When deciding between listing your home on Airbnb or opting for a traditional rental property, it’s essential to weigh the pros and cons of each approach. Whether you’re looking for flexibility, a steady income, or less management hassle, both options offer unique benefits and challenges.
In this Redfin article, we explore the most important factors to consider so you can make an informed decision that fits your financial goals and lifestyle preferences. So if you rent out your home home in New Orleans or your beach apartment in San Diegothere is an option that works for you.
Do you want a short or long term rental?
Short-term rentals, such as those on Airbnb, offer flexibility and potential for higher income, especially in popular locations, but require more frequent management and maintenance. On the other hand, long-term rentals provide stable, predictable income with less turnover, but come with longer commitments and potentially more complex tenant relationships. Understanding your property management goals and capabilities is crucial in making the right choice.
Benefits of long-term rental
Coherence
The biggest benefit of long-term rentals is consistency. You have monthly rental income, so there should be no income differences. You can create a consistent screening process for new tenants, so hopefully no bad tenants. You’ll get to know your local market so you can create a competitive rental strategy and generate income.
Protection against market fluctuations
By renting your home long-term, you are protected against market fluctuations. This allows you to have a stable real estate investment strategy. When you rent for a longer term, you can lock in a fixed rate for a longer period, which can help counteract any dips in the rental market. As long as you have a rental contract, the tenant pays that rent for the entire term, even if comparable rents decrease.
Reliable real estate value
Renting property long-term can also help you get a more reliable value for your property. You are investing for a long period of time, so your property is more likely to retain its value over time. Long-term rentals are also generally better for cash flow. A long-term lease allows you to spread the cost of your mortgage over a longer period of time, making it easier to manage your finances.
Cheaper overhead costs
When you rent your home for a longer period of time, you usually have lower overhead costs. This is because you don’t have to worry about advertising costs or turnover costs, both of which are significant if you rent on a short-term basis.
You’ll also collect a security deposit to address issues beyond normal wear and tear – and you won’t have to pay to furnish the home. These benefits don’t necessarily mean a huge profit when it comes to renting, but they can mean improved cash flow so you can start making some money sooner.
No seasonal fluctuations
Another great advantage of long-term rentals is that they are not subject to seasonal fluctuations. With a long-term rental, the monthly rental income is the same every month of the year, which can make budgeting easier.
Better screening of tenants
Because you are not looking for tenants who will only stay for a short period of time, you can be more selective in your screening process. This can help you avoid problem tenants and ensure that you have good, reliable tenants for your property. You can take the time to conduct proper background checks, review credit history, and gather references from previous landlords and current employers. You can be more selective about who you let live on your property.
Fewer restrictions
When it comes to local laws, long-term rentals also tend to have fewer restrictions than short-term rentals. There are often specific regulations and zoning regulations that apply to short-term rentals, which long-term rentals do not have to comply with. As a result, property management is much easier and you may have more flexibility in how you use your property.
Disadvantages of long-term rental
Less flexibility
When you rent your home long-term, you have less flexibility to use your home. With an annual contract you do not have the option to do this break the lease early. There are a few times when it is possible to break a lease, but you have to be careful. For example, you cannot terminate your tenant’s rental contract prematurely because you want your friends to use the property.
Market fluctuations
With long-term rentals you cannot change the rental price if you see that the rental market is becoming more expensive. There are many provisions regarding how much and when you can increase a tenant’s rent. You also cannot increase the rent during the term of a lease, even if costs have increased. You have to wait until the lease expires.
Lease agreements
A rental agreement is a legally binding document that both you and your tenant must sign. You’ll need to create a rental agreement that covers all aspects of renting: security deposits, maintenance, rental fees, parking additions, eviction notices, rules, and more. After signing, you and the tenant must adhere to the rules stated in the rental agreement.
Benefits of Short-Term Rentals (Airbnb)
More flexibility
As an Airbnb host you have more flexibility when renting out your home. For example, if you want friends and family to use your home, or if you use the home during certain times of the year, Airbnb may make more sense. Because you can set the dates when your home is available, you don’t have to worry about a long-term lease keeping you from enjoying your home.
Potential for more profit
Because your home is rented on a short-term basis, you can change prices during busier times of the year. In long-term rentals, it is illegal to increase a tenant’s rent halfway through the rental period. If your tenant has a month-to-month lease, you can do that increase the rentbut with proper notice, often 30 days in advance. With Airbnb you have more flexibility when it comes to increasing prices. For example, you have the option to charge higher prices for weekend bookings and lower prices during the week.
No rental agreement
As an Airbnb host, you are not bothered by drawing up a formal rental agreement. Airbnb has its own rules, in addition to the house rules stated in your listing. If a guest violates any of the rules, you can discuss the matter directly with Airbnb.
Disadvantages of Short-Term Rentals (Airbnb)
Although Airbnb has a “host guarantee” to protect hosts, there are still many downsides to using your home for short-term rentals.
More upfront costs for you
Depending on the season, you may be able to adjust prices and bring in more Airbnb revenue. However, there may also be more costs associated with operating a holiday home. Unfortunately, damage is more common in short-term rentals. You also have the added expense of having to clean your property after each rental and restock or replace certain items.
Seasonal vacancies
Airbnb hosts also face seasonal trends in the short-term rental market. Your property may be vacant for a few months each year or receive minimal bookings during the off-season.
Local laws can work against you
Some cities also limit the number of days an Airbnb rental is available, requiring you to leave your home vacant at certain times of the year.
Advertising costs
In addition to the time you spend keeping your property clean and ready for guests, you also put a lot of energy into attracting guests. Marketing an Airbnb property takes a lot of work. You need to take high-quality photos, but you also need to change them every season to keep your property relevant. You’ll also need to write a compelling property description to show why your home is a great place to stay and what attractions are nearby.
Airbnb versus renting out your home
Ultimately, renting out your home can be a great investment, whether through Airbnb or renting out your home long-term. Whether you are looking for the flexibility of short-term rentals or the stability of monthly rental payments that come with long-term rentals, there is an option for your purposes.
