Summer in a coastal community is an idyllic—or irritating—time, depending on how you look at it. Vacationers yearn to spend time in coastal homes. Property owners looking to generate income from the good fortune of owning a home in a coastal town should examine the pros and cons of short-term and long-term leases.
Short Term Leases Are Lucrative but Labor Intensive
Services like Airbnb and VRBO allow homeowners to attract vacationers, who pay good prices by the day or week to rent a home. The high turnover of tenants requires extra cleaning and maintenance, but the work may be worth it for the extra income these rentals generate. Seasonal pricing allows property owners to increase the rack rate in the summer, while offering specials at less popular times of the year.
The payoff can be substantial if the home has the features vacationers want—for example, a water view, with recreational and dining opportunities close by, or gorgeous fall color. Homeowners can charge more for a week or even several nights in the home than they could get for a monthly rental for a year. For example, a weekly rental at $2,500 per week with a high occupancy rate generates more annual income than a $2,500 monthly rental for a year. Short-term leases are flexible, allowing the homeowner to block off weeks of the year for their own enjoyment of the home.
Owning a vacation property and renting it to vacationers on a short-term basis may offer certain additional tax breaks for landlords. Check with your tax adviser about which of these may be available to you. As a landlord, you are running a business, and there may be additional deductions available.
On the downside, along with extra maintenance, short-term rentals require extra marketing, and vacationers don’t pay for utilities. Short-term renters don’t expect to mow the lawn or tend the garden—in fact, they expect the same kind of amenities, like linens, towels, and toiletries, you might find in a hotel or inn. You’ll be on call for repairs, and there’s a higher risk of damage, disruption, or even theft with the number of different tenants occupying your home.
Long-Term Leases Are Less Profitable but More Reliable
With a yearly renter, there is less risk and more consistency. At most, you’ll have to seek a new tenant once a year, rather than once a week or so. Long-term renters are looking for a home to live in, not a vacation to enjoy temporarily. They bring their own furniture and are responsible for more maintenance. They do expect homes to be move-in ready and won’t sign a lease on a home that is unkempt or less than pristine.
Property owners who rent to tenants on an annual basis have less opportunity to inspect and repair the property. Many long-term tenants want to bring pets onto the property, which could cause additional damage. Tenant screening for a long-term rental can be more critical, as selecting the wrong tenant can result in prolonged disputes, problems with neighbors, and even eviction proceedings.
Long-term leases can impose higher security deposits, more thorough credit checks, and potential background checks. They offer the chance to find a tenant who will stay for years, rather than a week or two, and provide reliable income that doesn’t dip seasonally.
There are pros and cons to both short-term and long-term leases. Property owners must decide for themselves how and whether they want to turn their residence or vacation home into a source of additional income.