Short Term vs Long Term

[Thomas A. Rufo]

Hello Everyone,

This is my first post on the forum. My wife and I currently own two identical condos (3 bedroom/2 bath) in the same community. We were married over a year ago and I moved into her condo and we put the other condo up as a short term rental.  It has been doing well renting consistently.  We want to travel and invest and are considering converting this short term rental to a long term rental to avoid sales tax, paying utilities and general management of the property.  We are considering renting both condos long term and hiring a rental management company to collect rent and manage.  We feel this will give us more freedom and consistency financially.  We want to travel via RV and potentially house hack in multi-family to have a home to return too as well as potentially take advantage of 5% Fannie Mae loan for purchase of multi-family using least amount of our own money.  Does this strategy sound good?  Any opinions on short term vs long term rentals?  Does plan to house hack on Multi-family make sense?  I appreciate the forum's experience and input.  We are newbies to the multi-family investing.  Thank you! 

[Thomas A. Rufo]

Pat.  Thank you so much for your input.  We so appreciate it.  We are looking closer at our short term rental.  Maybe we see if we can squeeze some more profit from it and keep one as short term and the other as long term.  Your post sparked our interest.  Thank you!

[Dick Rosen]

Hi Thomas, 

My daughter and I manage long term rentals in the Phoenix market and I can say that in the past couple of years we are seeing a trend of people doing exactly what you are considering. We have been taking over rentals for long term that were previously short term for all the same reasons you've mentioned. I say jump on it Thomas, you won't regret it.

Good luck and Happy Investing.

[Andrew Steffens]

This sounds like a good idea.  Hiring a competent local manager can maximize not only your time but also your revenue if they do it right. 

[Savannah Holzer]

Hey Thomas - I've seen many go the LTR route. Converting the short-term rental to a long-term one can help reduce the hassles of frequent turnover and management while offering more predictable cash flow. The idea of house hacking a multi-family property is a great way to cover living expenses while building equity. Have you thought about using a DSCR loan?

[Wale Lawal]

@Thomas A. Rufo

Short-Term Rental (STR) and Long-Term Rental (LTR) are rental options based on lifestyle and financial goals. STR offers higher income potential, flexibility, and tax deductions but is subject to seasonal demand. LTR offers predictable cash flow, less management, and lower income. House hacking can help convert STR to LTR, aligning with financial freedom and travel. To convert STR to LTR, evaluate rental comps, hire a property management company, explore multifamily properties in strong markets, and use a 5% Fannie Mae loan to buy a multifamily property.

Good luck!

[Sarah Kensinger]

So, I'm not sure where your condo is located, but STR over a LTR always yields more income. Of course, this depends on the location and how the property is managed. House hacking is a wonderful way to grow a real estate portfolio and would be a great plan to dig into and set in motion!

[Connor Hibbs]

Hi Thomas,

This sounds like a good strategy for what you're looking to do. By converting over to LTR you'll reduce the time needed to oversee the property and while you may not have a high of a ceiling for income on the property as a STR, you'll have a consistent income. If both of the properties are near each other (it sounds like they are) then you'd also be able to use one property manager for the both of them as well.

[Drew Sygit]

@Thomas A. Rufo we'll go an opposite direction than most here!

You should really analyze your options, as data should make your decision easier:)

How much have you been making on the STR?

What numbers are you projecting for an LTR (use BP Rental Calculater!)?

What would your STR numbers look like if you hired a local STR PMC?
- Suggest you speak with one about their fees, but also about their thoughts on the market.
- Do NOT speak to a PMC that can't PROVE they also manage STRs. STRs are difficult for a traditional LTR PMC to properly manage!

Compare the STR PMC managed numbers to those for LTR PMC managed.
- The numbers may have an impact on your decision.

You may also want to read your condo's Home Owners Association Master Deed & Bylaws to make sure there are no restrictions on any type of rentals. 
- Many HOAs have LTR restrictions and some now have implemented STR restrictions.

Also, hopefully you've updated the home insurance policy of your current STR rental from a homeowner's policy to a landlord policy.

[Julia Lyrberg]

Your plan sounds solid! Converting your short-term rental to long-term can provide more stability and reduce the hassle of managing utilities, taxes, and turnovers!

[Luke Carl]

Should be STR AND LTR. I have plenty of both including multifamily and I love them all. (and hate them all lol).

[Bonnie Griffin Kaake]

 @Thomas A. Rufo Also consider the fact that when you switch from STR to LTR or the other way around, you will need your CPA/tax professional to do the IRS' 3115 change of accounting form to go from 39-year depreciation for STR to 27.5-year depreciation for a LTR. They do not like doing these complex forms and charge quite a bit for them. If you haven't done so, you may want to get an estimate for a cost segregation study on these units. This will give you extra cash flow in the first year and/or the early years to maximize your tax benefits and make your dream come true. I provide the 3115 and 481a adjustments for my clients and their tax professionals with the cost seg studies.

[Chris Rich]

Quote from @Thomas A. Rufo:

Hello Everyone,

This is my first post on the forum. My wife and I currently own two identical condos (3 bedroom/2 bath) in the same community. We were married over a year ago and I moved into her condo and we put the other condo up as a short term rental.  It has been doing well renting consistently.  We want to travel and invest and are considering converting this short term rental to a long term rental to avoid sales tax, paying utilities and general management of the property.  We are considering renting both condos long term and hiring a rental management company to collect rent and manage.  We feel this will give us more freedom and consistency financially.  We want to travel via RV and potentially house hack in multi-family to have a home to return too as well as potentially take advantage of 5% Fannie Mae loan for purchase of multi-family using least amount of our own money.  Does this strategy sound good?  Any opinions on short term vs long term rentals?  Does plan to house hack on Multi-family make sense?  I appreciate the forum's experience and input.  We are newbies to the multi-family investing.  Thank you! 

I am in the long-term property management space, so I may be a little biased, but everyone saying "STR is more profitable" should really be saying "CAN be" more profitable. 

Really depends on what you are looking for, your market, and how passive do you want to be. STR is more like hospitality and yes, it can be more profitable. It could also require more time and effort, have more operating costs, and not be worth it. 

I had a client last year who was self-managing her LTR but wanted to take her RV and travel. After discussing her goals, she ended up hiring us for the management. Within a few months she was thrilled because hiring a PM freed up her time and allowed her to focus on the traveling, and not managing the property.

Ultimately, I would look at the LTR rental numbers and see if it meets what you need. But keep in mind, even LTRs have expenses. But according to Zillow, tenants stay on average 3-5 years in a rental.  In my experience, if you take care of the tenant you will likely see that average to be true.