Should You AirBNB Rentals or Long Term Rental Property Business

Today, we are going to be talking all about short-term airbnb rentals and long-term rentals. Short-term rentals are those like AirBNB, and long-term rentals include those with a  yearly lease or longer. We are going to look at the good and bad of each type of Airbnb rentals and Long Term Rentals and the ups and downs of each.

Airbnb Rentals and Long Term Rental Properties

I have both short and long-term rental properties, but I personally prefer long-term rental properties, because I want an automatic business that runs without my doing any work.

My team consists of property managers, contractors, realtors, wholesalers, etc., and they do all of the work. If anything, I get on the phone with my property manager once a month and they let me know what is going on.

Listen to the Podcast

With a short-term Airbnb rental property, there are more moving parts. I like them both, because I make money from them both, but I make much more money per day from a short-term rental than per month from a long-term rental property.

If somebody signs a one-year lease for $1,000 a month, I can only make $1,000 per month on that property. If I rent out a property for $100 per day, I would have $1,000 in 10 days and still have 21 more days in the month to rent it out.

Making More Money with Airbnb Rentals

If I rented it for the full 31 days, I would make $3,100 a month, which is three times the monthly amount of a long-term rental.

You have the potential to make more in a short-term rental, but you might get people in your rental you might not. If you don’t rent it for the full month, it will eat into your profits.

Could you rent out the home you are living in right now for 10 days, for $100 a day, and make $1,000?

Chances are, you can. There are so many benefits of short-term rental properties. At the same time, there are more headaches, because there are more moving parts.

Six Ways Rental Property Investing Makes you Money

Both short- and long-term rental properties will make you money. Go back and listen to my podcast, 0028, 6 Ways Rental Property Investing Makes You Money. If you don’t have time to listen, here is an overview of how investing makes you money:

1. Monthly Passive Income: This occurs when income exceeds expenses
2. Equity Capture: When you buy the property, you capture the equity
3. Forced Appreciation: Put work into the property and it will increase the value
4. Market Appreciation: When the market goes up, the value of your property goes up
5. Equity Build Up: As your tenant pays down the mortgage, your equity goes up
6. Tax Advantages: Tax advantages, depreciation off your income taxes, 1031 exchanges, etc.

Both types of rentals will make you money in the same six ways, because you are getting a tenant in there. The only difference is lease terms.

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Pros of Long-Term Rentals

Consistent Cash Flow

You are always getting money coming in. Unless there is an eviction or someone is moving out, it is always rented once you have a tenant in there.

Instead of a week or two, someone is in there for a full year and you can count on that income.

Low Turnover of Tenants

You have a much lower turnover of tenants and you don’t have a lot of money in expenses to clean up, paint the walls, fix things that break, and lease to new tenants.

You want turnover to be as low as possible.

Utilities are Paid by the Tenants

You can set it up where you are paying the utilities and collecting the money from your tenants, but in many cases the utilities are in your tenant’s name and you won’t see the bills.

PRO TIP: Tenants Not Paying Bills

Make sure your tenants are actually paying the utility bills, because in some areas of the country if the tenant doesn’t pay the utility bill, the property owner gets stuck with it.

It can really add up!

Security Deposit

You will receive a security deposit for any potential issues. You can use this deposit to clean up any mess when tenants move out. Usually, it is one month’s rent.

When tenants move out, you can deduct any expense needed to clean up the property and the rest goes back to them. If they go through an eviction, that process is paid by the security deposit.

Tenants forfeit that deposit if they break the lease.

Ability to Automate the Business

You can have other people do the work for long-term rentals. This includes property managers, accountants, realtors, contractors, plumbers, etc.

Even though I pay for these services, my tenants are covering these costs with rent, because I include this inside the expenses when I buy a property.

If I am buying a property and I know it is going to rent for $1,000 a month, I am going to make sure all of the expenses (mortgage, inspections, taxes, insurance, vacancies, etc.) are accounted for in the rent.

So all of the income minus expenses still equals a positive cash flow every month.

PRO TIP: Minimum Cash Flow Per Property

Shoot for $250 or more per month in passive income. You need to do the work up front and look for properties and make offers that are lower than the actual property value.

Don’t worry about offending someone with an offer. Negotiate to get a great price, because you could be helping someone out. You are not forcing someone to sell you their property.

Pros of Short-Term Airbnb Rentals

You Make More Money

When you rent it out per day, instead of per month, you will make a lot more money. More than likely, you will be able to charge at least $80 to $100 per day.

You need to clean up the property each time, but it doesn’t come out of your pocket, because you can charge a cleaning fee of $40 or $50 that goes to a cleaning company.

This should be added to your listing and customers will automatically pay this when they book.

More Flexibility and Use Of Your Property

If you want to live in Hawaii for a month every year, you can rent out your property for 11 months and block out the one month you want to live there.

It will pay for itself, because other people are paying for the mortgage, insurance, taxes, etc. If you want to bless a family member, another family, pastor, or missionary, you can block out that time so they can use it.

You can use your property whenever you want.

Renters Pay Your Expenses

Short-term tenants pay for your expenses like taxes and insurance. If you are not accounting for those expenses, you need to. When charging, make sure to add in the cost of utilities, cleaning, maintenance, lawn maintenance, repairs, etc.

Charge more to cover these costs.

AirBNB Has Insurance

AirBNB has their own insurance on your property.

Make sure you have your own insurance, but know they have insurance on top of that. AirBNB touts that benefit to property owners.

Cons of Short-Term Airbnb Rentals

 

Dependent on Another Platform

With short-term rentals, you are dependent on another platform, like AirBNB and VRBO.

You are also dependent on them staying in business and them keeping your property on their site.

If something goes wrong, they could kick you off of their site.

Customer Reviews

If you get bad reviews, customers will not rent out your property.

You are dependent on good reviews from these customers. Sometimes people can be unreasonable about little things.

Slow Periods

In places that are seasonal, there are months that are slower than others. If your property is near Disneyland, it will be busier in the summer, if you are in Phoenix, it will be busier in the winter.

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Constant Turnover

Short-term rentals have constant turnover to a new tenant. You mitigate this problem by having the tenants pay for cleaning and maintenance. When you use a cleaning company, you are constantly updating the property. However, you need to find a new tenants all the time and if a platform stops hosting your property, you are stuck

More Wear and Tear

With people moving in and out, you don’t know if people are going to take care of the property. There is a lot of traffic and more wear and tear on everything.

Utilities are in Your Name

With short-term rentals, the utilities need to be in your name. To mitigate this, make sure the cost is accounted for in your daily rent price.

You Need to Upgrade

People are looking for the hotel experience, where there are white bedsheets and shampoo. The nicer you make the place, the better the reviews will be. If you have Formica countertops and customers are expecting granite, they may mark the property down a star in the review. You have to make sure the property is up to date.

Furnish the Property

You need to furnish the property with beds, sheets, pillows, towels, couches, and TVs. With a long-term rental, you don’t need any of this, because the tenants bring all of that stuff in. Everything needs to look nice and this could cost an extra $5,000 or more.

PRO TIP: In one of my properties, I lived in the house and when we upgraded and moved out, we left the furniture in the house. This way we didn’t have to move everything and we bought different stuff for the new house.

Income is Not Guaranteed

With such short-term stays, if you can’t get the next tenant in, you will not make any money, but you will still have expenses.

Competition

With the availability of AirBNB, VRBO, hotels, and other options, you need to make sure you are pricing your rental accordingly. You need to compete against a lot other options.

Lots of Moving Parts

You need to manage the listing, make sure it will be vacant and clean during transitions, make sure it is put back together for the next tenant, make sure anything broken gets fixed, and if anything is taken, you need to deal with insurance. There is a lot of communication with customers who are going to rent. You are going to get loads of questions about amenities, the Wi-fi password, what time can they can get in, etc. You can automate this with a company or virtual assistant, but that is another cost.

Automating the Business is Difficult

Due to all of the moving parts, it is difficult to automate the business so it runs without you. There are companies and virtual assistants you can use, but it can get expensive. If you have a teenager in the house that wants to have a job, this could be a good way for them to learn about managing a property.

Cons of Long-Term Rentals

Eviction

Someone could stay in your property for one or two months without paying, while you are waiting to get a court date to file a writ and have the Sheriff go over and kick them out.

That takes a lot of time and money.

Wear and Tear

When people are moving furniture, appliances, and big items, not a lot of people are careful. In some areas where I invest, some people just leave housefuls of old furniture and stuff, and I have to pay to get rid of it.

While I still make money on the property, I need to account for this expense.

Rent-Ready Shape

You need to make sure the property is in good condition.

You don’t want a property that is in disrepair and is falling apart, because you have the potential to get sued for that.

As you see, there are not many cons when it comes to long-term rental properties.

It is less work and very easy to automate. If you can think of any other cons, please leave me a comment.

If you are interested in short- or long-term rental properties and how to actually buy them and make money from them, I want to give you a free course. Go to www.masterpassiveincome.com/freecourse to learn more and to sign up.

This course will give you insights into the business, showing you how to start the business and how to actually do it, and make sure you never lose money.

The best tip in this business is don’t lose money.

You do that by getting the right education and by learning from people like me who have done all the things wrong and figured out how to do it right.

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