Short Term, Long Term, or Mid Term Rentals – Which Should You Do?
A common question among homeowners who become more savvy is, “Should we go short-term or even mid-term?” If you don’t have experience with rentals, you may have the wrong impression of short-term rentals, and the idea of a mid-term may never cross your mind. Today, we are going to discuss the finer points, for better or worse, of all three. Here we go:
Short-Term Rentals Short-term rentals (think Airbnb, VRBO) have exploded in popularity in recent years. The cash flow is just unbeatable if you really nail it with your STR. Location, design, and price all combine to make or break an STR. Many people tend to think all short-term rentals are vacation rentals, and this is just not the case. An STR in an area ripe with professional opportunities, hospitals, and universities has a consistent flow of out-of-towners looking for a place to stay. Maybe they are here for medical treatment, to visit family, to look for a house, or for work. But that doesn’t mean they are on “vacation” and partying in your house.
The Pros: With an STR, you or your management company is getting eyes on the property every time a guest leaves, as opposed to once or twice a year at best for long-term tenants. Eyes on the property more frequently certainly make it hard for repairs to go unchecked and blossom into something worse. Cash flow from a good short-term rental can range from a few bucks to a few thousand bucks more than a long-term rental. BS repair requests are less frequent. Some repairs need immediate attention, and some just do not. Short-term guests are going to be less likely to waste your time and money with bogus repair requests.
The Cons: Instability. You will crush it some months, or even most months, but every now and then, you’ll have an off month. There will be ups and downs. Bad tenants can be really bad. You could get a bad apple who really does not care about the place. Fortunately, you have a few paths to recoup costs via Airbnb or their credit card. Municipal or HOA rules. Due to the bad taste and misconceptions some have about STR, you are at the mercy of the local municipality or HOA to allow you to operate. Time needed to clean and turn the property between tenants Harder to leverage a short-term lease
Mid-Term Rentals Mid-term rentals are the middle child and are very much neglected when compared to their siblings. A mid-term rental (MTR) can be something like month to month up to about 6 or 9 months. There are certainly advantages of an MTR:
The Pros: Again, eyes on the property more frequently means less deferred maintenance that could blossom into bigger issues. Cash flow will be a mix of more stable with higher, a true middle ground. Most folks looking for an MTR will not want to move in furniture. This gives you an option to rent it out furnished, and not moving furniture = less chance for walls to become damaged or to need paint and repairs.
The Cons: The pool of potential tenants is smaller, and it will take some extra time to find someone who needs and can afford what you have to offer. Furnishings could be damaged or stolen by a bad tenant. HOA rules may not allow shorter than 12-month leases. Harder to leverage a short-term lease.
Long-Term Rentals The classic path to wealth: long-term rentals. A good tenant can pay your mortgage for you for years. A bad tenant can wreck your wallet for years and cause tremendous headaches. Read on to see if a long-term rental is the best thing for you
Pros:
- Stable cash flow. You know what youre getting each month and a good tenant combined with todays online banking means you could be getting autopay on the 1st of every month.
- Less turnover = less cost. A good tenant that stays for years or decades is going to cut your costs with each year they stay and there wont be months without rent coming in.
- Its easier to leverage a property with a long term lease
Cons
- Lower cash flow. You are trading stability for less cash flow.
- Bad tenants could force you to evict them, costing valuable time and money
- Deferred maintenance could get bad. Fortunately this is easy to mitigate by scheduling yourself to do a condition check once or twice a year.