Short or Long Term Rental?

Question

My husband and I own a couple of rental properties in other states but would like to buy one here in the Phoenix area. We go back and forth between long and short term rentals. What are the pros and cons of each and what areas are best? Scottsdale seems to be pretty solid as far as demand. Would love any suggestions or advice. Thank you.

David Krulac · Answer

I'm primary long term rental person.  I've had tenants stay for 30 years in the same place.  There are properties that I haven't seen in several years that run like clockwork.  Currently have a 24 year tenant, who has agreed to a new 3 year extension, where they take care of all utilitites, lawn service, snow removal and minor maintenance up to $400.  Somce years I only pay taxes, and insurance, other years there are maintenace issues.  Also have a 9 year and a 10 year tenant. Long term tenants and lack of or low amount of vacancy is a key issue to profitability.  I look for single family detached houses with 3 bedrooms and multiple baths, and adequate storage.  Also look for non-rental neighborhoods with good schools and low crime rates.  I'm also willing to experiment with different techniques.  In Bigger Pockets Podcast #82, I talked about my "Tenant Self Management Program."  I rented a house at 25% rent discount for 3 years, where besides paying all utilitites, lawn, snow and maintenance, the tenant also supplied all appliances including range, refrigerator, washer, dryer.  I also did not clean or paint the house and left all that to the tenant.  In addition, they were required not to call me unless there was an emergency.

Alan Asriants · Answer

STR - higher risk, potentially higher returns, more volatile

LTR - more stable returns, smaller returns

Both have good tax benefits

STR are becoming very saturated so I am hearing the math on them doesn't make too much sense either.

I think STR is a good alternative for a second home that you STR most of the year and use for leisure. Thats just my 2 cents

Walter Moneypenny · Answer

You have many things to consider. Obviously you want the rental to cashflow, whether it is STR, MTR or LTR. The short term market is seasonal. The "snowbirds" are usually gone by April and won't come back until October or November. You may have considerable vacancy time. And, as a previous commenter mentioned, so you want to manage an STR? He is also right about the HOA's. As with any Real Estate purchase, you need to read the documents carefully. I was an HOA manager for 25 years and have seen the hostility toward STR's grow larger.

My primary focus is Long Term Rentals. You need to find a brokerage that specializes in LTR's and can also handle the property management. Get an estimate of what the property will rent for and see if it will be profitable. There are a lot of areas in the Phoenix metro area that are great for LTR. We have a lot of industry coming here and the jobs will pay well. Those workers will need a place to live!

Feel free to reach out to me and I can run some numbers for you.

Sam Applegate · Answer

@Dawn W.There will always be varying opinions on whether long-term or short-term rentals are better, but here’s my personal take.I favor long-term rentals because they make the investment more passive. I’m comfortable sacrificing a bit on revenue in exchange for steady cash flow, lower expenses, and fewer headaches.However, if you come across a standout property with a pool and great amenities in Scottsdale, it could be very beneficial during spring training or for bachelor/bachelorette parties. For most investment properties, though, I think long-term rentals are the way to go.

Michael Smythe · Answer

How much time do you want to invest is the main question.

Denver McClure · Answer

Hey @Dawn W., this depends on a few factors. Do you want to manage an STR? You enter the hospitality industry when you do so, and it comes active work and additional expenses for that increased income. You'll need to consider local Hotel Occ Tax to determine what you'll pay each month, and if the city/HOA is becoming more favorable or hostile towards STRs. If you see more restrictive measures being enforced on STRs in that area, then it might not be the best long term option for your portfolio. However, if you do evaluate a property as an STR, run the numbers as if it were a MTR. A MTR will give you the flexibility to keep the unit furnished, get a higher monthly rent rate, and avoid HOT.

Feel free to reach out if you'd like to go through the numbers together. Happy to help!

Account Closed · Answer

short term rental is more of a business, you can make more cash on cash (with more work) and get fantastic tax benefits if you work with the right accountant. Long term rentals are better for building longer term passive income

Adam Bartomeo · Answer

Easy...

Vacation Rentals - Suck!

Annual Rentals - Rock!

Jana Crum · Answer

@Dawn W. Welcome to investing in the Phoenix area! Have you looked at the Laveen area? It's on the Southwest side of the metro area & is experiencing A TON of economic growth! Banner Health, the largest hospital system in Arizona, just bought land in Laveen to build a hospital plus a retail developer is building a new shopping center/outdoor mall. There are also over 7 new build communities in the Laveen area.

I have an out-of-state investor client currently looking to purchase a new build in Laveen due to all of the economic activity! I'd love to connect, I'll PM you.

Jackson Harris · Answer

Hi Dawn, sent you a PM.

Scottsdale is definitely a good place to be in if possible but there are definitely other areas you can get into for a cheaper price point in Mesa, Glendale, Tempe, etc.

Have a few STR's myself and do well cash flow-wise as well as an LTR that is more for equity. I think deciding between cash flow now vs long term equity growth that is typically safer, is a decision you'll need to think on before making a purchase.

Feel free to contact me anytime!

Short or Long Term Rental?

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