being the stable source of income and the less active involvement on behalf of the real estate investor.
Even at tough times like the present, traditional rentals attract a stable demand and bring a good return on investment.