How To Sound Like a Pro When Advising on Short-term vs Long-term Rental 🤓

As a property professional, understanding the nuances of short-term versus long-term rentals can be your superpower. Who doesn’t want to be a superhero, right? This knowledge empowers you to provide your investor clients with the best advice, tailored to their unique needs and investment goals.

The Appeal of Short-term Rentals

Short-term rentals, think holiday homes and Airbnb, can be attractive for their potential to deliver high rental yields. It’s essential to consider factors such as location, property management, and fluctuating demand when advising on this option.

The Stability of Long-term Rentals

Long-term rentals, on the other hand, are your steady-as-she-goes stalwarts. They provide a consistent income stream, often with less hands-on management required. It’s like a gentle river cruise, offering stability and predictability, ideal for investors seeking a low-risk, long-term investment strategy.

Advising your clients effectively means understanding their appetite for risk, their investment goals, and the time they’re willing to commit. With this knowledge in hand, you’re ready to guide them on their investment journey, whether it’s a wild rollercoaster ride or a serene river cruise.

Here are the top 8 things you should explain to your investor clients to help them decide on long-term vs. short-term rentals (and help you sound like a true pro!):

Operating costs.Higher revenue is commensurate with higher expenses. Particularly in the first year of operations as they will incur multiple upfront one-time expenses before even getting started. A holiday home is chosen as an alternative to a hotel, but the specifications remain the same for guests.
In addition, unlike long-term rentals, they must factor in the cost of utilities. Electricity, gas, TV/internet subscription are all on them. It would also be wise to assume higher than average consumption, as guests are more likely to keep the AC and lights switched on, even when they are out.

The greatest dent in profitability will be the holiday home operator fees, which range by provider from 15-30% of monthly revenue. It also varies by provider whether this fee is a percentage of the gross or net income. On top of that, they will need to factor in cleaning and laundry fees (which may or may not be included in the operator fee).

The fine print can make or break financial success. Establish operator costs and calculations early on…

Ancient proverb; where profit is, loss is nearby. When all is said and done, whilst the gross rent may be much higher, the overall net return could end up matching or falling short of the long-term rent equivalent.

Seasonality. Each city has it’s ‘high seasons’ and it’s ‘low seasons’. Due to this, annual occupancy rates cannot be guaranteed, and the average daily rate (ADR) will vary greatly so expectations need to be adjusted accordingly.
Only want to try it for a few months?Since most holiday home operators will insist on a minimum period service contract, so they may struggle to find one that will take on a solely high season engagement. Especially since a new short-term listing can take months to accumulate enough 5-star reviews in order to gain occupancy momentum and allow them to gradually command higher rates (commonly known as the ‘ramp up’ period).
It would be wise to avoid a bite-sized short-term rental strategy…

To reap the best rewards, you should recommend committing to short-term for the long-term rather than taking an experimental or high-season-only approach.

On the market to sell at the same time? Many landlords are switching to short-term rentals for ease of liquidity since long-term tenancy evictions can be complex. A common misconception is that it is easier to market and arrange viewings with prospective buyers wanting to view the unit. This is rarely the case for holiday homes in practice, since guests are less amenable to disruption or intrusion during their stay.
Wear-and-tear on the property. The property becomes a hotel, not a home. Guests, often groups, are staying in the property for short periods of time, so they are less conscious of mis-use and damages than a long-term tenant would be. As a result, repair costs can stack up due to the frequency and need for speed in resolving issues to keep the guest happy.
Location, location, location. Most holiday home guests are tourists or business travellers, so location and accesibility has a huge impact on the potential occupancy and daily rate of the property. Areas which offer convenient access, are close to the city’s key attractions and business hubs usually secure the best results as short-term rentals. Properties in more remote areas that are less likely to meet the demand for daily/weekly bookings may be better suited to a hybrid solution of monthly rentals.
Transparency and tech. It is important to select an operator wisely and enquire on their level of tech adoption and integration; as a lack thereof may cause bumps along the investor’s journey. There is a wide range of third party tech solutions available to operators that not only positively impact the performance of the unit, but give the investor comfort that their asset is in safe hands.
Rules & Regulations: Finally, it is important to consider the impact of any homeowners’ association (HOA) rules or regulations on short term and long term rentals. Many HOAs have specific rules governing rentals, such as minimum lease terms or restrictions on the number of renters per unit. It is important to review these rules and regulations and advise your clients accordingly, to ensure that they are in compliance with the HOA’s requirements.
So, which one is the golden ticket?

Well, it really depends on the investor’s goals, risk tolerance, and how much time they can dedicate to managing their property. It’s all about assessing the property’s potential, the local market conditions, and where the investor sees themselves in five, ten, or fifteen years’ time.

To put it simply, there’s no one-size-fits-all answer, and that’s where you, as a property professional, come into play. Your job is to guide them, advise them, and help them make an informed decision that aligns with their overall investment strategy.

Empowering Investors with The Best Advice

As a property professional, you’re in the driver’s seat. You’re the one with the know-how, the insights, and the understanding to steer your investors in the right direction. That might mean advising them to make a switch, or it might mean encouraging them to stay the course.

Your advice should be balanced, objective, and tailored to the investor’s individual circumstances. And remember, it’s not just about the numbers. It’s about helping investors achieve their dreams, reach their goals, and make the most of their hard-earned money.

So, short-term rental or long-term rental? There’s really no wrong answer. It’s all about finding the right fit for the investor and their property. As a property professional, your job is to help them navigate this decision with confidence and clarity.