Pros and Cons of Short Term Rentals

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Muhammad Hassan
Published: Friday November 25, 2022
Real Estate

Over the years, the real estate market is evolved and tech startups like Airbnb and Vrbo have revolutionized the real estate market and especially changed the way you can generate revenue from rental properties, just like Vairt is changing the way you can invest in real estate. A new asset class in real estate called as “Short term Rentals” is emerged. STRs are the smart strategy you can use to generate capital according to your short-term goals.

Short-term rentals are beneficial in both the short-term investment and even in long run. They are considered as more profitable than traditional long-term rental properties. But you have to execute the STRs strategy in the most right way, there are many pros & cons you have to consider before you are going to invest in Short Term rentals. There are many different factors other than long-term rentals you have to consider before investing in STRs. Here we gonna discuss some pros and cons of Short term rental investment properties. You have to keep in view these prose & cons in developing the Short Term Rental Strategy

Pros of Short-Term Rentals

More Profitable than Traditional long-term rentals

The most appealing thing about short-term rental properties is that they could be more profitable than long-term rentals. This is because they are more commercialized than traditional long-term rentals. Traditional rentals perform like a proper residency to a single family, but in the case of short-term rentals, they provide those services that are usually considered in the domain of the hotel industry like accommodation service to visitors. Short-term rentals are for both solo travelers and for single families.

They perform like a hotel and provide accommodation service to dozens of people within the month, that’s why they are more commercialized and generate more revenue than traditional long-term rentals.  Let’s say, the average per night rent for a single-bedroom apartment in New York is $200, if your room is occupied for 20 days out of 30 in a month you are eventually making $4000, for instance in a worse scenario the occupancy is 50% you are still ending up with $3000 & the average monthly rent for an apartment in a New York is $2000. Obviously, there are SRTs are more profitable if the occupancy rate is higher. 

Tax Breaks

Short Term Rental properties are usually considered more tax-exempt than traditional real estate properties. There are many tax breaks for Short term rental owners, but there are tax variations within different states of the US related to STRs. Tax exemption highly depends on the laws and regulations of the state you want to invest in.

Overall, South Carolina and Texas are considered to be more property-friendly states because of their low taxes and easy regulations. But generally, STRs are considered as low tax property assets. You have to learn the tax laws and regulations of your state. You can visit IRS official website to learn more about the tax laws of your state.  

More Beneficial for Guest

One of the main reasons for the success of STRs is that they are more beneficial for visitors also. Short-term rentals emerged as a new asset class in real estate not only operating in the Real Estate Industry but also entangles with the hotel and tourism industry. And that’s the best part of STRs it is beneficial for both owner and guest.

As online platforms like Airbnb and Vrbo introduce us to a new way of renting property, where visitors can stay for a short period a short and have to pay less than hotels, most of the visitors preferred short-term rentals for their short stays. This is how short-term rentals became the favorite option for tourists.

On the other hand, STRs are more profitable than long-term rental properties. Now STRs are playing the role of hotels by providing accommodation services to tourists, visitors, guests, or anyone else who needs accommodation for a period of time. Guests can get other services like internet, food, housekeeping, laundry, etc., along with basic accommodation services. In New York, the average price for a hotel room is $450-$800 per night, but you can easily get a short-term rental for $200-$350. STRs are more beneficial for guests and tourists, that’s why they always choose STRs for short stays.

High in demand

Online platforms like Airbnb & Vrbo have contributed a lot in creating a high demand for these properties as they are now more accessible. We have witnessed within a few years how independent rentals are taking place of hotels. Now people prefer private & independent rentals for accommodation rather than hotels, as they are cost-effective at consumers’ end and more profitable for investors.

There’s always a high demand for short-term rentals in tourist-attracted areas and in urban centers. Although there could be seasonal high demand for specific vacation rentals, with the extensive market analysis you can choose your ideal vacation rental property.

More Flexibility

 In Short term rentals, you have more control over your property. You can run it as you want, and you can choose the days you want to rent your property. The tenant has to stay for a short period of time so, you have more access to your property. You can choose your tenants online from various options. You can also choose to rent from a certain range. 

STRs provide more control and flexibility in choosing tenants to rent a property. You can rent your property whenever you want. You can decide which days to rent it or not. 

Less wear & tear

In long term, there’s a continuous occupancy of tenants in your property, you have less control over your property, and you highly depend on the tenant. Whether they are taking good care of your house or not. But in short term, for rentals, you have more control over your property. People stay for a short period of time, so there is less wear & tear. You can also do regular inspections of your property & can maintain it to its highest rental potential.

Cons Of Short Term Rentals

Lack of Income Predictability

One thing that makes short-term rentals riskier is that they are less predictable. You don’t really know what could be the occupancy rate?. You can get a rough idea about the occupancy rate, but this is highly unpredictable. And eventually, the occupancy rate decides the profitability of your STRs.

Inconsistency in Income

Short-term rentals are also affected by seasonality so, there could be inconsistency in income. Some days in years, there could be high demand for short-term rentals and there are some days when the occupancy rate is extremely low.

You have to choose a property where the occupancy rate is maximum all over the year. But still, there is no guarantee that your property will produce a consistent income. Seasonality is only one factor that affects the occupancy rate, there are other factors that affect the occupancy rate. A consistent occupancy rate will result in consistence income. This is the thing you can’t completely control. 

More Risk is involved

More risk is involved in STRs, although the rental properties are considered less risky than other properties, the way STRs operates makes it riskier. You can’t predict the exact cash flow, occupancy rate, and revenue in STRs. Furthermore, there are many variations in STRs revenue and many factors that affect the occupancy rate that makes it riskier. You can follow many strategies to lower the risk, but still, it is a highly risky class.

More Expenses

If there is more revenue in short-term rentals, then there are also more expenses involved. You have to pay for utilities and services like internet, TV, cleaning, etc. You are also responsible for maintenance, renovation, and other expenses involved in making your property more liveable.

More Effort & time is needed

Short Term Rentals require more effort and time. In long-term rentals, there’s continuity, tenants stay for a long period of time you don’t have to hunt tenants. In STRs tenants stays for a short period of time, so you have to continuously hunt tenants for your property. Although there’s a high demand for STRs, there’s also great competition, you have to put extra effort to market your property to stay ahead of competitors. You also have to put extra effort and time to run and manage your STRs.

Final Words

Risk is always involved in any investment and business. There are also pros and cons for any investment, business, and asset class, so as STRs also have some pros and cons. You have to just understand them and keep them in view while making your investment or even when you are developing your strategies. You can also use pros & cons while evaluating yourself, whether you can handle it or not. It’s not rocket science, this is not to fascinate or scare you but to give you a whole scenario where you can develop your strategy according to it or even decide whether you should pursue it or not.




Read the Strategy for a Successful Short Term Rentals

Complete Strategies on How to achieve Short Rentals

Read Now

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Read the Strategy for a Successful Short Term Rentals

Complete Strategies on How to achieve Short Rentals

Read Now

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