In the world of real estate investment, a frequently debated topic is whether one should offer their property as a short-term vacation rental or a full-time rental. Both avenues come with their own set of benefits and challenges. Here’s a comprehensive comparison of the two options based on several critical parameters.
FULL-TIME RENTAL
A full-time rental refers to a property leased to a tenant for an extended period, typically several months to a year or more. The tenant uses the property as their primary residence. Lease agreements are more comprehensive and stipulate the rental terms, including duration, rent amount, and other conditions. Full-time rentals provide consistent rental income to the property owner for the duration of the lease.
The key characteristics of a full-time rental can be summarized this way:
- Consistent Revenue: Full-time rentals generally bring in lower revenues, about 50 percent less than vacation rentals. However, the income is steadier, with fewer fluctuations month-to-month.
- Less Turnover: One of the most significant advantages of full-time rentals is reduced turnover. With tenants signing long-term leases, property owners don’t have to frequently deal with the hassles of cleaning and preparing the property for the next occupant.
- Limited Owner Access: The owner’s access to the property is limited with a full-time tenant. It’s not easy to use the property for personal needs unless it’s vacant.
- Rent Increment Restrictions: Depending on the region or state, there might be regulations or limitations on how often and by how much you can increase the rent, potentially affecting your return on investment (ROI) in the long run.
- Risk Factors: One of the most significant risks is ending up with an unqualified tenant. Evicting such tenants can be burdensome, time-consuming, and sometimes costly, depending on the local laws and regulations.
VACATION RENTAL
A vacation rental is a fully furnished property rented out to tourists or travelers on a short-term basis, ranging from a few nights to a few weeks. These rentals are often fully furnished and have amenities similar to a hotel.
The primary purpose of vacation rentals is to serve as a temporary accommodation for people on vacation or a short trip. They can be listed on platforms like Airbnb, VRBO, or other online markets that handle the visit logistics and payments. The rental rates can vary greatly depending on the season, location, and the property’s features.
The characteristics of a vacation rental are:
- Higher Revenues: Vacation rentals can potentially rake in double the revenue than full-time rentals. However, this heavily depends on the property’s location and the season. Peak and shoulder seasons typically span from October to April, when homeowners see the most income.
- Property Maintenance: Regular cleaning between short stays makes long-term damage to the property less likely. Frequent cleanings allow for issues to be spotted and corrected swiftly, preventing future expensive repairs.
- Flexible Homeowner Access: One of the most attractive perks of a vacation rental is that the homeowner can block out dates for personal use. This flexibility ensures the property can double as a private vacation spot whenever desired.
- Less Risk of Long-Term Damage: Frequent turnover and regular maintenance checks decrease the chance of sustained damage from any particular guest. And if damage does occur, security deposits can often cover the costs.
Deciding between short-term and full-time vacation rentals depends on an investor’s financial goals, desired level of involvement, and risk tolerance. While vacation rentals can offer higher returns and more flexibility, they might also require more hands-on management.
On the other hand, full-time rentals can provide consistent income with less frequent tenant-related issues but come with their challenges. Investors should weigh these factors carefully before making a decision.
If you choose to pursue vacation rentals or are unsure of how to achieve it, Grand Welcome, East Valley of the Sun, can assist you through this process and manage your vacation rental on your behalf. Call me to explore this option.
Contact Brandon Balsley at (480) 933-8874 or email Brandon.Balsley@grandwelcome.com for more information on available services. Also, check out the website: eastvalleyazrentals.com