Investing in real estate has always been a reliable way to build wealth, but you have a wide range of investment strategies to choose from in the world of real estate investing. The right strategy for you will depend on your specific situation, risk tolerance, and financial goals. However, for the purpose of this post, let’s dive into why choosing to invest in short term rentals (STRs) is a better option than buying and holding long term rental (LTR) investments.
Higher Income Potential
One of the most attractive aspects of short term rentals is their potential for higher income. While long term rentals provide a steady monthly income, STRS can generate significantly more revenue. This is because nightly rates for short term rentals are often much higher than the pro-rated daily rate of a long-term lease. For instance, if you charge $150 per night for a property that could rent for $1,500 per month on a long-term lease, you only need to rent it out for ten nights to match the long term rental income. In general, in the Austin market we usually see that a property will generate around three times as much annually if its used as a STR as opposed to a LTR.
Flexibility in Pricing and Availability
Short term rentals offer the flexibility to adjust pricing based on demand, seasonality, and local events. This dynamic pricing model can maximize occupancy rates and revenue. You have the ability to quickly adapt pricing to the market conditions. With a long term rental your income potential is locked in with a lease that generally sets your rental income for 12+ months.
Tax Benefits
Short term rentals come with several tax advantages. Owners can deduct a variety of expenses related to the rental property, including mortgage interest, property taxes, insurance, maintenance, utilities, and even depreciation. You definitely want to explore the tax benefits of STR ownership with a qualified CPA, but I can tell you that these deductions can significantly reduce your taxable income.
Lower Risk of Tenant Issues
With long term rentals, landlords often face challenges such as non-payment of rent, property damage, and the lengthy and costly eviction process. Short term rentals mitigate many of these risks. The transient nature of short- term tenants means that property managers can inspect and clean the property frequently, ensuring it remains in good condition. Additionally, platforms like Airbnb offer host protection and guest reviews, which help in screening potential renters.
Diversification of Investment Portfolio
STRS can serve as a diversified income stream in your investment portfolio. They are less correlated with the traditional rental market and can hedge against economic downturns in specific locations. For example, a property in a tourist-friendly location might continue to generate income even when the local LTR market is sluggish.
Personal Benefits
One of the greatest strengths of owning a short term rental property as opposed to a LTR is the personal benefit . It provides a home away from home for vacations, business trips, or a weekend getaway. Unlike a long term rental, you can use the property whenever it is not rented out, making it a personal asset as well as an investment.
While both STRs and LTRs have their merits, the flexibility, higher income potential, and additional benefits of short term rentals make them an appealing option for many investors. The dynamic nature of the STRl market, coupled with tax advantages and personal use opportunities, positions short term rental investing as a potentially more lucrative and enjoyable investment strategy.
