Ep 16 - Short Term Rental VS Long Term Rental
What does it everyone? This is broke. Magno financier, which are host mom Khan and your Co. Host Bahaji meal. Today's episode. We're GONNA be talking about shore term rental versus long term rental. Question that I've been actually getting from a lot of people and you? I was like I might as well discuss this. Let me give you my insights into the matter. What's what works what doesn't work advantages disadvantages between the two, and just how situations like the current situation that we're in the current scenario affects either or so yeah. You want to start off with like I. Guess More so what short-term mental I feel like people might have an insight on what long-term is what give them a little bit in exactly is short term rental. Yes, sure. So. There's two types of rentals short-term and long-term ray. long-term is pretty simple straightforward. It's more of what everyone is used to so when you go rent an apartment right most likely, it is a long term rental you sign a year lease or multiple year lease that is considered a long term rental. Versus short term so short term has many different varieties. It could mean anything from one day of us to several months. Okay and usually doesn't go on for a year. A year would be considered long term, but if you have let's say one example is vacation home. Let's say you have an AIRBNB somewhere up in. Let's say the Poconos Ray and some were rented out for the weekend right two days, and that's considered short term rental. Okay, so it's only two days. There even some cases where rentals or even airbnb is going to several months ray. That is also considered short term rental ray. And then there's other types aside from vacation homes for example like. If you're sending apartment, there's also like office spaces. You can rent out early right. We work is considered in a sense and this office share. Maybe you could consider it. Obviously. That's like a business, but I agree I. Know People that within their own like building space they. sublet or like share office space is temporarily to like whoever like meeting spaces are like a desk base, and then they charge them for that, but yeah. All right, cool cool, thank you for giving like brief overview were like the difference between the two because again. I feel like it's just good to like. Get it out there for especially new listeners or people who are new into this things WanNa get more inside and like what is going on. Now, just moving on, we're going to talk about like a little bit of both advantages and disadvantages, if all over both of them, but we're going to start off with long term mental so I personally do a lot more long term rentals than short-term. Don't a lot of research into short-term. I'd may still be open to in the future is just just when I did the research. It just seemed a little a little too much for me, but I'm going to get into the long-term fortune I the first thing which I personally like. Income is consistent like you are. You're renting it out and you're leasing it your. Let's say your apartment or your house, or whatever for at least a year and you know to again, if all things are fine, your income going to say consistent, so if you're renting on a one bedroom apartment in wherever you're getting twelve hundred dollars a month, you're fine getting that twelve hundred a month. You're going GONNA continuously get that twelve hundred a month. You'RE GONNA. You'RE GONNA. Get on the first of the month, and you're perfectly. Find there, so I feel like that's something that. Gives you to a certain degree ease of mine like you don't have to worry body. Do you don't have to worry about like God is going to get rented. This week is going to get rented the next week. It because the market's not hot, is it because the tourist injured Jeez Down Right now? Is it because it's the winter because my thing does better than the summer for like short term rental, so death consistency helps you. That's like a huge advantage on a long-term mental versus short term rental perspective. Another one I would say is. It's easier to manage and I feel like this is like if applicable, if it's something that's like most of the time you know your tennis are wants. He likes sort out your problems. You talk it out the lease or whatever the situation may be, you know there's going to be any problems because you don't have to supply them. All the different needs it like you would in a short term rental your tenants. They're here. She's doing their thing. That's it. You're probably only gonNA close. If something breaks, which usually maintenance, and even then that's supposed to be. In a sense I don't WanNa say rare, but not too often. It's not supposed to be a common, so that's why it to. That degree is usually easier to manage. Because of those facts whereas I, feel like if it was like a short term. The case would probably have to like go a lot of back and forth with them like they might have to ask you some. They might find the keys. They might not know what's going on like again. It's a new person every single time it's not the same person living with you. Your ten in per se for like years, which could be possible and for? Long term, rentals. So for example like let's say. Once you do have good tenants. And they do obviously if you have bad tenants, that's another issue, but if you have good tenants, you know maintain. Most of the maintainers is probably handled by them. Solitaire is a small clog. They'll probably clean it out themselves. But anything major. Obviously they'll come to you since it is your property, but most of the things in the house. They'll probably handle it themselves. Whereas short-term rentals. You do kind of had to. You really don't know the person right since they're only. They're very temporarily right, so you can't really build some kind of. Rapport with them right and not only that. Let's say for example if you're doing it through AIRBNB. Their break something. Obviously you can file a claim, but they can also dispute it, and then there's a whole back and forth thing. They got to a whole case to see WHO's. Who's right and who's wrong, so that's definitely a disadvantage of short term. It could be a higher risk in that sense. Yeah I agree yeah, definitely agreement. Another interesting one I feel like a lot of people kind of like forget about this is utilities in a long term. Rental tenants will be paying most if not all of the utility's applicable to them whereas short-term. You're stuck with everything. The most you can I know airbnb lets you do this. You can charge cleaning fee. I don't necessarily consider that utility is just something that okay. Get that extra charge, but at the end of the day you end up using them to pay someone or yourself to put the time into clean the place, but utilities huge thing if you're like water bills, gas bills, electricity, all that adds up to a lot of money throughout the time. So that is something. If you're paying for you, that's one less 'cause. You have to worry about less one less stress you have. have to worry about and is something where like in the short term until where you know the person's there here. She is not going to care as much of using as much as water heater the AC. Let's say because they're not paying for it. You are so the bill could to a certain degree depending on how much it was occupied could be substantially large after using all those things, so those things again is this little cost that end up adding up and turning your cash flow into like negative cashflow, and possibly like you know not making a property worthwhile. So. Those things actually do matter where I feel like people kind of forget and get more. Maybe they turned to optimistic thinking. That's not what's going to happen. It's I always try to be on the conservative side and being very thoughtful like okay I put buffers into my expenses just to be on the safe side to make sure even with buffers is still profitable, so that's a huge thing that i. personally like the tenants are paying most, if not all of the utility bills. So. I'll talk about the next one. Cheaper property management so for long term rentals. Do. You really don't need a proper property management management. Obviously unless it's far away from you. Then you probably have multiple and you like. Let's say you got like ten. Plus nearly all right can't be dealing with so many correct, so yeah, so it's also cheaper since they really only have to go once a month to collect the rent and maybe more than that just a couple of times a year because. For any maintenance, but aside from that pretty much all they do, whereas for short term rentals. They have to go every time. Someone is finished bentinck right just to make sure everything is working properly they. Have a party in destroy everything over there right, so it's it's a lot cheaper for a long term rental because it's only once. At least minimum once a month, but Very few more than that. Yeah I. Agree because I feel like even the once a month. That's nothing crazy and that's if they even still give cash or mail like they hand the check. Sometimes they have direct deposit setups. They might not even have to do that. It could literally just a few times a year for their usual inspections of the property. Just to ensure you know everything is up to date. They don't want to do some repair. The ten doesn't know something's happening with the pipes or whatnot, but exactly like you said the short term rental gotta go every single time. They gotta take pictures. Pictures Time and effort on their part, which makes a business from their side. They charge you more, so that's eating for more from your profit. Because the cost ended up being more so this is actually interesting that your property management even though you might not like it from short term rental perspective because I feel like everyone I've talked to who doesn't like a property management company. The the one the short term I feel like it's a it's a I. Don't WanNa say worse, but it's way more stressful because there's so much more happening in such a short amount of time. And I feel like one of the final ones at least that I can recall from the top of my head is excuse me shorter vacancy periods. Meeting wants to have a ten. Do you have a good tenant signed a lease? Due Diligence. You did a background check credit report all that other good stuff, and this is the best for you, and then they're going to live there for a long period of time. You don't have to stress about well. Something happens like they're going to leave in two months or three months. This person is going to be paying rent continuously for at least a year until they're Lisa's up and your goal is obviously you know if they were good. Tenants silently comes some like. Don't raise the rent too much on them. Give them. Them a deal, let them say as long as it's a good tenant and they're paying rent. That's all that matters, so we're short term. Let's say you got a great deal. You know you've got someone for two weeks. They paid you a lot of cash and we'll talk about that once we get to the advantage of short term. They paid you good probably more than like. Let's say two months of rent worth in two weeks because of the increased cash flow from there, but after that it didn't run for the next two months. At the end of the day you ended up taking the laws. Because now you have a property desert stealing sitting there empty nothing is happening. You're not getting. Any income is not worth it, so that's a huge. Plus side from on a long term rental versus a short term rental perspective and just GonNa flip off their advantages, and some disadvantages of short term rental, and is exactly what I just said was the higher income potential, so whereas if you're renting a one bedroom apartment for twelve hundred a month if you were in a again, this is all dependent on your location in. In the market, heart, touristy market, or whatever vacation rental market you could easily be renting that. Let's just say for the whole month for easily four to five thousand dollars a month, and there are houses that do more than that and that do consistently that dollar amount every single month, so there is a lot of higher income potential there and you'd be surprised like. People do make from like these short term rental properties. And another interesting before I, handed off to hard to talk about a few other points. Is You actually better maintenance there? And what this means? Is this ended up costing you more, but it ends up being a little bit worth it. It's a little weird because you have to make the property always be in its best shape. It has to always be top. Top notch condition because you always have to take pictures new pictures. You always have to show them like look at my property. It is the best from best one out of the whole market. Come rented with me because you want the best turn you want the best like conversion rate. You want people to Click and rent it from you and no one else. So you always consistently making in the best shape possible whereas I feel like a long term rental at least personally from the few people. I know and talk to an experience. We just make it look good and livable like this. Is it for this type of class neighborhood? This is what works and here you go for. AIRBNB you have to kind of go above and beyond because you're trying to pull people in whereas again long term rental. You don't have to do that. Could vary feel like an luxury neighborhood, but The, at least the classification of neighborhoods I mean you don't have to do that, so it's an interesting feature i. feel like that short-term rentals in that in that sense. Yeah, definitely. so yeah, so I guess next thing I would want to say probably. In short term until you can while the advantages that you can adjust your pricing, okay, so if you have a long term rental property, you can only price it to what other houses around the area are priced at, so it would only be around that price, whereas for a short term rental you can kind of. Very quite a bit depending on your property, even like the House next to yours. Short term rental it could be priced at a really different rate, so you know you have some leeway. As to what your pricing is Ray and obviously you know Dow would also depend on. How many customers you get you. It really depends on what your pricing is, and whether it's actually white that much. But the thing you also have to consider is that there is a higher risk in short term rental. Because let's say you do price it higher. You're getting a lot of money for a couple months. The next month. It's not rented out, you will. Lose the money technically like you mentioned. so that's the higher risk you're. You're. And just exactly on that point like let's say we're. GonNa use Poconos as an example again. We know it's usually a hot market in the summers and somewhat winters for ski purposes and I, think fall and spring not as hot, but the funny thing is. Let's say you were renting it out for one hundred and nine in the Poconos. You can drop it down to one hundred dollars. Dollars a night. You have no nothing you don't lose anything from doing that. And then people like Oh, you know I rather take my family now because this is cheaper for me, and I don't mind and being the fall or spring I fight with it, not being the summer because this is when I am off in my family's off and you can easily rent it out whereas. Rental property. You can't necessarily do that. You're renting it out most likely for at least one year. For part of the lease, and if you say your apartment was twelve hundred, no one's renting it for a couple months and you drop two thousand. You're taking a huge hit throughout the whole year of attended not paying rent which again. You can't risk that because you'd probably pay mortgage. You probably got pay taxes all those different things that are gonNA pop up so you have to obviously priced accordingly so I feeling. That's a huge advantage from the pricing perspective. Like, you were saying for like adjusting so yeah definitely. So I guess another thing you can do is the good thing by short term rental. You can use it for personal use right so as a vacation home. That's probably one of the main thing people use it for for example, let's say. You have an AIRBNB property somewhere. A lot of people do use it for short term rentals as well as their own vacation homes. Okay, so they don't use a vacation home throughout the year. Probably maybe once or twice a year for like a week or two right, so that's good, but then while it's just sitting there. They want it to you know. Make some basically do something. That's why they rented out and have. Some! Extra income. As a short term rental? Okay, so it's definitely a thing. If you do have a vacation home or want vacation home, this is definitely. I guess the thing the way to go as a short term rental. Agreement I wanted to talk about like like little experience person experience like why I'm a little hesitant on short term rental, and so two reasons one I would say like the current situation I know this is like a little unexpected, but short term rentals took a huge hit because of like the current world circumstances, so but the main one I would say. Is More so it was what I didn't like. Watch was at least in the US. A lot of rules and regulations like once the place keeps getting too popular. A lot of new laws and rules come into effect where they're kind of like either banned short term rentals, or they put new fees on them or they don't let them rent it out for like less than two two little days or too many days. It just turns weird like Orlando had like these laws passed where they started taxing them more certain places online, don't they weren't letting them rent? Rent it out anymore I. Think Poconos. They started taxing you more. You had to register it with the county or something if he didn't. They find you a couple of thousand I think New York City. You can't do a lesson thirty days I know people still do it, but it was something weird. They did as well so like like rules and laws and regulations change consistently around short term rental and I would say that's mostly because of the boom from Airbnb, so that has caused it to happen, because so many people are doing it and earning money and. They're saying it kind of. Affected rental prices in general I think there was other report that kind of disapprove, but still a lot of the politicians and whatnot kind of like. These laws in a started like banning them more like outright. Not letting them just do work, so I feel like that's a huge flaw that can kick in, but this was only happening in markets. That weren't necessarily. dominated in a tourist perspective meeting like Brooklyn. New York City is but. There wasn't like rental homes in Brooklyn. So they'll. People went to hotels. Wherever there was a rental like vacation properties similar like poconos or Aspen. They didn't get as. As like cities worldwide cal I. Think San Fran Orlando. Near New, York City I guess it was weird, but it's something that's like changing consistently, so it's like you always have to be on your toes. You could be making money one day, and then the next day boomed abandoned, and you're like crap. What do I do now? Yeah. It's a it's a little intriguing back on that matter. This I guess this was like the. From our side like the overview of like the differences between the short term rentals like long term rentals, some advantages here some disadvantages here. Again if you buy personal opinion. I personally like long term rental I like the consistency of income even like with the current situation of how the market is. People are still getting consistent cash flow. I'm still getting rent from tenants. Nothing happened there whereas short-term rentals huge hit. The nothing is essentially going for a couple of months if they don't have any cash reserves and they're paying mortgage. They're screwed. Man I feel sorry right now. I don't even know if they qualify for like mortgage relief because it's an investment property. Maybe they do maybe have got the small business loan, but it's. It's an interesting lake tape because they obviously got impacted way more than a long term rental person. You have your thoughts. On short term versus long term preferences orange opinions. I mean I definitely prefer long-term. Over short term, but I wouldn't mind having one one or two short terms here and there mainly, because as a vacation home, but also as a short term until but. As the main moneymaker, stick with long term rentals. GonNa say if you do out for offer short-term they. Where would you go? Would you try to go someplace? That's like a lot of rules and regulations, or would you try to go like that's like built up places for vacation rentals, and you're kind of like just joining in, but not as not as a corporation, but Alec has an individual's like something like poconos. Maybe they would you go for, or would you go from like Stanford or something like that? Well, probably one close to New York so definitely. poconos is. In there. Aside from that maybe Florida just mainly, because the weather's pretty good mostly all year round. But you know still. Have some research to do on those neighborhoods and areas. gotcha interesting. Yeah I think aside from that guy this was. Our overview of short term rental versus long term rental. If you guys overall enjoyed our podcast. Be sure to subscribe to us. Wherever, you're listening. If you're an apple, be sure to leave us. A review would greatly appreciate it if you want to check us out YouTube channel. It's called Brooklyn legno finance We aren't patriotic as well so if you've got to keep support us over there, you know, help us keep this podcast. CHECK US out. There broke millennial finance. We have three tiers We have the dollar fight all and twenty five dollars, in which you could with the highest one you can do. Live QNA's with us, and we have special episodes as well for people in our second year. And the first year just for us to help us out. So definitely, check us out on Patriot as well. All links will be in the show notes. Definitely check us out over there, and aside from that everyone have a beautiful day. Stay safe and peace out piece.