Vacation rentals are a hundred billion-dollar industry worldwide – and it’s projected to grow by $157 billion in 2020, offerings countless opportunities for property investors.
And this can’t be truer for sunny Florida, which received a record-breaking 68.9 million tourists in the first six months of 2019.
But now that you’ve located your next investment property, should you rent it out short term or long term? Here are the pros and cons of each.
The legal definition of a vacation rental in Florida
Under state law, a vacation rental is “any unit or group of units in a condominium or cooperative or any individually or collectively owned single-family, two-family, or four-family house or dwelling unit that is also a transient public lodging establishment but that is not a timeshare project.”
Hosted rentals are defined as short-term rentals in which the host stays in the same property as the guests – think AirBnB. Hosted rentals have yet to be regulated by the Florida Department of Business and Professional Regulation (DBPR) since renting out a room or several rooms other than the entire dwelling unit is currently not classified as public lodging and therefore does not require a DBPR license.
However, hosted rentals may be subject to regulations at the city or county level. Hillsborough County commissioners, for instance, are considering setting up a registry for short term rental property owners.
The benefits of short term rentals
As the name suggests, short term rentals are occupied for a brief period of time, most commonly on a nightly or weekly basis.
The benefits of owning a short term rental include:
- Flexible arrangements – Shorter reservations give you more opportunity to offer the rental to other vacationers or to friends and family. You’ll also be able to use the property for spontaneous vacations once a reservation ends. You will be able to block off dates in the near future if you or your loved ones intend to stay on the property.
- Tax breaks – Property owners who rent out their place for 14 days or less each year might be eligible for the 14-day Rule, a tax rule in which a property owner is not required to pay tax on income earned from a short term vacation rental for 14 days or less. The rule also allows you to deduct the costs of cleaning, maintenance, utilities, insurance, and other expenses.
- Rental income – Property managers may raise prices seasonally or depending on demand. Rates are typically higher during peak season in the Tampa Bay area, which spans the summer months. Tourists are also willing to pay premium prices during holidays.
The cons of short-term rentals
Perhaps the biggest challenge short term rental owners face is maintenance and upkeep – since turnover is quick, you will need to ensure that the place is clean and ready for the next occupant. Since a short term rental has more occupants, the wear and tear on your property will be more apparent.
Business may be slow during off season, forcing you to lower rates and channel more time and energy towards making sure it stays occupied. Unless you have other streams of income, you’ll take a financial hit.
The benefits of long-term vacation rentals
A long term vacation rental refers to a single-family home, condo, or apartment that is rented out for at least a month. Benefits include:
- Low turnover – With fewer guests staying on the property, you’ll spend less time or money cleaning, doing paperwork, accepting reservations, and attending to emergencies.
- Steady income – Perhaps the biggest advantage of a long-term rental is steady and predictable income. You will also spend less time marketing the property and finding tenants.
The cons of long term rentals
Renting your property out on a long term basis gives you fewer opportunities to use the property yourself. Moreover, short term rentals are heavily discounted to attract more guests. Lastly, the market for long term rentals is somewhat limited, since the majority of tourists only stay for several days or weeks.