STR vs LTR Investment: A Guide for First-Time Investors

So, you’re a first-time real estate investor and you’re trying to decide whether to invest in long-term rentals (LTRs) or short-term rentals (STRs). Here’s a quick overview of the pros and cons of each investment strategy to help you make an informed decision.

Long-Term Rentals

LTRs are properties that are leased to tenants for a period of six months or longer. This type of investment offers a number of advantages, including:
Steady cash flow. LTRs provide a consistent monthly rental income, which can help you cover your mortgage payments, property taxes, and other expenses.
Home value appreciation. Over time, the value of real estate tends to increase. This means that an LTR can appreciate in value over time, potentially providing you with a profitable return on your investment when you sell it.
Less turnover. Tenants in LTRs typically sign leases for a year or more, which means you’ll have fewer vacancies to deal with. This can save you time and money on marketing and tenant screening.
Fewer operating costs. Tenants in LTRs are typically responsible for paying their own utilities and for making repairs to the property beyond normal wear and tear. This can help you reduce your operating costs.

However, there are also some disadvantages to LTRs, including:
Property management: As an LTR landlord, you’ll be responsible for all aspects of property management, including screening tenants, collecting rent, handling repairs, and responding to complaints. This can be a time-consuming and challenging task.

Vacancy risk: Even if you have a good tenant screening process, there’s always the risk that a tenant will move out unexpectedly. This can leave you with a vacancy, which can reduce your income.

Problematic tenants: It’s possible to get a bad tenant who doesn’t pay rent on time, causes damage to the property, or is otherwise difficult to deal with. This can be a major headache for any landlord.

Legal issues: As an LTR landlord, you’ll need to comply with a variety of landlord-tenant laws and regulations. If you don’t comply with these laws, you could be sued by your tenants.

Short-Term Rentals

STRs are properties that are rented out for periods of less than 30 days. This type of investment offers a number of advantages, including:
Higher rental income. STRs can often generate more rental income than LTRs, especially in popular tourist destinations.

Flexibility: STR owners can use their property for personal use when it’s not rented out. This can be a great way to earn extra income while still having a place to call home.

High demand: The popularity of home-sharing platforms like Airbnb and Vrbo has created a high demand for STRs, particularly among travelers who are looking for unique and convenient accommodations.

Tax benefits: STR owners can deduct a number of expenses related to their business, such as cleaning, maintenance, and marketing.

However, there are also some disadvantages to STRs, including:

Seasonality: The demand for STRs can fluctuate depending on the time of year. This means that you may not be able to generate consistent income from your STR investment.

Increased risk: STRs are more susceptible to property damage and liability issues than LTRs. This is because STRs are rented out to a wider variety of people, and some of these people may not be as careful as long-term tenants.

Higher expenses: STRs require more maintenance and upkeep than LTRs. This is because STRs are rented out more frequently, and they are exposed to more wear and tear.

Highly competitive market: The STR market is very competitive, which means you’ll need to offer a competitive price and excellent customer service in order to attract guests.

Which Investment Strategy Is Right for You?

So, which investment strategy is right for you? The answer depends on your individual circumstances and goals. If you’re looking for a steady source of income and you don’t mind the time and effort required to manage an LTR, then an LTR investment might be a good option for you. However, if you’re looking for a higher return on investment and you’re willing to take on more risk, then an STR investment might be a better choice.