Phoenix is a unique rental market. While long term leases are typically the best option for investors, this is a tourist-friendly area with a lot of people who come and go for a period of days, weeks, or months. Short term rentals can be a benefit when you’re trying to reach vacationers or business travelers. However, as we’ve seen with the recent pandemic, tourism is an industry that’s dependent on a lot of things – such as travel not being restricted.
Today we’re looking at some of the pros and cons to help you decide whether you should rent your Phoenix investment property out for the short or long term. In the end, you’ll have to do a comparison that fits the unique position of your own rental property. Compare a year’s worth of income and expenses on a long term lease to those same numbers on a short term lease.
Short Term Leases: Pros and Cons
One of the benefits to renting your property out with a short term lease is that it gives you more flexibility if you’re renting out your own home. If you’re leaving the area temporarily and you hope to move back into the home one day, short term leases will allow you to get the home back when you’re ready.
Another benefit is you can typically charge more for the property if it’s rented for a shorter term. A lot of landlords do really well renting their property out as seasonal rentals or short term stays and they generate great cash flow. The nightly or weekly rate you charge on a short term rental is often double or even triple what you’d charge per-night on a long term rental.
However, one drawback to renting your property out for a short term is that it requires more work from you. You must be responsive to your frequently changing renters, and you’ll have to locate new tenants and move them in every few days, weeks, or months. You’ll need to handle the rental agreements and make sure the property is in good condition during each turnover. If you cannot commit to the intense ongoing maintenance and care of your property, a short term lease might not be best.
You also have the potential for more vacancies. Even in Phoenix, the property won’t always be occupied, so you’ll need to constantly look for tenants. When you take all that vacancy you’re incurring over the long haul, it will add up to a lot of money that you would have saved had you locked someone in for a 12-month term.
Think about the amenities and the furniture as well. Short term lease apartments and homes need to be furnished and your renters will expect quality and functionality. Furnished short term rentals will also need to include cooking supplies, linens, and established utilities including cable television and Wi-Fi.
Long Term Lease Agreements: Pros and Cons
One of the benefits to renting a property for the standard 12-month term is that these are the homes a majority of the tenant pool is seeking. They want that stable property that they know will be their home for at least a year. You’ll usually find tenants who are hoping to stay for longer than 12 months.
With our long term leases, our average tenant stays in place for two years or more, especially if you’re providing a good experience and maintaining the home. Long term tenants add some stability to your investment. You build a relationship with your tenant and you have a good idea of who is in your property. There’s less uncertainty, and usually less risk.
On the downside, you might not get those super-high nightly rents that you can charge when a tenant is looking to stay somewhere for one or two days. You also have to respect the length of the lease period, and it will be difficult and expensive to move the tenant out through no fault of their own.
Converting from Short Term to Long Term
If you’re converting your short term rental to a long term rental, you’ll have to do some work early on in the process. This includes removing all the furnishings, marketing the home in new places, and deciding on a rental rate that’s a bit different than what you’re used to earning. You’ll also have to learn a new set of laws and best practices, and you’ll have to pay closer attention to tenant screening, lease agreements, and maintenance policies.
Professional property management in Phoenix is crucial when you’re moving from one type of rental to another.
Choosing between short and long term really depends on whether you want to earn as much as possible and you don’t mind the constant turnover, or if you’re looking for predictable and stable income with one tenant.
We can help you make this decision, and we can also help you manage your Phoenix rental property. Contact us at Service Star Realty for more information.