Wondering about the benefits of running a short-term rental vs. a long-term rental in a thriving rental property city like Virginia Beach? What are the pros and cons of investing in a short-term rental on Virginia Beach vs. a long-term Hampton Roads residential rental property?
Whether you are a first-time real estate investor or you own multiple investment properties already, both short-term rental and long-term rental properties offer a unique opportunity to build wealth.
Real estate investing is a diverse business, with many strategies and approaches available to the investors. Two of the most common types of residential real estate investments are long-term (or yearly) rental homes and short-term rental properties (or vacation rentals). Understanding the differences between each investment type allows you to confidently choose the right strategy to achieve the highest return on your investment.
Places like Virginia Beach that have strong tourism and/or military presence are notoriously profitable areas for the residential real estate investor looking to generate predictable monthly cash flow. All single family and multi-family properties have the potential to be used as a short-term or long-term rental. Determining which rental strategy is best for your property is imperative to getting your ideal ROI.
Here we’ll cover….
The key differences between short-term vacation rentals and long-term rental homes
The benefits that each investment type offers
Specific responsibilities and challenges of yearly and vacation rentals
What You Should Know About Short-Term Rental Properties:
Short-term rentals, like those in Virginia Beach, are fully-furnished properties that rent for less than 30 days at a time and are subject to specific regulations and taxes. The short-term rental strategy comes with its unique benefits and challenges.
Short-term vacation rental properties, especially in lucrative resort areas like those along the coastline of Virginia Beach and Norfolk, come with some strong and clear benefits:
Higher annual returns: Because renters are looking for a comfortable vacation rather than a long-term commitment, owners can potentially make double the income with a short-term rental vs. a long-term rental property with increased nightly rates.
Flexible use: A great perk of owning a short-term rental is that it’s your property to use when it’s vacant - and since contracts are short, you can plan your own vacations or uses into the schedule with ease.
Consistent oversight: Because there is more tenant turnover on the property, any issues with the property are more likely to be noticed in a timely manner. This will allow you or the property manager to ensure that the rental is being maintained to your standards year-round.
Market strategy: Owners of short-term rental properties have the ability to pivot with the market. In times of uncertainty (such as a pandemic), you can easily adjust your rental strategy even from week-to-week.
While an incredible investment opportunity in locations like Hampton Roads, short-term rental properties come with increased responsibilities versus long-term rentals:
Operating expenses: Short-term rental guests aren’t responsible for paying for utilities, and they tend to use them more than long-term tenants. You should prepare and strategize to cover the costs of utilities, restocking toiletries, and washing any linens that are provided.
Taxes and regulations: Laws regulating short-term rentals have been taken more seriously in recent years, resulting in more taxes and regulations. Make sure you are aware of what the state and local guidelines are for starting a short-term rental. For example, Virginia Beach short-term rental owners must obtain a $200 zoning permit each year.
Management and marketing: Operating a short-term rental is almost like operating a hotel. The constant cycle of new tenants requires regular cleaning, managing wear-and-tear, and more consistent marketing than a long-term rental.
Up-front costs: Entering the short-term rental market usually requires you to fully furnish the rental property, so you’ll want to prepare for some extra start-up costs.
What You Should Know About Long-Term Rental Properties:
Although short-term rentals can offer the opportunity for a high financial ROI, this does not mean it’s the best use of your property. Not all properties are suited for short-term tenants, and not all owners benefit the same way from the increased responsibilities. Long-term or yearly rentals provide tenants with a longer contract and commitment, minimizing your regular involvement.
Long-term rental properties have a lot of “pros” for the real estate investor:
Income stability: Contracts spanning several months or a year - and sometimes longer - give long-term rental owners a solid idea of how much income the property will bring each year.
Lower operating expenses: Long-term rental tenants are typically responsible for paying their own utilities, taking care of their own landscaping, etc. They will also purchase their own necessities, so you won’t need to restock toiletries or cleaning products for them.
Peace of mind: You can avoid a lot of the headache of short-term rentals because your role in a yearly rental property is less involved. Tenants shoulder much of the responsibility, so less regular management is required on your end.
Reduced marketing: Less turnover means that you don’t need to constantly be thinking about marketing your property to find a new tenant. Vacancies are less likely and less often, so you can sit back and relax while the monthly rent comes in.
Long-term rentals can be an easy investment to operate in many ways, but there are limitations that owners of yearly residential properties must work within:
Fixed income limits: While the stable income of a long-term rental can bring financial peace of mind, it does limit the ROI for your property. The home can only generate the cash flow that has been outlined in your long-term contract.
Property use: The long-term rental owner’s use of the property is much more limited than that of a short-term rental. Because the residence will be rented long-term, it may be months before you can enter the property for personal use or desired updates.
Maintenance limitations: With less turnover, there are fewer opportunities for you or your property manager to have eyes on the property. It’s possible that issues such as needed plumbing repairs could go without necessary repairs for a long while only under the unpracticed eye of the tenant.
Wrong tenants: When allowing someone to live in your investment home long-term, it’s important to find a good fit. Securing the wrong tenant for a yearly contract could mean more headache or damage to your property without the promise of them leaving in a few days. If a tenant can’t pay their rent, you have to take the proper steps to evict the tenant before the property can begin generating income again.
THE BOTTOM LINE
When it comes to investing in a short-term vacation rental property vs. a long-term yearly property, there is much in the balance of risk vs. reward. Short-term rentals can produce a significantly higher ROI than a long-term rental property, but they also come with more responsibility and higher risks.
When deciding the best use of your property in Hampton Roads or to begin identifying your next investment property to purchase, contact CGP Real Estate Consulting.
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