Airbnb vs. Long-Term Rentals – Optimal Investing Strategy?

When it comes to real estate investing, you have a lot of options. Two of the most common options include Airbnb or long-term rentals. Which one offers the most financial benefits? Does one have more risks than the other? Find out the pros and cons of Airbnb vs. long-term rentals so that you can choose the right real estate investment for you.

Key Takeaways

• There are many similarities between Airbnb and long-term rentals, including the opportunity to expand your investment portfolio.
• Airbnb typically earns higher but less consistent income.
• The upfront costs for an Airbnb rental may be higher since you have to furnish the home with everything guests need for daily living.
• The maintenance costs of short-term rentals may also be higher since you have to clean and repair the property between each guest.
• Airbnb rentals tend to be subject to more city regulations.
• Long-term rental lease agreements have less flexibility.

Airbnb vs. Long-Term Rentals — Similarities

There are some similarities between Airbnb and long-term rentals. These include:

• Location is important: Location is crucial for choosing either an Airbnb or long-term rental. The ideal location for each may differ, but choosing properties in high-demand areas can help you fill rentals faster.
• Both are subject to local laws and rules: Both Airbnb and long-term rentals have occupancy and zoning requirements. You’ll likely have to complete an inspection and obtain a license before welcoming guests into either rental type.
• Upkeep and maintenance are expected costs: Both short- and long-term rentals have upkeep and maintenance costs. Property owners are expected to promptly make repairs that may affect the renter’s comfort or enjoyment of the property.
• Both are subject to taxes: You’ll have to pay taxes on profits earned whether you choose an Airbnb or long-term rental. The good news is that both also qualify for tax deductions.

Short- and long-term rentals can be a great addition to your real estate investment portfolio. Both require adherence to local laws and rules and a well-functioning property in a desirable location.

Airbnb vs. Long-Term Rentals

Comparing Airbnb vs. long-term rentals can help you choose the right investment for your portfolio. Here are some of the biggest comparisons between each rental type:

Income Potential

The income potential from Airbnb rentals may be higher but less consistent than with long-term rentals. Airbnb may also offer more flexibility in pricing. You may be able to charge more on weekends or during busy seasons, whereas long-term rentals charge a single price for the month.

Even though the income from Airbnb rentals may be higher, it tends to be less consistent. You may have to spend more time marketing and turning over rentals with an Airbnb than with a long-term renter. Some seasons may be slower for Airbnb rentals too, especially in vacation destinations. A long-term rental offers regular income with low guest turnover.

Setup and Preparation Costs

There are also differences between the required upfront costs of investing in Airbnb and long-term rentals. Because Airbnb rentals cater to short-term renters, you’ll have to provide them with everything they need for daily living. This means in addition to necessary renovations or repairs, you’ll also have to furnish the house with beds, chairs, couches, and TVs.

Long-term renters typically bring their own furniture and belongings, which can save you money when it comes to preparations. This also means that you’ll be responsible for repairing or replacing things like TVs, dishes, or furniture in a short-term rental. In a long-term rental, you’re only responsible for repairs to the permanent fixtures in the home (unless you rent it furnished).

Upkeep and Maintenance Costs

Airbnb’s upkeep and maintenance costs are also slightly different from those of long-term rentals. You must maintain a safe living environment for guests in both rental types. This means you’re responsible for ensuring that all appliances work properly, the heating and cooling systems are available, and the home is equipped with any necessary security features to protect tenants’ belongings.

Most of the upkeep costs in a long-term rental are one-time costs. This may include hiring a professional cleaner before new tenants move in. The upkeep costs of an Airbnb rental are more frequent, as you’ll have to pay cleaners and sometimes repair technicians between each guest. Other Airbnb costs are also recurring, including the marketing costs of finding a new renter each week.

Insurance Costs

You’ll also have to factor in insurance costs with rentals. It’s always a good idea to carry a comprehensive insurance policy on short- and long-term rentals. Airbnb does offer host insurance, but this may not be enough to cover your property. Many insurance companies charge a higher rate for short-term rentals than long-term ones.

Demand

You may also notice some differences in demand. Short-term rentals may have higher demand in busy cities or during peak travel seasons. The demand for long-term rentals may be higher in neighborhoods with good schools or near large employers.

A long-term rental also means less flexibility. You can’t adjust your price based on demand in the middle of a lease. You also can’t reserve a weekend or week for yourself or family and friends to enjoy the property.

Lease Agreement

With a long-term rental, you’ll have a lease agreement in place. This lease agreement helps protect you against nonpayment and damages. Airbnb rentals don’t typically include a lease agreement, meaning you’ll have to work with Airbnb if a guest damages your rental. However, Airbnb does offer a host guarantee that protects your property up to $1 million.

Changing Rules and Regulations

All rentals are subject to local rules and regulations. Some cities have implemented short-term bans or limitations on the rental length. New laws can significantly affect your Airbnb income potential. Long-term leases are also subject to law changes, but these are less likely to be related to how long you can rent out your property and more relevant to how much you can increase rent each year.

Airbnb and long-term rentals can be a great addition to your real estate investment strategy. Be sure to check out our free or paid membership to access tips and tricks for effective real estate investing.