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Benefits of Vacation Rentals vs Long-Term Rentals

Updated: Jul 18, 2023

Vacation rentals and long-term rentals are two popular ways people use their properties to generate income. While both can be profitable investments, there are unique benefits to choosing vacation rentals over long-term rentals. Here are a few reasons why investing in vacation rentals may be the right choice for you.

Higher-income potential

One of the significant benefits of investing in vacation rentals is the chance for higher income potential. Think about it. Just like hotels, you can charge a higher premium for the convenience of a short-term stay. Unlike long-term rentals, vacation rentals attract guests who are willing to pay a premium for a transient, luxury experience. By providing an all-inclusive and enjoyable vacation experience, property owners gain the potential for higher nightly rates, which might translate into greater revenue. With higher revenue, a busy owner may choose to hire a management company that practically will pay for itself.

Flexibility & Personal Use

Vacation rentals give property owners more flexibility when it comes to usage. In most cases, vacation rentals generate income year-round, but property owners can use them for personal vacation use in the off-season. They could also allow friends & family to stay in their property. By using the property for personal use, investors can save on vacation expenses while still generating income for the vast majority of the year.

Lower Turn-Over Costs

By hosting guests for couple-night or week-long stays, investors in vacation rentals enjoy lower tenant turnover rates and holding costs than long-term rentals, which may have to fill vacant units annually. Guests know they are guests and tend to take care of the property better than someone who is leasing long-term. If anything goes wrong they are quicker to advise the owner or management about it because they don't want to get penalized or receive a bad review if they booked from a third-party site like Airbnb. A long-term tenant may deal with what they consider a minor issue like the HVAC making noises or that dripping sound behind the wall that could result in a bigger repair in the future because it wasn't fixed sooner. Moreover, guests staying a shorter time in the same property gives property owners more control over maintenance and repairs by conducting inspections between guests and doing preventative maintenance like changing the HVAC filter (something commonly neglected by long-term tenants that can result in expensive HVAC repairs). Additionally, many guests spend more time exploring the city they are visiting than in the property itself resulting in minimal wear and tear. Long-term residents, on the other hand, cause more wear and tear and many feel they have a right to make changes like painting that neutral wall bright red or converting the dining room into a bedroom. Yikes!

Lower Collections & Holdover Costs

What happens if a guest loses their job or runs into a financial bind that limits their ability to pay their bills like rent? Well, if they are already staying in your property they may decide to end their vacation early but depending on the cancelation policy you put in place, they may not be entitled to a refund or you may decide to refund the nights they won't be staying in the property anymore. Being a little lenient in these situations can result in good reviews and that same guest may decide to re-book your place in the future. Even if they cancel before they arrive, again the cancellation policy you put in place may protect you but you may be able to find a new guest to book your place anyways. Not a big deal. Now, what if a long-term tenant loses their job or runs into a financial bind? Hopefully, they just end up paying a few days late and you collect a late fee. However, they may struggle to pay at all, especially with late fees being added on. You may be able to agree to a payment plan so that you can at least have some funds to pay your property expenses like the mortgage on the property. They may get caught up or they may struggle and you end up having to file an eviction that costs you money by the way. It can be a month or maybe even a few months before you get in front of the judge and hope they give you the right to evict them. Then you have to wait another week or more for the sheriff to arrive to set them out. All this time without collecting rent. During the COVID Pandemic, there was a moratorium that resulted in landlords having to wait 1-2 years to evict a tenant. Thankfully, Vacation Rental owners didn't have to deal with this. Although traveling slowed down for a bit, there were still traveling workers like traveling nurses and even locals looking for a quick escape keeping properties booked.

More Creative Opportunities

Did you know you don't have to own a property in order to get into the Vacation Rental game? Rental arbitrage is a type of short-term rental strategy where a person leases a property from a landlord and then re-rents it out on platforms like Airbnb, Vrbo or for a higher price, making a profit in the process. The goal of rental arbitrage is to generate revenue beyond the cost of the lease and operating expenses, such as rent and utilities. Additionally, your Vacation Rental doesn't have to be a house or condo. There are so many creative opportunities with minimal investment and large returns. For example, you can rent out your basement or an in-law suite in your home. Maybe you have a pool house or separate garage you can convert. You can also purchase land and place a few tents, RVs, and tiny homes, or get creative with converting buses into a cool accommodation option.

In Conclusion

Vacation rentals can be a fantastic investment opportunity, particularly in areas with high vacation demand. The ability to meet guests' expectations and the financial benefits that come with the option make it a popular investment choice for property owners seeking to generate substantial income. There are also more creative ways to get started. Just make sure you do your research to determine if a property is a good investment opportunity before investing. If you already own the property you want to convert to a Vacation Rental, you still want to double-check your local short-term rental laws to obtain proper permits and HOA approval (if applicable). Curious about how much you can earn? Contact GoTell Getaways for a FREE Market Analysis to help you determine if a Vacation Rental might be a good move for you!


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