With the change in the market this is an interesting question to answer that has a variety of factors. First some definitions, don’t worry I will try to keep it interesting. So What is Long Term and Short Term Rentals? Long term refers to traditional renting or leasing. Usually long term rentals are at least 12 months long and many times these tenants stay for years. When it becomes more expensive or difficult to buy a home, you will usually see an increase of long term rentals hitting the market.
Short term rentals in this context refers to rentals that are a couple days at a time, similar to what we would think of when we go on vacation or stay at a hotel. With the arrival of platforms like Airbnb short term rentals have seen a huge increase in the last 5 years. Although VRBO has been around for many years, it seems that Airbnb was able to really open the market up to people who may have never heard of VRBO. Which of course if my opinion.
Which is Better?
Now that the definitions of long term and short term rentals are out of the way, phew! Back to the question, which one is better? Well it’s a tricky question nowadays. If you had have asked me back in 2020-2023 I would have said short term hands down. The income potential was twice what you would make with a traditional long term rental with a more open ended profit model.
Now a bit of history. During the 2020-2023 housing prices shot up like crazy. places that were usually around 150k was selling properties for twice that much or more and there were bidding wars left and right raising the prices. Great for the sellers, but was it great for the buyers?
With the Airbnb boom, many people and not just traditional investors, but all sorts of people were seeing the income potential and ease of entering the real estate market because of a platform like Airbnb. It was almost guaranteed that you would make lots of money because we saw people traveling domestically within the US constantly for those 3 years.
The downside was if one bought in that time they may have been looking at very high interest rates and high mortgage rates. Now the profit margins were smaller, but for a bit, there was still profit. Cue the drop in bookings. So how does this affect long term and short term rentals? Let’s look.
Now what happened?! It was raining bookings for a good few years and they were higher rates, but all of a sudden they dropped off and with the surge in Short term homes on the market things became more competitive. Where it was like fishing in a barrel it was much more difficult to get bookings. Many started dropping prices to encourage more bookings. But remember, mortgages for many who got in the surge later were super high.
— See Part 2 for what happens next! Curious about how you fit in the world of long term vs short term? Check this out!