Rental Properties 101: Short Term, Mid Term, Long Term
Every type of investment property comes with its own set of pros and cons. Here's a quick rundown:
Short Term Rentals (STR)
There's a lot of hype around having an AirBnb/VRBO property. They can be lucrative, but there are some considerations when planning for a short term rental.
First, is it doable? You'll need to look at local regulations. Regulations within Northern Colorado differ between Weld County and Larimer County as well as at the city level.
Will you manage it yourself or pay someone? It's common for management fees to be 20-35% of the monthly income. If you manage it yourself you'll need to coordinate things like cleaning after each stay and replenishing household items.
Pros: Higher monthly revenue than MTR and LTR, and can be used for personal use.
Cons: More regulations, pay lodging taxes, requires more attention (managing AirBnb/rental sites), more usage of the home = more repairs and replenishing, occupancy rate 60-80%.
Mid Term Rentals (MTR)
Mid Term Rentals are properties that are rented for at least 31 days (and usually no more than a few months). Anything under 31 days is considered a short term rental and requires the homeowner to pay lodging tax to it's municipality. Mid Term Rentals are generally fully furnished.
Pros: Less wear and tear than STR, monthly revenue usually equal to or slightly less than STR, lower expenses cleaning and management fees than STR
Cons: Less turnover than STR but more than LTR, maintenance of furnishings, occupancy rate 60-80%
Long Term Rentals
Long Term Rentals are properties that are rented out to tenants for a long period of time (usually a year or more but sometimes as little as 6 months).
Pros: Avoids restrictive STR regulations, less turnover = fewer replacements/repairs, not furnished by homeowner, occupancy rate 90-95%, passive income
Cons: Lower monthly revenue than STR and MTR
It's important to think about what's important to you when deciding which type of investment property to purchase. Perhaps it's maximizing your monthly income. Or, maybe it's appreciation of the home. Regardless of what type of rental you decide on there are other things to take into consideration -- location (this one's important), type of home (single family vs. multi unit), long term goals, and the current market.
The good news? I have plenty of tools to help you decide what's best for you, to calculate expenses and income, and to dial in the best area to buy in. Get my Investor Toolkit Here.