Long-Term vs Mid-Term vs Short-Term Renters

Do you want to be a landlord?

This requires tenants, and just like everything else in real estate investing, you have options. What type of types of tenants are you looking for: long-term, mid-term, or short-term renters? Each tenant type has pros and cons, and helps investors achieve specific real estate investing goals.

In this post, we’ll talk about who long-, mid-, and short-term renters are, the benefits and challenges of each, and which type of renter aligns best with your real estate investing strategy and goals:

• Long-term renters
• Mid-term renters
• Short-term renters

Let’s get started!

Long-Term Renters

A long-term tenant is a person or a family who rents a property for an extended period of time, typically for a year or more. They sign a lease agreement, make a long-term commitment to the property, pay rent regularly, and have the option to renew the lease. They provide a stable income for landlords and real estate investors, and help to minimize vacancies. As long as your tenants pay every month, that’s guaranteed rental income in your pocket. Not only is this great passive income, but it also makes your life easier when budgeting for maintenance and repairs. 

Long-term rental properties make up most of the real estate market and are often the easiest to manage. Since long-term tenants consider the property their home, they’re more likely to take better care of it by keeping it clean and doing yard work. As an added bonus, long-term tenants pay for their utilities, while mid-term and short-term tenants don’t. 

Here are a few more benefits, and a couple of drawbacks, to investing in long-term rentals:

Pro: Stability

With proper vetting, long-term tenants provide you with a steady, stable rental income with minimal turnover. Even if you bring in a new tenant at the end of each 12-month lease, that’s still only one turnover per year.

Pro: Easy to finance 

Because of their stability, long-term rental properties are easier to finance. Real estate investors may even receive better interest rate offers and financing terms to do so. 

Pro: More affordable property management

If you hire a property management company for your long-term rental, you won’t pay them the 30% or more you would if you ran a vacation rental. Many property management companies charge a fee between 8% and 10% of the monthly rent for long-term rentals. When there are other fees to consider, that’s a third of the price of a company managing a short-term rental. 

Con: Less return on investment (ROI)

Long-term rental investors generally make less than short- and mid-term rental owners. In some cases, short-term landlords can charge $300, $400, or more per night. Long-term landlords don’t have the same luxury. 

Also, because long-term rental investors lock in tenants for at least 12 months, they have fewer opportunities to raise rents. 

Con: Property maintenance projects can be more difficult

It’s harder to identify and repair minor property issues before they become major renovation projects when you have tenants living in the property for a year or more at a time. You can give tenants proper notice that you’re going to inspect a property quarterly, biannually, or annually, but you won’t have as much flexibility to work on maintenance projects in the property as you would with other tenant types. 

Con: Potentially terrible tenants

Even the best tenant screening processes cannot fully predict the future behaviors of tenants. Bad tenants can wreak havoc on a property, constantly complain, or be regularly late on making rent payments (or miss them altogether). Renting to bad tenants is often expensive and time-consuming, even when you can evict them. 

How long-term renters align with your real estate investing goals

Long-term renters are fantastic for investors who want extra steady, passive income or additional cash flow. Long-term rentals require real estate investors to play the long game to maximize their returns. However, the longer you play, the more money you’re going to make—and there are three key reasons why:

1. Your principal pay down and equity accelerate: While your monthly mortgage payment remains the same each year for your loan, you pay more toward your principal every month. The more you pay down, the more equity you’ll have. For example, if you take out a 30-year loan at $300,000 with a 5% interest rate, your first mortgage payment only covers $360.46 of your principal. 15 years later, the number swells to $758.75.
2. Appreciation accumulates: Despite the dips and market cycles, property generally appreciates over time. If your $300,000 property appreciates by an average of just 2% per year, it’ll be worth $306,000 one year later, $331,224 in five years, and $403,760 in fifteen! That’s over $100k in equity that required no work on your end. 
3. Rent prices outpace inflation: Historically, rent costs increase faster than inflation. While 2022 saw unusual increases in both, average long-term rental prices went up 14%, while inflation hovered around 7%.

Mid-Term Renters

Mid-term renters are the least common of the three tenant types. A mid-term rental is usually a furnished property that rents over 30 days but less than a year. 

Mid-term rentals can be ideal if you invest in college towns, large cities, and areas where seasonal work or medical campuses are common. Some of the most common types of tenants of mid-term rentals include:

• Business professionals who frequently travel for work
• Digital nomads
• Traveling nurses
• Seasonal workers
• Families moving to a new city
• Students
• Interns

Mid-term rental investors often experience many of the pros and cons of both long-term and short-term investors.

Pro: There’s a growing demand for mid-term rentals

The dramatic increase in people working from home or remotely allows them to visit other places and work in new locations. Mid-term rentals are usually more affordable than short-term rentals, and can be more desirable for anyone looking to take a longer trip while still on the clock. 

Pro: More stability than short-term tenants, more flexibility than long-term tenants

Mid-term tenants have longer leases than short-term tenants. Guaranteed rental income on a month-to-month basis provides much more predictability in rental income than just receiving it days at a time.

Mid-term rental property owners have more opportunities to make repairs between tenants and raise rents. If you’re in an area that gets popular during certain times of the year, you can increase your rates accordingly. You lack this flexibility with long-term tenants.

Pro: Better tenant management

While there’s no guarantee, mid-term tenants are more likely to treat your property like they would their home, since they’ll be there awhile. This means your property will experience less wear and tear and may require less maintenance and repairs. The same can’t be said for short-term tenants.

If you end up with a terrible tenant, you don’t have to go through the expensive eviction process to get rid of them. Instead, you can simply opt out of renewing their lease when their stay is up. 

Con: More tenants, more turnover

Instead of having the same tenants for an entire year, mid-term rental property investors work with many tenants and experience much higher turnover. You’ll spend more time cleaning, repairing, and finding new tenants. 

Con: Furnishings and appliances are all required

Mid-term rentals come fully furnished. While your tenants may consider it their temporary home, they’re not bringing their bed and futon. You have to fully furnish your rental and make sure it comes with everything someone will use in their daily life (serveware, lights, a coffee maker, etc.). 

Con: Vacancy gaps

Depending on your circumstances, your rental may be vacant for weeks or even months at a time. During this time, you’ll lose money. 

How mid-term renters align with your real estate investing goals

Mid-term rentals require a more significant time investment than long-term properties, but don’t aren’t as demanding as short-term rentals. However, like short-term rentals, mid-term properties need to be fully furnished with all the amenities your tenants may need.

If you live in an area that attracts the types of tenants we listed above, running a mid-term rental could be a great way to earn passive income. If you want to run multiple rentals, it could mean the start of a new career. 

Short-Term Renters

Short-term renters are individuals or groups of people who rent a property for a short period of time, typically nightly or weekly for up to 30 days. With the advent of sites like VRBO and Airbnb, more and more real estate investors are realizing the true potential of short-term rental. 

It’s not uncommon for short-term rentals to bring in 2x – 3x more money than a long-term rental. However, if you want to enjoy those kinds of profit margins, you’ve got to do the work. Unless you’re paying for a short-term rental management company to do all the work (and take a substantial cut), you’ve got to devote a lot of time to making sure your rental property is booked, cleaned, and ready for guests. 

Here are the pros and cons of running short-term rental properties:

Pro: Perfect for high tourist areas

Short-term rentals are frequently referred to as “vacation rentals” because they typically cater to travelers. They’re also a great alternative to hotels, which tend to be smaller, more expensive, and less “homey.” 

Pro: Flexibility

Short-term rental property owners are used to having guests stay for short periods, can change their rent prices based on demand, and can inspect the property frequently when they’re between guests. Long-term renters lack this flexibility. 

Pro: High profit potential

Of the three options, you’re likely to make the most money with a short-term rental. Let’s assume Joe, Kristen, and Mike all own identical one-bedroom apartments in the city. Joe’s long-term tenant pays $2,000/mo, Kristen’s mid-term tenant pays $750/wk, and Mike’s short-term tenants pay an average of $220/day. Kristen only needs tenants for three weeks out of the month to make more than Joe, while Mike surpasses Joe in just ten days. 

Con: Inconsistent income

Despite their high-profit potential, short-term rentals have the most inconsistent income of the three tenant types. You may be fully booked for one month, then vacant for half the next. It all depends on your ability to attract guests and their experience when they’re there. 

Con: Stricter rental laws

Since their stays are short, guests are less likely to treat short-term rentals with the same care they have for their own homes. Parties, noise complaints, and destruction of property are more frequent. Many cities, HOAs, and vacation destinations have strict rental laws because of the number of guests that come through them. Other areas limit the number of short-term rentals allowed to operate in a specific area or are only allowed to operate for a set number of days out of the year. 

Con: Most high maintenance of the tenant types

Like mid-term rentals, short-term rentals must come fully furnished—and you’ll pay utility bills. You’re also responsible for booking guests, ensuring they have keys, and cleaning the property every few days between guests. If you own multiple properties, this can quickly become a full-time job. If you opt to hire a property management company instead, you should expect to hand them 30% of the profits, plus extra for additional fees (e.g. bookings, repairs, marketing costs, etc.).  

How short-term renters align with your real estate investing goals

Short-term renters are the most time-consuming and restrictive of the tenant types. Still, it can be an incredibly lucrative investment if you’re looking for a career shift or work with a fantastic property management company. Once you have a good rhythm, you can expand by purchasing more short-term rentals and boost your profits. 

Short-term tenants may be your best option if you want to fast-track your financial independence.