Decisions, decisions! As you take your first steps into the world of rental property investing, one of the biggest questions you'll need to answer is: should I invest in long-term or short-term rentals?
Defining your strategy early helps clear the fog of analysis paralysis, so you can take action. With clarity and focus, you'll feel more confident buying a rental property—whether it's your first or 50th. In this guide, we’ll break down the key differences between long-term and short-term rentals, and help you discover which strategy best suits your goals and lifestyle while living abroad.
Long-term rentals typically involve a single lease agreement with the same tenants for an extended period, usually a year. This strategy is the most common because it provides stable housing for individuals and families who live and work in one location year-round.
Long-term rentals offer more predictability and stability compared to other rental strategies. With a fixed monthly rent payment, landlords can rely on steady income over the course of a lease. While the potential for large profits is lower compared to short-term rentals, the trade-off is a more secure and reliable income stream with fewer ups and downs.
Pro tip: Retain good tenants with lease renewals to ensure steady, predictable income and minimize turnover costs such as paying the mortgage out of your own pocket when the property sits vacant.
Vacancy refers to the period when a rental property is unoccupied, meaning there are no tenants living in the unit. In long-term rentals, vacancy is usually less frequent and occurs when tenants move out at the end of a lease term. However, when turnover does happen, it can have a higher impact, especially if there’s a gap between tenants. Without a new tenant lined up, you may face a period of vacancy, disrupting your steady rental income. As you can imagine, vacancies can be costly for landlords who rely on rent payments to cover expenses like the mortgage, utilities, and maintenance.
Pro tip: Build a six month reserve fund to cover expenses during vacancy periods and proactively line up new tenants before the lease ends to minimize the financial impact.
The most challenging part of managing a long-term rental is securing a high-quality tenant. Once tenants are in place, long-term rentals typically offer a more passive management style. With a fixed lease agreement, landlords deal with less frequent maintenance. Repairs generally come in response to tenant requests, though, making it more reactive than proactive. One way to be proactive is to stay on top of maintenance. For example, a more recently renovated property will likely require less repairs or maintenance than an older property.
Pro tip: Remember that you’ll be managing the property from another country. With that said, you can choose to self-manage the property if you prefer to be hands-on. Or, you could hire a property manager to handle the day-to-day operations. This flexibility allows you to tailor the level of involvement based on your time and preferences.
In the United States, landlords must follow federal rental laws that cover things like tenant rights, lease rules, and landlord responsibilities. These laws are stricter for long-term rentals, requiring landlords to follow specific rules about things like lease terms, evictions, and tenant protections. On top of federal laws, each state has its own rules. Some states may have more landlord-friendly or tenant-friendly regulations.
Pro tip: Always research the local and state rental laws in your area to ensure you’re fully compliant and avoid any legal issues with tenants.
Generally speaking, financing long-term rental properties has a variety of options. The two most common ways to finance a rental property are with traditional mortgage loans or debt-service-coverage-ratio (DSCR) loans.
Traditional mortgages typically rely on your personal financial situation, including your credit score and debt-to-income ratio, to determine eligibility. However, for foreign nationals without U.S. credit or income, securing a traditional mortgage can be more challenging. In contrast, a DSCR loan is based on the property’s rental income rather than your personal financial status, making it a popular choice for those looking to leverage cash flow from the property itself.
Pro tip: As a foreign investor, be sure to research financing options, as they may differ from those available to U.S. residents.
Want to become a super host? Short-term rentals provide flexible, temporary housing for guests in need of accommodations for vacations, business trips, or special events. Many property owners list their rentals on platforms like Airbnb or VRBO to attract guests and maximize bookings on a regular basis.
Think of short-term rentals as a high-risk, high-reward strategy. On one hand, you have the risk of vacancy on a daily basis. On the other hand, you have the flexibility to adjust pricing on a daily or regular basis. This offers a major advantage over long-term rentals where rent rates generally only change at the end of the lease term.
Being in control of day-to-day pricing gives you the opportunity to capitalize on demand such as peak seasons or local events. However, the potential downside is that short-term rental properties need to stay consistently booked to generate steady income. Without high occupancy, you risk losing income during slow periods.
Pro tip: To maximize income, you can use dynamic pricing strategies that adjust rates in accordance with factors like seasonality, day of the week, and local demand.
Due to the nature of short-term stays, these rentals experience more frequent tenant turnover. Short-term rentals require more effort to keep it consistently occupied, as it's not a "set it and forget it" strategy—it demands regular attention, guest communication, and active marketing to maintain high occupancy.
Pro tip: Listings with high-quality photos, detailed descriptions, quick response times, and positive reviews help build credibility and drive more bookings. In addition, you should research the location where you plan to buy in to ensure that there’s significant rental demand.
Short-term rentals are more hands-on. They require active management, frequent guest interactions, and managing regular property cleanings. From a maintenance perspective, frequent property checks between guest turnovers make it easier to spot and address any damage, ensuring the property stays in top condition. While maintenance tends to be more regular with short-term rentals, some costs (like cleaning or minor repairs) can be covered by tenants or factored into the rental fees.
Pro tip: Keep in mind that depending on where you’re located and where the property is located, you could be asleep as guests arrive.Create systems and checklists for property turnovers to ensure smooth operations, whether you self-manage or hire a property manager.
As a landlord, short-term rentals can offer advantages due to fewer laws applying to occupants, such as fair housing regulations, which typically apply to long-term leases but not short-term rentals. However, the flip side is that many cities have specific regulations for short-term rentals. These regulations can vary widely and may include zoning laws, licensing requirements, occupancy limits, and restrictions on the number of days a property can be rented.
Pro tip: Before purchasing a short-term rental, it's crucial to research the specific rules and regulations set by the city or municipality.
Financing for short-term rentals can be more challenging to secure because it can be more challenging for lenders to project income. Since it’s also a relatively new concept, not every lender has programs that cater to this strategy. Luckily, Waltz offers DSCR loans for short-term rentals based upon projections from sites like AirDNA.
Pro tip: Be sure to have data supporting your short-term rental property, such as occupancy rates and projected income. That way you can present it to lenders with confidence during the underwriting process.
The truth is, you can find success with either long-term or short-term rentals—it's all about choosing the strategy that aligns with your goals and personal preferences. Long-term rentals offer stability and predictability, making them a great choice for those seeking a more hands-off investment. On the other hand, short-term rentals present an exciting opportunity for higher returns and more active involvement, perfect for those who are willing to put in the time and effort.
No matter which strategy you choose, the key is picking one and staying focused. This allows you to become an expert and create a solid plan around your strategy, including selecting the right property types, markets, and other key factors that align with your goals. If you do that, the sky is the limit!
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