Whether you’re evaluating your first or tenth investment property, it can be difficult to decide between traditional long-term tenants and the newer, sexier short-term rental strategy. Here at Good Neighbor Realty, we’re a little biased toward STR, but this article will lay out the benefits and drawbacks of both strategies.
1. Are there differences in acquisition strategies?
Especially in Colorado, there are significant differences when trying to buy a short term rental vs a long term rental investment. There are many regulations that can derail your launch on platforms like Airbnb, VRBO, and bookings.com if city or county regulations are not friendly toward short-term rentals.
We like to tell our clients to buy in short term rental friendly areas even if you’re not looking to use the Airbnb/STR strategy. It’s good to have a back-up if you change your mind down the road. Since there are no restrictions on any type of rentals over 30 days in CO, (with the exception of some HOAs) it’s smart to buy where long and short term rentals are both allowed.
2. How much cash flow does the property generate?
The best thing about short term rentals is that cash flow will be 2x-5x more than the mortgage depending on the month. People travel to Denver and surrounding areas in the summer and demand is much higher in June, July, and August compared to fall and winter months (unless you’re in a ski area).
Long-term rentals will enjoy consistent rent throughout the year, but it’s difficult to cash flow over the mortgage in this state. Management time is less, but the returns are also not as exciting as STR. Investing using this strategy is still a great way to build long term wealth, but the bank account won’t be going up based on average home prices here.
3. What are the start-up costs for both strategies?
The one downside to STR is that you’ll need a little more capital after purchasing the property to design and furnish it. A typical 4 bedroom home will require anywhere from 15K-30K to furnish depending on your level of thrift. Amenities like hot tubs, saunas, pool tables, and game rooms can significantly increase your occupancy and average nightly rate. If you’re setting up your first short term rental, be sure to consult us on how best to furnish your Airbnb!
On the other hand, a long term rental will take almost no start-up costs to start renting it out. A good cleaning, maybe a fresh coat of paint, and a good handyman are all you need to start leasing your property out long term.
4. How much time needs to be spent on the investment?
STR requires a little more time up front to set up. Our average client needs somewhere between 3 weeks and 2 months to furnish and launch their new Airbnb property. Once launched, hosts will have to respond regularly to booking inquiries and customer requests. This amounts to about an hour per week per property.
Long term rentals require less time up front, but you’ll only make ⅓ of the cash flow year over year. Once you’re ready to rent out your property long term, all that’s required is a well written lease, a solid tenant screening process, and maybe a few showings for serious applicants. Here at Good Neighbor Realty, we’re always happy to answer any questions about any type of investment property. Feel free to reach out to us anytime or visit our website at thegoodneighbors.com to find out more about how we help our clients achieve long term wealth through real estate!