What are the Pros and cons of STR vs LTR

Question

I consider myself still fairly new in REI.  I currently have a 1 LTR but looking into

exploring short term rentals.  I currently can’t take advantage of the tax benefits with my LTR because of the AGI limit, will it be the same issue with STR?

If you can pls share pros and cons of STR vs LTR that will be very helpful.

Thanks in advance.

Belinda M. · Answer

@Nathan Grabau thank you!  I am also thinking of doing mid term rentals as I am learning more about it. I wonder if this will be a better option than STR

Nathan Grabau · Answer

If you actively participate in your STR, there are tax strategies that let you take this as active income, which allows your to deduct it against your active income.

The primary first step I would take if I were you is run the numbers and see how much more money you can get as an STR. There are some markets where this gap is big and others where it is smaller.

If you are running an STR, you will have to put more effort into the property, but many of your systems can be automated with services like guestly for hosts or pricelabs. You also are, or someone you pay is, on call virtually 24/7 to handle concerns at your property. I would think about the level of service you want to provide at an STR as being comparable to the level of service you get at a hotel. If a TV remote's batteries die, you need to hope you have batteries. If someone's bed sheets or the shower is not cleaned well, you need to coordinate to have your cleaners back to the property ASAP.

Generally as you think through the time commitment, the most efficient hosts I know spend between 30 minutes and 2 hours a week managing each STR they have, that being said, there is a reasonable amount of leg work to get things like automated messaging/ automated cleaning set up!

Brett Deas · Answer

STR's are active income, especially if you are managing it yourself. Even if you have a PM you will still have to do a lot more than LTR's. I would also dare to say the market for STR's is softening and they are not as profitable as they once were.

Brett Deas · Answer

I would say half and half. I have 3 medium terms rentals and i spend probably 5 hours a month managing them, and that is on the high side.

Nathan Grabau · Answer

Medium term rentals do not count as active income. One of the conditions for the active income in STRs is your average stay has to be under 14 days.

I would comp MTRs on Furnished Finder! You can get a good idea of what people are charging, the quality of your competition, and occupancy when you look at "available now" vs "available xyz".

I am really excited about MTRs in our market (Colorado), but that is because of all the regulatory issues surrounding STRs.

Belinda M. · Answer

@Brett Deas. Thank you!  How about mid term rentals do they also fall under active income?

What are the Pros and cons of STR vs LTR

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