Why I Personally like Short Term Rentals Better Than Long Term Rentals as an Investor
Here’s why I personally like Short Term Rentals (STRs) versus Long Term Rentals (LTRs) as an investor:
Because some STRs are in nice vacation markets, you have a chance to get strong cashflow and appreciation. With LTRs normally you need to pick one. In San Francisco, home appreciation has traditionally be very strong, but high home prices means that rent won’t cover your mortgage and expenses. So you lose money on cashflow but make money on appreciation. In some markets in the Midwest, LTR rents tend to cover your expenses and then some, but the home prices never rise much. STRs can sometimes do both (or they can do neither!).
STRs are a "newer" industry compared to LTRs. It's easier to see potential in a property that no one else sees compared to a LTR because there are fewer people looking at them. A of of short term rental markets are highly competitive, but some are not. Certainly almost all these markets are less competitive than multifamily.
Lots of different ways to add value and express your creativity. The renovations and improvements you add to a home can significantly improve this economic performance. This could range from furniture, the exterior paint color of the house, adding a pool or hot tub. If you like HGTV and interior design, short term rentals will scratch that itch.
STRs (at least where I invest) are fun and about having people have great time. You don't have to worry about evicting someone if they get laid off and can't pay their rent. You have other problems of course, but you don't have to be someone's "landlord" and be responsible for whether they have a home.
You get better at it the more you do it. A lot of the challenge in this business is knowing how to run a short term rental. Once you know how to do that successfully that knowledge is valuable and scalable.
There are a lot of “cons” to short term rentals as well. It’s more active so you’re not passively sitting back and making money and it’s hard to scale (especially compared to apartments and multifamily) because you’re managing lots of subscale min-hotels. It’s also highly competitive and you’re at the merci of platforms like Airbnb and Vrbo.