Long-term rental versus short term rental

 

Which is a better option for an investment property, long-term rental or short-term rental?This is the most frequently asked question.

Rentals can be long term or short term depending on its lease term. Long-term rental must have a lease term of at least seven months, with most long term rentals being one-year, renewable at the end of each lease term. Tenants who sign long term lease are usually locals. The rental property does not have to be fully furnished, although kitchen and laundry appliances must be included. Whether the property has a swimming pool is not important. Long term lease tenants are responsible for water, electricity, gas, cable TV, telephone and Internet service costs. Depending on the lease agreement, some tenants also pay for pool and lawn maintenance. Almost all properties can be long-term rentals.

Short term rentals or vacation rentals are rentals based on weekly or daily rates. The renters are usually tourists of a big party or family, or so-called “snow birds” from Northern America during the winter season. About 100 communities around the Disney World area are zoned for short term rentals by local county governments. Only a property inside a short term rental zone can be used for short term rentals. Short term rental homes are typically equipped with a pool and/or spa and located in a resort community, with more bedrooms and baths, fully furnished with furniture, all major and electric appliances as well as household items such as cooking and eating utensils, bath towels, etc. The property owner is responsible for paying all utilities, cable television, telephone, high speed internet access and all maintenance expenses. It is a home away from home for the renters. Marketing of short term rental homes is done mainly through the internet, and occupancy rate is the key to short term rental success. Managing a short term rental home is similar to running a small business. You will need to apply for a short term rental license and file sales and use tax return with Florida Department of Revenue(http://dor.myflorida.com/dor/) and tourist development tax return with your local county on a monthly basis. Your success depends largely on the time and efforts you dedicate to this business.

 

Compared with short term rental, long term rental requires a lot less efforts. Rental income is stable. Cash return on investment (CAPRATE) is usually in the range of 5% to 8%. One potential risk with long term rental is that you may have to evict your tenants if they default on the rent. Around the Disney World area, eviction process generally takes 3 to 4 weeks and costs approximately $400.

 

Short term rental is cumbersome and time-consuming, but you do not have to worry about eviction because the renters are tourists and will leave when their vacation ends. Another advantage of short term rental is that you and your family can come to enjoy a vacation at your own villa at any time or to enjoy the Florida sunshine for a few months in the winter when you retire. Short term rental features high rental income and high cost. The potential return on a short term rental could be better than long term rental, if you have the time and energy and are willing to work on the booking and marketing of your property. Multi-Choice does not provide booking service, although we can refer you to a booking agent, who usually charges 10% commission on each booking successfully completed. Based on our observation, the annual occupancy rate is usually in the range of 50-80%, although it is possible to achieve 90% or higher occupancy rate. Cash buyers can easily break even if the occupancy rate reaches 50%.

 

As such, it is really a matter of personal preference whether you should rent out your property long term or short term. Keep in mind though that it is generally easier to switch from long-term rental to short term rental, while the same is not true vice versa. When you switch from short term rental to long term rental, the furniture package you purchased for your vacation home will be wasted as lease tenants generally move in with their own furniture. Resort community usually provides more services such as clubhouse facilities and services, lawn maintenance, cable TV, etc., however long term tenants might not be willing to pay extra on top of the usual rent for these extra facilities and services. Therefore, we advise you to take these factors into consideration before deciding on short term rental.

 

Copyright 2014 by Multi Choice Realty LLC.   |  Privacy Statement  |  Terms Of Use
);