Renting out a property to holidaymakers and other short-term lodgers can be a lucrative business, especially if the property is located in an attractive and popular area. Short-term rentals can often generate higher income than long-term rentals, but this relies on frequent bookings and market stability which comes with a lot of uncertainty.
Converting your short-term rental into a long-term rental can be a smart move for landlords who are looking for a more steady income from the rental property business. With a little bit of planning and understanding, it doesn’t need to be a difficult transition.
7 reasons why turning your short-term rental into a long-term rental could be a good idea
Converting your short-term rental property into a long-term arrangement can be strategically wise with benefits such as greater stability, reduced operational burdens, and the potential for consistent, reliable income streams. Moreover, in a rapidly evolving rental market, where regulations and demand fluctuations can impact profitability, transitioning to long-term rentals can provide landlords with a more resilient and sustainable investment approach. The main cons of having a long-term rental are:
- Consistent cash flow: While short-term rentals tend to generate higher income in theory, they rely on frequent bookings and market stability. Seasonality also plays a part, putting the property at risk of being vacant for long periods of time in the off-season. Long-term tenants can provide a more reliable and predictable source of income, as they usually sign on for a minimum period of one year.
- Lower management burden: Dealing with frequent bookings and accommodating the different needs of short-term tenants can potentially take up a lot of your time. In order to secure those much-needed good reviews, you have to be flexible quick when it comes to requests and inquiries, and you also need to make sure the property is clean and ready for the next tenant after each stay.
- Reduced Wear and Tear: Occasional guests in short-term rentals may cause more wear and tear on the property compared to long-term tenants who are more invested in the property and treat it as their home.
- Legal and Regulatory Issues: State and municipal laws can put intricate and frustrating regulations on short-term rentals. In Columbus Ohio for example, you need a special permit if you rent out your dwelling or parts of it for fewer than 30 days. Some cities, like Redondo Beach, CA, have even gone so far as to ban short-term rentals, much to protect the business of local hotels.
- Less Furnishing and Upkeep Costs: Short-term rentals usually require fully furnished spaces and regular updates to maintain attractiveness to guests. In contrast, long-term rentals may not require fully furnished dwellings, as tenants may want to bring their own furniture
- Stronger Tenant Relationships: While short-term renters may return for another stay, longer lease terms usually foster better tenant-landlord relationships. This positive rapport can lead to more open and streamlined communication and a higher likelihood of lease renewals.
- Potential Tax Benefits: While both short-term and long-term rentals have their tax merits, short-term rentals often have more complex tax implications, whereas long-term rentals offer more favorable tax benefits for landlords. These tax deductions may include property taxes, travel, and transportation expenses, professional services deductions and so forth. Check your local legislation to see what tax deductions may be applicable to your rental property.
Practical considerations before turning your STR into an LTR
Before you start listing your property on Zillow rather than Airbnb, there are several important factors to consider and practical changes you need to make, both in terms of the property itself and the frameworks around long-term tenants:
- Learn the local landlord laws: Check local laws and zoning regulations to ensure that your property is eligible for long-term rentals. Some states and municipalities areas may have specific restrictions or requirements for LTRs, and could even require
- Get the right insurance coverage: Long-term rentals usually require a different insurance policy than a short-term rental given the different risk assessments. Short-term rental insurance also tends to be more expensive than a standard landlord insurance policy, so this is an important step to take before getting your first long-term tenant.
- Draft a lease Agreement: Draft a comprehensive lease agreement specifically tailored for long-term tenancy. Include all necessary terms and conditions that reflect the extended rental period.
- Reconsider your property furnishing: While short-term rentals are typically fully furnished, long-term renters may have their own furniture or require different types of furniture. It may be wise to remove personalized items if there are any and opt for more neutral and durable furnishings if you still want to rent out the property fully furnished.
- Upgrade the property to make it suitable for long term tenants: Consider making upgrades that can enhance the appeal and comfort for long-term tenants, such as energy-efficient solutions and eco-friendly living.
Finding the right long-term tenant
Getting the right long-term tenants is a bit different than the short-term tenant screening process. Since long-term tenants are supposed to stay on for a longer period of time, you want to be certain they are a good fit. It's essential to conduct a thorough screening process, and if the prospective tenant has a pet, it’s highly recommended to conduct a pet screening as well.
Tenant screening involves verifying their rental history, checking references from previous landlords, and assessing their financial stability to ensure they can comfortably meet rent obligations over an extended period. Look for tenants who demonstrate responsible behavior, have a steady income, and possess a positive track record of respecting rental agreements.
Additionally, consider their lifestyle and how well it aligns with the property. Finding tenants who appreciate the unique characteristics of your rental and share a long-term commitment to making it their home will lead to a more harmonious and sustainable tenancy.
Having an open and honest line of communication will play a big part in your ongoing relationship with the tenant. Make sure you align expectations and address any concerns they may have about the property.
Offering incentives like property maintenance, regular inspections, or personalized lease agreements can also attract responsible tenants who value the longevity of their rental arrangement. By taking these factors into account and investing time in the selection process, you can increase the likelihood of finding the best long-term tenants who will not only take care of your property but also contribute positively to the community around them.
