When I initially became a landlord (landlady?), the plan was to have long-term tenants. When my husband and I set out to house hack, we were planning to expand our long-term rental portfolio. Instead, we bought a bed and breakfast and added 3 short-term rentals. We now have a full year of managing short-term rentals under our belt, and a few years of managing long-term rentals.
Definitions:
House Hack: real estate investors buy a property, live in part of it, and rent the rest out. This could mean renting a room, an above-garage or basement apartment, or other unit(s) in a multi-family. In our case, this was a home with 2 cottages and mobile home/camper hookups.
Long-Term Rental (LTR): a unit that is rented for more than 6 months and usually has a lease.
Short-Term Rental (STR): a unit that is rented more than three times per year for less than one month.
When we started looking for another investment last year, we had a decision to make: should we add short-term rentals (STRs) or long-term rentals (LTRs) to our portfolio?
Pros of STRs:
Income: Our STRs bring in about three times as much revenue as they would if they were LTRs.
Cleaning: STRs are professionally cleaned significantly more than LTRs. Our cleaners are in the units multiple times per month, sometimes even multiple times per week.
Outdoor Upkeep Matters: LTR values are based on rents, which are only loosely tied to the outward appearance of the building. With STRs, you get bookings from pictures, so the paint, landscaping, and general appearance contribute to your bottom line.
Guests vs Tenants: Guests are often on vacation, and they’re almost always happy. They also know that they are a guest at your property, and are usually thankful for a nice, clean place to stay. Guests value the work hosts put in. Tenants sometimes think landlords are greedy and evil.
Owner Use: Owners can use their STRs themselves.
Innkeeper’s Rights: If a guest were to overstay their welcome or threaten host safety or the property, hosts can have them removed. With tenants, the process for removal can be expensive, lengthy, and time consuming.
Pros of LTRs:
Time: While the revenue is three times greater with STR than LTR, the time spent managing them is more than three times greater. To us, it’s more worthwhile work because it’s spent making people happy and caring for our properties.
Furnishing: There is generally no furnishing or decorating involved with LTRs, which can be an expensive and time-consuming endeavor. I happen to love this part, but it can be taxing.
Insurance: It can be difficult to insure for STRs, however, the market seems to be adjusting.
Financing: Most lenders will not use short-term numbers for valuations. They prefer to see long-term leases. Like with insurance, though, the market seems to slowly be adjusting.
Because the pros outweigh the cons, we’ve chosen to add more short-term rentals to our portfolio. We prefer interacting with guests over tenants. We love improving and taking pride in our properties. We like having the ability to spend time there, even inviting friends and family to join us. It’s more emotionally and financially rewarding for us to be hosts, rather than landlords.