Should You Invest in a Short-Term or Long-Term Rental? 15 Things to Consider

As a real estate investor, you may be torn between owning a short-term or long-term rental, the latter being a property you rent out for 12 months at a time or longer. Both options have their advantages as well as their drawbacks. Let's dig in.

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When you sign a longer-term lease, you get to enjoy the stability of regular income. That could make it easier for you to manage your cash flow. It also eliminates the stress of having to pay for property maintenance without rental income to offset those costs.

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With a long-term rental, you sign a single lease that could remain in place for 12 months or longer. As such, you won't have to deal with signing numerous lease agreements throughout the year. Also, while a new tenant may have some questions while settling in, you're apt to spend less time addressing those than you would with a string of short-term tenants.

With a long-term rental, you don't have to pay to have your unit cleaned in between guests. You only have to make sure it's clean when your tenant moves in. The result? Less work to coordinate and less money to spend.

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Someone living in your home for at least a year may want to renew their lease. Therefore, a long-term tenant may be less likely to cause damage to your property and more likely to treat it with respect.

With a long-term rental, once you sign a lease agreement, you're locked into that rate for a year or longer. Since you can't keep raising rent as demand increases, you may end up earning less money.

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Any time you rent out a home, you run the risk of ending up with a bad tenant. With a short-term rental, you may have to endure a loud guest, but that guest may only be staying a few days. With a long-term rental, you may have to deal with a lousy tenant for months on end.

When you sign a lease with a long-term tenant and that tenant runs into financial issues, you could go months without collecting rent. Such was the case during the pandemic when a federal ban was put into place to prevent evictions on the basis of non-payment. While that was an extreme situation, it's one to consider when investing in long-term rentals.

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With a short-term rental, you can raise rates for holiday weekends or peak season or as demand soars. As such, a short-term rental might make you more money.

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It's not uncommon for investors to occupy their own rentals from time to time. But with a short-term rental, this becomes more feasible. You can simply block off a week during the summer to stay at your own beach house or reserve your ski chalet for a long weekend during the winter.

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You never know when you may want to sell a property to free up cash. With a short-term rental, you don't have to wait out the length of a lease to make that move, whereas, with a long-term rental, you could end up having to wait months.

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When you own a short-term rental, you run the risk of going many weeks with your home unoccupied. That could result in a cash crunch if you're heavily reliant on your rental income to offset your operating expenses.

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With a short-term rental, you're responsible for cleaning in between guests. And if you have a high level of turnover, you could end up spending a lot of money in that regard. You may also end up spending a substantial sum to restock your rental's kitchen and replenish amenities like soap and toiletries.

When you rent out your home on a short-term basis, collecting a small security deposit is common practice. But if you end up renting to a group of people who trash the place, that deposit may not be enough to make you whole.

A longer-term tenant may be less likely to cause damage, as that could result in not getting their lease renewed and alienating you as a reference for future rental applications.

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Some people don't like the idea of having a home on their street rented out to a different set of tenants every week. So, if you invest in a short-term rental, you could end up having to deal with unhappy neighbors.

Some cities' rules regarding short-term rentals may not be so favorable to you as a landlord. The same might hold true if you own a rental that's part of a homeowners association. These rules tend to be more lenient when it comes to long-term rentals.

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As an investor, you may enjoy your share of success renting out property on a long-term or short-term basis. If your budget allows for it, you may even want to dabble in both. But if that's not the case, take some time to weigh the pros and cons carefully before making that call.

It also wouldn't hurt to talk with other landlords to see what their experiences entail. Hearing firsthand accounts might sway you in one direction versus another.

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