9 Reasons to Convert your Short-term Rental to Long-term
Over the last 10 years, there has been an exponential growth of short-term growth in rental units across the world with many investors and operators experiencing great returns and able to run a healthy business on this short-term. As the industry has matured, supply has also matured causing short-term returns to diminish and to reevaluate the best use of their real estate assets. A natural choice is to take these short-term rentals and convert them to long-term rentals. In this article, we’ll talk about why and how you can convert your short-term to long-term. Below are 9 reasons you should consider long-term rentals over short-term rentals.
#1 More consistent and stable sector
With the onset of COVID-19, many short-term rental operators and owners have seen their revenue vaporize. Short-term rentals cater to corporate and leisure travel, which makes it a non-essential industry in many instances. Long-term rentals have the benefit that they’re always needed. In-fact, the percentage of the population choosing to rent versus own has increased over the past couple of years. No matter what boom or bust economic cycles we’re in, people will always need a roof over their head.
The average tenant stays in a property for 1 to 3 years and can even stay 10+ years. This results in a steady stream of rental income every month. Even when a tenant moves out and you need to do a turnover, you may be able to get a tenant moved-in immediately after the out-going tenant. And if priced correctly, you should have under 30 days of vacancy. Professionally managed rentals should easily be able to achieve a vacancy rate of 95%.
While short-term rentals can show higher revenue in any given month, the cash-flow generated will widely vary depending on many factors. These variables include:
- Tourism and fluctuations based on seasonality and allure
- Business travel and needs of surrounding industries
#2 Less risk of regulatory changes
With the growth in short-term private rentals, regulators have put stricter policies in place to protect other local businesses, such as hotels. For example, short-term rentals can be subject to additional taxes, reporting requirements, and restrictions with any new laws passed. It is more rare for this to happen in long-term rentals. We’ve started to see local cities and counties adding regulations such as:
- Outright restrictions on vacation rentals
- Minimum stays, such as 30 days
- Additional taxes and fees on income
- HOA and community restrictions in bylaws
And, these changes to your local county can happen overnight.
#3 Fewer safety and fire inspections
Short-term rentals may be subject to more inspections such as safety and fire inspections. While some long-term rentals, primarily apartments, will have regulations in the common space, most single family homes long term rentals do not have mandatory city inspections. These inspections take money and time to coordinate. For your long-term rentals, you are typically inspecting the CO2 and smoke detectors only during the turnover.
#4 Utilities and internet are not paid by you
Generally, utilities and internet are paid by your long-term tenants. The tenants will put the water, gas, electric, trash, internet, cable, and other common bills in their name. You are not responsible for paying or monitoring it. And, who wants a 2 A.M. call that the internet isn’t working?
For multi-unit building, submetering is a great way to make sure it is fair and each tenant is only paying their portion based on usage. For both single family homes and apartment complexes, you only need to put the bills in your name during the turnover process.
#5 Tenants will take care of basic maintenance
You are not responsible for cleaning, fixing light bulbs, and other simple maintenance with long-term tenants. With single family homes, the landscaping and yard work is typically listed as a tenant responsibility in the lease. With short-term rentals, guests often treat it as a hotel, with no cleaning responsibilities or upkeep.
#6 Reduced insurance expenses
Short-term tenants and short-term rentals are considered more risky for insurance companies and therefore command a higher insurance premium. With any insurance policy you also open yourself to premiums suddenly increasing or even worse, insurance companies opting to not cover you. With long-term, there will (in the vast majority of cases) always be competitive insurance available.
#7 No tracking of furniture
Short-term rentals are expected to be furnished. To stay competitive, you need to make sure it has tasteful styling, decor, features etc. Short-term guests are generally more demanding since they are generally mid-to-higher income earners.
This is not only an additional capital expenditure but adds a new level of up-keep including:
- Ensuring the furniture is up-to-date and attractive to potential guests
- Cleaning stains and spills during every turnover
- Making sure there is no health hazard or liability to guests
- Tracking utensils and other smaller items, such as how many wine glasses are remaining
- Purchasing furniture upgrades, which includes coordination of moving trucks, delivery, elevators, etc.
You may have artwork, pillows, towels, and other items stolen from a short-term rental. You’ll need to track or replace, which is either an investment in time or money.
#8 Less risk of damage or noise complaints
Short-term rentals are treated more like hotels, not a home. There is inevitably more damage and wear-and-tear. You may also have complaints about noise, such as parties, and broken items. While rules can be put in place, you won’t have cameras in the property and may risk not knowing what really happened and when.
#9 Passive with operational work and effort
Short-term rentals take significant work to manage, which includes:
- Monitoring local market prices and changing costs, especially with events
- Consistently trying to keep the unit occupied and generating income
- Staying on top of regulations, mandatory inspections, HOA rules and other external factors that can affect your operations.
- Confirming the guests were able to access the unit and are happy with it
- Managing every turnover, including washing sheets, cleaning thoroughly, etc.
- Making sure there is consistent quality with the cleaning
On the flip side, long-term rentals are much more passive. You will have roughly three to four maintenance requests per year and annual renewals. And, rent collection can be automated through an online portal.
Convinced? Here are the steps to get started.
Step 1: Analyze local market and regulations
It will be important to gain a familiarity with the local market and regulations. Things to consider:
- What are the current or pending regulations on rent-control etc.
- What is the economic forecast for the city
- What are the current CAP rates and where are they expected to go
- What are your HOA regulations on renting, if applicable
You’ll want to be conscious of this before moving to long-term rentals. To view a list of tenant-landlord laws, visit us here to view by state.
Step 2: Understand how to reconfigure your rental
Analyze what is currently on the market in your area and what are the most popular rentals (fewer days on market and more contacts). Some things to consider include:
- Do furnished rentals stay on the market for longer? In most cities, they are a more difficult sale to long-term renters which means you’ll need to remove the furniture
- What types of properties are in most demand? Is it 1 bedroom rentals or a larger home?
- What is the rental price that you could expect to receive? Learn more about pricing your rental here.
- Should the unit be renovated or updated for longer-term renters?
Step 3: Choose your property management system to use
70 percent of long-term rentals are self-managed or use a system like Hemlane. You will want to speak with local agents, managers, and review online solutions to determine what works best based on your needs. You can learn more about the cost and time savings of property management options here.
Step 4: Find qualified tenants!
Your goal will be to have the rental on market for less than 30 days, with an average of one inquiry per day. If you are not getting those results, then you may have it priced incorrectly or be listing it in an “off” season (e.g. a single family neighborhood where children are in school).
The most costly expense is a bad tenant, and therefore you want to make sure you select a tenant who meets your criteria. Here are some articles on selecting tenants:
- The Rental Application Screening Process
- 3 Fastest Steps to Understand Credit
- Best Practices for Lease Agreements