Thanks to the emergence of Airbnb and countless other comparable platforms, real estate investors now have two options when renting out a property. You can target traditional, long-term tenants, or you can lease the home on a short-term basis to vacationers and out-of-towners.
Both have perks and drawbacks, of course. One is a little more hands-on but potentially more lucrative. The other requires less work but could result in more wear and tear on the property.
Not sure which rental property strategy you should take with your investment? Let’s look at both sides of the coin.
The pros and cons of short-term rental properties
Short-term rentals have exploded in popularity over the last decade. Though it started with Airbnb, dozens of new platforms have emerged and major hotel brands and multifamily developments have gotten in the game.
It speaks to the growing consumer demand for more flexible, affordable travel options as well as the sheer profitability it offers investors (in some cities, hosts rake in upwards of $300 per night).
Still, short-term rentals aren’t right for every investor, and they definitely have their drawbacks. Are you considering a short-term strategy for your investment property? Check out the pros and cons below.
Pro: There’s potential for high earnings
If you snag enough bookings, short-term rentals can mean serious income -- especially compared to longer-term properties.
Just think: If you’re charging a tenant $1,000 per month for a one-year lease, that’s a maximum of $12,000 per year (minus your mortgage and other costs). But what if you’re renting it out for $150 a night just 15 days a month? That adds up to $27,000 -- $15,000 more per year.
What’s even better is you can change your pricing strategy based on demand, seasonality, local events, and other factors. This lets you maximize your returns and fill vacancies more easily when needed.
Pro: It’s easy to get started
Launching a short-term rental is as easy as snapping a few photos, writing a listing description, and adding it to Airbnb, VRBO, or another platform.
You don’t need a real estate agent, there are no leases or contracts involved, and you can get started right away. Compared to longer-term rentals, the barrier to entry is extremely low.
Pro: The home gets less wear and tear
Short-term rental properties generally only have guests for two to three nights at a time. Visitors aren't hanging photos on the wall, cooking regular meals, or even spending much time on the property in most cases. Ultimately, it equates to less wear and tear and, most importantly, fewer maintenance and repair costs on your part.
Pro: You get a vacation home for yourself
Buying a property on the beach or up in the mountains? Maybe one just down the street from Disney World? The great thing about renting it short-term is that you have access to it, too. Just block the days you want to vacation off your booking calendar and enjoy a little R&R yourself.
Pro: You’re usually paid up front
Most short-term rental platforms require users to pay up front, so there’s no risk of nonpayment or skipping out on the bill. They often include cleaning fees and other costs as well.
Best of all, the funds are usually transferred quickly. On Airbnb, for example, hosts get their payments about 24 hours after the guest’s check-in time. That can be a big perk if you’re used to only getting a rent check once a month.
Con: There might be rules and regulations to deal with
Short-term rentals have received a lot of pushback. Many cities have enacted new regulations (or sometimes even bans) to deal with them. HOAs aren’t too happy about them, either.
This isn’t the case for every locale, but do your research before buying a property you hope to rent out. Check with the city building department and look at local deed restrictions, too.
Con: The income isn’t as stable
There’s a lot of seasonality to the short-term rental game. If your property is on the beach, you’re probably not going to see high demand in the dead of winter. If your area is big on college football, you might have trouble filling those vacancies once spring rolls around.
That’s not to say you won’t get any bookings during these off-season times. You just may need to be more creative with your marketing or consider running some sort of promotion to bring renters in.
Con: It requires more cleaning and regular maintenance
You have to be pretty hands-on with a short-term rental property. The home needs to be cleaned, restocked, and essentially reset every time a guest checks out. If you’re running a busy property, this can mean serious time (or costs if you’re outsourcing the job).
More than this though, your care for the property will also impact your listing’s reviews -- and that directly influences how many guests you bring in and how much cash you can make. Scrimping and cutting corners on this only costs you more in the long run.
Con: You’ll have to furnish, decorate, and stock the property
As a short-term rental host, you’re responsible for furnishing and decorating the place. You’ll need beds, tables, chairs, linens, coffee makers, and all the staples you’d typically find in a home or hotel room.
On top of this, you also need to stock the place after every use -- that means buying toilet paper, napkins, water bottles, coffee pods, and so on. The costs can seriously add up over time.
Con: You’re in charge of the bills
Short-term guests don't foot the bill for the electricity, gas, or any other utility. That’s all on you. And if you really want to make your place hospitable, you’ll probably want to go ahead and add in cable or Netflix charges, as well.
Con: There’s nothing to protect you from damage
Damage can -- and will -- happen with short-term rentals (especially if the property’s popular). While some short-term rental sites have “insurance” policies in place for their hosts, there are limitations to those.
Platforms also don’t do anything to discourage damage on the part of the renter. With longer-term tenants, you have leases, security deposits, and other measures in place to encourage better care of the property.