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What is a Short-Term Rental ("STR")?

Are you curious what a Short-Term Rental ("STR") is? Great, because you've come to the right place! To fully understand a short-term rental

A short-term rental which is often also referred to as a "Vacation Rental" is a home, a room, an apartment, or other furnished living space that is rented out for days or weeks at a time. STRs are an alternative to a hotel stay that is fast growing in popularity.

In contrast to short-term rentals, a Medium-Term Rental is usually rented out for between one month and 11 months. These are your typical relocation stays or your insurance repair stays. They are also often referred to as "Month-to-Month Rentals" The most common length of term on Medium-Term Rentals is between 2 and 3 months.

A Long-Term Rental is the most common type of rental out there. This is your typical rental for apartments and houses. It is one year in length and can be renewed. This type of rental typically has the longest and most involved contracts and disclosures. While Short and Medium-Term Rentals tend to be of furnished homes, Long-Term Rentals tend to be unfurnished.

Do Short-Term Rentals Make a Good Investment? Which Type Is Right For Me?

Great question! As with all things in real estate, "it depends." It depends on the area, what rental rates are like and what you can get the house for. Those are things that no blog or site can answer for you, you need to at the very least enlist the help of a qualified real estate professional and a tax advisor.

As to which type is right for you, that all depends on how involved you want to be. In my experience, long-term rentals are very "hands-off". You may hear from the tenant once or twice a year and of course monthly when you get the rent check. Long-term rentals typically rely on the tenant to supply the furniture and living essentials themselves, which saves you money and time. Long-term rentals typically have a very low turnover, sometimes tenants may be there years or even decades. There is a trade-off here though, the less work and less setup involved means that you have a smaller potential for earnings, but those earnings are more stable and reliable.

In contrast to long-term rentals, short and medium-term rentals require the owner to furnish the property and supply the essentials (bedding, dishware, towels, appliances, etc.). This leads to a MUCH higher start-up cost. Because of this they typically rent for higher than a long-term rental. Both require you to essentially run a "boutique hotel." Repairs tend to need to be done faster than with a long-term rental and there are other expenses involved such as cleaners and utilities. Where in a long-term rental the tenant often pays the utilities, in short-term rentals and medium-term rentals the owner pays the utilities, the internet, and TV.

Where medium-term rentals and short-term rentals differ most is in the turnover and the contracts. Because a medium-term rental lasts for one month or more, you don't have guests checking in and out regularly and you do not need to spend time trying to find new guests and negotiating with them as frequently. The biggest point of differentiation with medium-term rentals is that in many states their stay is long enough to automatically grant them tenancy rights and protections. In California for example, any stay over 28 days automatically grants tenancy rights to the guests. In these instances, it is best to use the same types of contracts that you would with long-term rentals. This may require you to involve a real estate agent or a real estate attorney for an appropriate contract.

Now short-term rentals require the most involvement of the owner, have the highest turn-over but also have the highest chance for profit. Short-term rentals or vacation rentals typically rent for the most amount of money out of the three types of rentals, however, short-term rentals cannot run on autopilot. These require daily work, coordination with cleaning staff, following up with guests before, during, and after their stay, trying to get reviews, and trying to get new guests. With short-term and medium-term rentals, but especially short-term rentals, there are often consumables that need to be restocked (coffee, tea, shampoo, etc.) and towels that need to be replaced. This also takes time and money and adds to your overall operating costs. There is also an increased risk of damage from guests and unauthorized guests and parties

Now the "million-dollar question" is what type of rental is right for me as a landlord... and again "it depends." This time it depends on you and what you want. Traditional long-term rentals are much easier from a landlord perspective, offer the lowest rate of return but scale the easiest. Medium-term rentals take a little more work than long-term rentals, but with the right tenants it may not be much. You'll have higher start-up costs, but a chance for a greater return. Scaling these from a setup perspective is more difficult but from an operational standpoint are not much more difficult than a long-term rental, especially if you require longer minimum stays. Short-term rentals on the other hand have the potential for the greatest return, however, they also require the most work. If you have a full-time job, it can be difficult to provide quick feedback and address any issues, especially with jobs where you don't get to be by your phone all day. Scaling short-term rentals can be difficult unless you use automation... but that comes at an additional cost.

Another thing to consider is your local area's regulations. Many areas have imposed restrictions on short-term rentals ranging from limiting the number of nights one can rent a house, to an outright ban. Some cities require a business license and others require taxes to be collected and remitted. These regulations typically do not apply to medium-term or long-term rentals and are often created to force landlords into longer-term stays to provide more housing for the community. In areas where taxes are collected, there may be different requirements for longer stays.

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