Short-Term vs. Long-Term: Which Rental Model is Right for Me?

For 2024 landlords, here’s the ultimate question: short-term or long-term rentals? 

Learn more about the perks (and potential pitfalls) of these promising investment options.

In the year 2024, the phrase ‘short-term rental’ takes on a completely new connotation. In some circles, it even incites rage and frustration! 

But why is that? 

How has such a banal expression inspired countless battles and full-on brawls among investors, developers, city officials, condo boards, and multifamily residents? 

Fascinating questions. Let’s discuss! 

Airbnb revolutionizes rental strategy

When VRBO, Airbnb, and similar online rental marketplaces hit the scene in the 90s and 00s, no one anticipated how truly HUGE they would become. For a time, commercial landlords used these sites to list their properties and connect directly with short-term vacationers. 

Instead of going through a costly property management company, owners could pick and choose their rental windows, set their own rates, and ‘run the show,’ so to speak, without being locked into a more permanent long-term agreement. Meanwhile, renters enjoyed shopping for their next getaway without the need for a travel agent or some other middleman. 

Flash forward to the 2020 pandemic, and the popularity of these sites exploded! But this time—it wasn’t all about the luxury vacation.   

With their newfound ‘remote’ freedom and desire to escape the big city, people flocked to Airbnb to find refuge by the night, week, and month (much more flexible than the typical 1-year multifamily lease). And thus, the current short-term rental boom was born! 

Real estate professionals finally woke up to the unrealized potential of the short-term model and its many unique benefits. But now that we’re a few years into the trend, investors are also uncovering some of the hidden disadvantages (and community drama!) that comes along with running an Airbnb-style rental property. 

So, investors, the question remains. Who wins the war—short-term or long-term? 

We’ll begin with an overview of the pros and cons. This month, we had a little help from Everest senior loan officer, Judy Stein. Read on to see which model is right for you! 

Battle of the Rental Models, 2024: Short-Term vs. Long-Term

First, let’s discuss the basic differences between these two rental designations. 

Ranging from single-family properties to condominium units to semi-private areas of an owner-occupied home, a short-term rental is a fully furnished living space typically available for rent at a per-night rate. They are commonly referred to as ‘vacation rentals,’ as many investors lease their short-term rentals in beach towns, mountainous ski spots, and other popular tourist destinations. 

Meanwhile, the conventional long-term rental usually comes unfurnished and is leased to tenants as a standard 1-year lease (with exceptions). Rents are set on a monthly basis with properties consisting of multifamily apartments, duplexes, condominium units, single-family homes, and beyond. Long-term rentals are located in all places and geographies, as tenants are renting to live as opposed to vacation. 

Besides their distinct rental models, short- and long-term properties also have different tax implications for investors. Mrs. Stein explains, “Municipalities generally consider a short-term rental anything rented for 30 days or less. But according to the IRS, if the average stay of renters is 7 days or less, it is considered a short-term rental property; if the average stay is more than 7 days, it is considered a long-term rental property.” 

So, the rental model dictates how the investment is filed on your returns. Not to mention, short- and long-term rentals are completely different animals when it comes to their profitability. 

“Long-term investments can provide steady growth over an extended period, but they require patience and dedication,” says Mrs. Stein. “On the other hand, short-term investments offer greater liquidity and potential for quick returns, but they come with higher risks and require active management.” 

On that note, let’s talk about the various pros and cons for investors. 

Short-Term Rental Advantages 

Higher income potential

Because short-term rentals are usually leased in popular vacation destinations, owners can charge higher rates compared to long-term rentals of similar size and amenities. It’s not uncommon for Airbnb owners to also increase their rates on weekends, major holidays, and during peak travel season. People are willing to pay—and this helps line landlords’ pockets. 

“Some of my clients have short-term rentals managed by a management company in very hot markets (think Florida) that are almost always rented out,” says Mrs. Stein. “The income they bring in is quite impressive and definitely more than what a long-term rental would generate.”

Growing demand 

Research suggests that the U.S. vacation rental market will reach $20B in revenue by 2025. This represents more than 50% growth in a 3-year period. So, people weary about investing in a short-term rental property have some promising opportunities to look forward to on the horizon. 

Even though places like New York City have levied super strict restrictions on Airbnb and similar short-term rental companies, that doesn’t mean our local investors can’t cash in. In addition to the Jersey Shore, towns like Jersey City, Hoboken, and Weehawken, NJ have seen huge demand for short-term rental homes and apartments. 

Unique market access

“Investing in a short-term rental property is a great way to diversify your market portfolio,” says Mrs. Stein. “Simply put, many of the apartments, condos, and single-families that thrive as Airbnbs would not be as profitable if offered as long-term rentals.” 

So, if you find a great deal in an area known for its seasonality or high tourist population, the short-term model is a dream! 

Rental flexibility and protection

The good thing about Airbnb is that renters pay for their stay upfront, which eliminates the problem of having to track down non-paying tenants. Since short-term guests are only on property for a small window of time, landlords also see fewer squatter situations. Not to mention, people who choose the short-term model can still enjoy their own homes! It’s easy to block out dates if you have family coming to town or want to stay overnight in the unit. 

And now, just a few…

Short-Term Rental Disadvantages

• Community drama. This is one of the hottest topics in today’s real estate market—especially for developers and condo boards who need to come up with policies and by-laws that address everyone’s concerns. The reality is, most full-time unit owners do not want the constant come-and-go shenanigans of short-term renters. Meanwhile, investors push hard for short-term rentals to maximize their income. This never-ending battle makes for a lot of proverbial noise for anyone investing in this model. 

• High tenant turnover. Short-term rentals may dodge the notorious squatter problem, but that doesn’t mean the revolving door is all sunshine and rainbows. Many Airbnb hosts become easily overwhelmed by the constant check-in, check-out, and all the details that come along with hosting new guests every few days. You also have to worry about the occasional ‘nightmare tenant’ even when rental sites have screenings in place. 

• Inconsistent income. Vacation rentals have tremendous income potential, but nothing is guaranteed. People operating in seasonal markets can expect their units to be vacant for days, weeks, and MONTHS at a time. And if you fail to book guests during peak season, you’ll still have to pay your mortgage, property taxes, maintenance fees, and more. As a short-term landlord, you must accept that your income will fluctuate. 

• Property management. Speaking of maintenance—are you prepared to furnish, clean, and maintain the grounds, trash, laundry, pantry, and other responsibilities associated with running an Airbnb? Can you be on call at all hours of the day? Successful short-term rental landlords must be responsive and available for guests’ questions and complaints. That is, unless you’re willing to pay a property management company, which is not cheap. 

Long-Term Rental Advantages

Consistent income

On the flip side, listing your property as a long-term rental with a standard 1-year lease comes with a host of advantages—especially when it comes to reliability. Once you have renters in place, you can sit back, relax, and collect your monthly stipend without worrying about the constant booking, rebooking, and monitoring of a short-term vacation rental. 

Per Mrs. Stein, “There’s a reason multifamily investors are so successful in general, as the model (almost always) guarantees a steady, reliable cash flow.”

Fewer turnovers

There’s always a bad apple in the bunch. But when you know tenants will lease your home or apartment for at least a year’s time, you can afford to slow down the process and screen them appropriately. Landlords routinely run background checks, credit checks, income verification, and other evaluations to ensure the people they lease to are credible. 

Mrs. Stein adds, “Having this opportunity helps reduce your overall risk and gives you greater control over who is coming into your rental.” 

Cheaper maintenance

The property management fees for long-term rentals are much more affordable compared to short-term. Tenants are responsible for furnishing and cleaning their own spaces (and sometimes the grounds of the property), as well as paying for certain utilities and other amenities as dictated in the lease. Not to mention, you won’t have to pay listing fees to keep your property up and running on multiple vacation rental sites. 

Still, there are some shortcomings to the standard lease. 

Long-Term Rental Disadvantages

• Revenue limits. While short-term landlords can change their rates as often as they want, monthly long-term rental rates are fixed for the duration of the lease. That means you can’t take temporary advantage of peak season surges, holidays, local conferences, sporting events, and other factors that may increase the demand for your property. 

• Legal woes. Signing a long-term lease agreement means you are subject to local laws and regulations, which vary widely depending on the state and/or city in which your property is located. What happens if a tenant stops paying rent? Or if they are injured in your home or apartment? The legal considerations surrounding long-term rentals are much more complicated than those listed under (and potentially protected by) Airbnb. 

• Lack of flexibility. You may love the idea of renting your investment property to a consistent, reliable tenant. But that also means you can never stay there yourself! If you’re looking to enjoy your condo or single-family vacation home from time to time, the short-term model might be a better option. Signing a yearly lease means you are surrendering your property to someone else. You won’t have the same level of control and access—in fact, it’s your duty to notify residents in advance if you’re stopping by. 

So, is short-term or long-term the better model? 

Everest says: there’s no right or wrong answer!

Everest Equity

The region’s go-to mortgage company for 

short-term and long-term rental investment 

Our seasoned commercial loan officers bring you vast and varied options

 for financing your multifamily or single-family property. Get in touch today!