Rental units are now the fastest-growing segment of the housing market. In the United States, the demand for long-term single-family rentals has risen 30 percent in the past three years. And in Canada, rentals now account for one-third of the country’s homes. At the same time, the short-term, or vacation, rental market is also booming. The popularity of online marketplaces like Airbnb and HomeAway has helped this market become one of the fastest growing segments in the travel industry. Now, more than ever, there is an abundance of opportunity for real estate investors. But which path is best: leasing your property to a long-term tenant, or renting your property to travelers on a short-term basis?
Long-Term (Traditional) Rental Market
Create an additional stream of income as your property appreciates in value over time.
Benefits:
• Stable, predictable cash flow
• Long-term tenants mean less day-to-day management of the property
• Renter covers utility bills
• No need to furnish the property
Limitations:
• No personal use of the property
• Less flexibility to maximize revenue during periods of peak demand
• Limited ability to monitor property use and upkeep
Short-Term (Vacation) Rental Market
• Typically more wear and tear on the property Short-Term (Vacation) Rental Market
Help fund a vacation/second home purchase by renting out the property when you’re not using it.
Benefits:
• Use and enjoy the property yourself when it’s not rented
• Set the price and schedule you want
• Raise rates during times of peak demand
Greater control over the property’s use and maintenance
Limitations:
• Less predictable income
• More day-to-day management required
• You pay utility bills whether the property is occupied or not
• Laws and restrictions vary by location, so make sure you understand any existing or proposed restrictions on rentals in the area where you wish to purchase.
Which Investment Strategy is Right for You?
• If your goal is steady, predictable income with less time and effort on property management, then a long-term rental may be the best choice for you.
• If your goal is to purchase a vacation or second home and you want to defray some (or all) of the expense, then a short-term rental* may be a good option for you.
• If your goal is to purchase a future retirement home now to hedge against inflation and rising real estate prices and interest rates, then … it depends. You will need to consider factors like location, market demand, and property type.
Sources: 1. USA Today 2. The Globe and Mail 3. Phocuswright
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