Rentals - Long Term vs. Short Term
So you’ve been thinking about it, you’ve been planning, and now you are ready leap into the investment rental game! But what now? Long term rental or short term rental? Property management or DIY? Let’s look at the pros and cons of the different options.
Short Term Rentals
Short term rentals or vacation rentals are great in resort type areas such as the Truckee/Tahoe areas as your property can be used for personal use also. The amount of income per night you can bring in is about 2-2.5 times the amount of a long term rental. For example, a nice 3bd/2ba home might bring in $2800 a month, that is less than $100 a night. The same home used for a short term rental could bring in $275 or more a night. Sounds pretty good, right? Which would you rather have $2800 or $8250 in a 30 day month? Let’s look a little closer at the details.
I n the Truckee/Lake Tahoe area, most folks are coming in for 2 or 3 night getaway. You would probably average 12 days a month. That is taking into consideration that it would probably be booked more in the popular months (December, January, February, March, July) and be quite a bit lower other months, especially the shoulder seasons of Fall and Spring. That would bring you in right around $3000 a month. A few other considerations for owning a vacation rental is that you are at the mercy of the economy. I speak from experience on this issue as we owned a vacation rental in Maui. At the height of the recession (2008-2010), people quit traveling to Hawaii. The condos that did rent, were available for about half price. The rest sat vacant. Not only does the national and global economy effect rental rates but in Tahoe the economy is so dependent on the snowfall. On a good winter, you can raise your rates and cash in on the influx of skiers flocking to Tahoe. On a bad winter, you would need to lower your rates to remain competitive among the smaller pool of visitors. Also keep in mind that your investment will rent best at premium times, holidays, etc., possibly the exact time when you and your family would want to use it.
Would you hire a property management company or do-it-yourself? A property management company will charge you 15%-20%. Your property is in a pool of other properties and your property manager works for all the property owners to rent out their properties. In other words, no one will be as concerned about renting your property out as you.
So should you do it yourself using VRBO, Homeaway, or AirBnb and save that 15%-20% of your rental? You would need to have a dependable cleaning service and handy man service. There are plenty of both in the area. You just need to be prepared to answer emails and return phone calls 7 days a week or you will lose business.
One of the main aspects of owning a vacation rental is to realize you are not just renting out a house but more of an experience. These days online reviews can make or break your investment. You need to make sure your linens, dishes, and furnishings are nice. Short term renters can be hard on things and household items and appliances need refreshed or repaired often. You are responsible for all utility payments and repairs although you can pass the cleaning fee onto the renter and charge a damage deposit in case of damages. In my experience it is hard to prove the damage and the deposit is returned.
Long Term Rentals
One big drawback of choosing to use your investment property as a long term rental is that it is not available for personal use.
So we’ve already discussed the difference in rental income. Your profits could be large some years and not so large the next with a short term rental. Long term rental income is much more consistent. Long term renters, if vetted well, tend to treat your property with a little more care and respect. The renters pay the utilities. Even if you rent your home furnished, you do not need to refresh linens, dishes, etc. Also, if you do choose to use a property management company, the fee is not usually more than 10%.
Another Truckee/Tahoe Option
One option that our area has as a well known ski resort area is to rent your home as a ski lease. A ski lease rental usually lasts from 2 - 4 months and is rented by a family, a group of families, or sometimes a business for use by their employees. The lessee pays utilities. Many times cleaning is an option that can be included or excluded in the lease agreement. Maintenance tends to be less than on short term rentals.
A lot to consider when purchasing an investment property. Whether you are a long time investor, if you are doing a 1031 exchange, or this is your first time, I will help you find the best property to help you meet your goals.