Exploring Short-term vs. Long-term Rentals: Pros and Cons for Investors

This is a Short-Term Rental

The Washington State Legislature has defined a short-term rental property as being a lodging, that is not a hotel or motel or bed and breakfast, in which a dwelling unit, or portion thereof, is offered or provided to a guest by a short-term rental operator for a fee for fewer than thirty consecutive nights.

That means renting out a home for a period of, let’s say, three months, does not qualify it as a short-term rental. But, if you rent out a property for a night or for two weeks or for 29 days, you are essentially a short-term rental operator. 

• Short-term rentals are furnished.
• Short-term rentals typically have utilities included in the rental amount.
• Short-term rentals are subject to the local and state laws that govern them.

This is a Long-Term Rental

We typically think of long-term rentals as any property that’s rented out for a period of one year or more.  However, if you’ve just read the definition of a short-term rental, you’ll deduce that a long-term rental home could be a property that’s rented for six weeks or six months. 

Situations where a tenancy may occur between one month and twelve are rare. For our purposes today, we’re thinking about long-term rentals as those lease agreements that cover at least a 12-month period. Maybe you’ll have a 9-month lease or an 18-month lease. 

• Long-term rentals are not furnished.
• Long-term rentals usually require tenants to set up and for their own utilities. 
• Long-term rentals have their own set of rules and laws that govern habitability, security deposits, eviction, etc.

You get some pretty sweet flexibility when you’re renting out a short-term property. You aren’t tied into fulfilling the obligations of a long-term lease agreement when you do short-term rentals. If you’re leaving the area temporarily and you hope to move back into the home one day, short term leases will allow you to get the home back when you’re ready. You can also block out times of the year when you want to use the property for yourself or someone in your life like family members or colleagues. You can structure rental periods seasonally or in ways that work best for you. 

There’s also the matter of how much money you can make with short-term rentals, especially now, when they’re so popular. You charge more on a per-night basis with short-term rentals than you do with long-term rentals. This can generate some great cash flow, especially during high seasons. When there’s a big festival in town, you can expect an occupied property and the highest rents. A lot of landlords do really well renting their property out as seasonal rentals or short term stays and they earn enough income to make up for any vacancies that they experience during slower periods. The nightly or weekly rate you charge on a short term rental is often double or even triple what you’d charge per-night on a long term rental. 

You never know who you’ll have living in your home from night to night or week to week. This is a great way to meet a lot of diverse tenants, if you want to. Some property owners are naturally social and they want to greet and get to know the people staying in their property. A lot of short-term rentals have guest books where their guests can leave messages. This creates relationships and a sense of community, which can be an added perk in your rental business.

This is not a set-it-and-forget-it situation. There’s more time required in keeping up with your short-term rental. You must be responsive to your frequently changing renters, and you’ll have to locate new tenants and move them in every few days, weeks, or months. You’ll need to handle the rental agreements and make sure the property is in good condition during each turnover. If you cannot commit to the intense ongoing maintenance and care of your property, a short term lease might not be best. There’s no passive income when we’re talking about short-term rental properties, unless you have a local property management partner doing all the logistical work for you.

Vacancies will happen. Even in the most popular areas of Washington State, the property won’t always be occupied, so you’ll need to constantly look for tenants. When you take all that vacancy you’re incurring over the long haul, it will add up to a lot of money that you would have saved had you locked someone in for a 12-month term or longer. 

There will be costs, and you’ll need to cover them even before you have rent coming in. You’ll need to provide furniture as well as linens, pots and pans, cooking utensils, and creature comforts that guests are looking for. Wi-Fi will need to be good, smoke and carbon monoxide detectors must work, and you’ll have to have safety precautions in place. The utilities will be up to you, and if you have a guest in place for two weeks who enjoys half-hour showers or icy cold air conditioning, that’s going to have an impact on your energy bills. 

You’ll have high demand from tenants, especially in this part of Washington State, where plenty of well-qualified residents are looking for attractive homes in good locations. 

Well-maintained homes are hot properties, and the current supply is not exactly keeping up with the demand, especially now, when tenants are putting off home purchases until interest rates come down. There is a healthy pool of renters. So, you’re likely to find highly qualified tenants when you’re renting out a long-term property. There’s no hustling for the next guest. 

There’s less turnover when you’re renting out a home for a year or more. Long-term tenants provide stability for your property. There’s less cleaning that needs to be done and the wear and tear usually isn’t as intense because instead of a revolving door of guests, you have consistent people in place for a year or longer. You know exactly how much you’ll be earning from year to year because the rental amount is set. There’s less guesswork involved. 

There’s something important about providing housing to people in the community. There’s been some backlash against short-term housing and vacation rentals because a lot of people believe that there’s a housing crisis, especially when it comes to affordable housing. By taking so many properties off the market so that they can become short-term rentals, there’s been a concern that housing will remain inaccessible for a lot of people. Long-term rentals, when managed responsibly, can improve your reputation. 

So, why wouldn’t you want to make your home a long-term rental property? Start with simple money math. You won’t get as much rent per-night on the rental home that comes with a long-term lease. While your monthly rent will be comfortable, especially as rents are rising, a short term rental can charge much more per night. It’s easy to feel like you’re missing out on thousands of more dollars.

You’re locked into the lease agreement when you sign one with a long-term tenant. If you decide you want to move into the home yourself but the tenant still has seven months on the lease agreement, you’re going to find that it’s practically impossible. You don’t have the same kind of flexibility. The property belongs to you, but essentially it’s someone else’s home.

Landlord and tenant laws apply to long-term homes. Washington State is generally a pretty tenant-friendly state, and you will have to understand and comply with fair housing laws, security deposit requirements, habitability standards, and other state, local, and federal requirements. It’s easy to make a legal mistake, and those mistakes are always costly.