Are you thinking about how to get the best return on your investment property? You face the crucial decision of whether to rent it out on a short- or long-term basis. Your choice can have a significant impact on your rental income and property management. Understanding the key factors involved can help you reach your goals and maximize the potential returns. This summary of the pros and cons of short- and long-term rentals will help you determine which strategy is best for you.
Short-term rentals
Short-term rentals (STRs) refer to the practice of renting out a property for a short duration, typically for a few days or weeks, to people seeking temporary accommodation. In many jurisdictions, STRs are defined as rentals that last less than 30 days (although the exact number of days varies). The rise of online platforms has made it easier for property owners to connect with potential guests, manage bookings and streamline the rental process.
Pros
STRs have the potential for higher rental income due to premium pricing during peak seasons and high demand. Furthermore, you can often charge higher rates on a nightly or weekly basis, significantly increasing overall revenue compared to long-term rentals.
Additionally, you can enjoy using the property for vacations or as a secondary residence when it’s not rented out. This added flexibility can be a major advantage for owners seeking both rental income and occasional personal use.
Furthermore, short-term occupancy leads to more frequent rental turnover, which can be beneficial for property maintenance and updates. You’ll be able to inspect the property regularly and address maintenance issues promptly between guest stays. This proactive approach helps keep the property in top shape.
Cons
On the flip side, there are several disadvantages to consider. Seasonal demand fluctuations can result in periods of lower occupancy and reduced income. For example, beachfront properties may experience high demand during the summer but fewer bookings during the winter.
Moreover, STRs require more hands-on management and maintenance compared to long-term rentals. Landlords must be actively involved in communicating with guests, handling bookings, coordinating check-ins and checkouts, and addressing any issues that arise during a guest’s stay. Additionally, there’s a need for frequent cleaning and property upkeep between guests. You can choose to handle these tasks yourself or hire a property management service to assist with day-to-day operations.
Another potential drawback is the increased likelihood of causing a nuisance in your property’s neighbourhood. Transient tourists pose a higher risk of disturbances, such as parties, excessive noise, and frequent comings and goings. These issues can lead to conflicts with neighbours and an increased likelihood that you, the landlord, will need to deal with complaints. That said, not all short- or medium-term guests come with this risk. For example, SiniSTAR’s platform lets you rent your unit to people who have lost the use of their housing due to a home disaster. This clientele usually just wants to quietly get back to their normal lives.
Lastly, operating an STR often entails higher marketing and operational costs. To attract guests, you’ll need to invest in professional photography, write compelling property descriptions and advertise through various channels. Additionally, booking platforms charge fees for each booking, which can impact profitability.
Regulatory issues
Regulatory limitations can also impact the viability of STRs. Local regulations, such as zoning restrictions or licensing requirements, vary by location and limit or prohibit short-term rentals in certain areas. Some cities and municipalities have implemented specific rules to govern short-term rentals. It’s crucial to understand and comply with these regulations to avoid legal issues and potential financial penalties.
Short-Term Rental Regulations in Alberta
Short-term rental regulations in British Columbia in 2023: what you should know
Short-Term rentals in Nova Scotia: regulations in 2023
Short-Term Rentals in Ontario: Rules and Regulations in 2023
Short-Term Rental Regulations in Saskatchewan
Long-term rentals
Long-term rentals refer to the practice of renting out a property to tenants for an extended period, typically six months or more. Unlike short-term rentals, long-term rentals involve lease agreements that offer more consistency for both landlords and tenants.
Pros
Long-term rentals have their own set of advantages. They offer stable rental income and peace of mind. With long-term tenants, you benefit from reduced turnover and vacancy costs. Having tenants who stay for extended periods reduces the need for frequent advertising, cleaning and tenant screening.
Long-term rentals also present an opportunity to establish solid tenant relationships. They become more invested in the property and are likely to take better care of it.
Cons
However, there are also some drawbacks to consider. Renting out a unit on a long-term basis means sacrificing personal use of the property for an extended period. Another factor to consider is that long-term rentals can generate lower income compared to short-term rentals.
You also face the potential challenges of dealing with problematic tenants. Some tenants cause property damage or fail to pay rent. This translates to time-consuming disputes or legal processes. Additionally, long-term rentals entail longer periods between property maintenance and repairs. Because tenants occupy the property for extended periods, there can be more wear and tear before you have the chance to maintain the unit.
Regulatory issues
Furthermore, if you go with this option, you’ll need to familiarize yourself with the legal and regulatory considerations of long-term rentals. Understanding local rental laws and regulations is crucial to ensure compliance and avoid legal issues. You should be aware of lease agreement requirements, security deposit regulations, eviction procedures and tenant rights. Additionally, compliance with fair housing laws and anti-discrimination policies is essential in providing equal opportunities for prospective tenants and avoiding legal complications.
Both rental strategies have their pluses and minuses. The choice ultimately depends on many factors, such as your income goals, property location, market demand, personal preferences and the ability to manage the property. By thoroughly assessing these factors and understanding what each option involves, you can make an informed decision that fits your objectives and maximizes the returns on your investment.