Short vs Long-Term Vacation Rentals: Is switching in the low season a good idea?

The dynamics of vacation rental bookings have shifted. Travelers are opting for longer stays in the face of flexible hybrid and remote working environments.

Leading platforms like Airbnb are purpose-building features to make it easier for people to integrate travel into their lives, like the I’m Flexible search on Airbnb (launched in April 2021) for guests who are flexible about their dates and destination. Then in November of that year, the search was expanded to I’m (even more) Flexible, allowing a date range of up to 12 months with a total of nearly 30 categories of unique stays.

Since this feature first launched in 2021 guests have used I’m Flexible more than 2 billion times, according to Airbnb, who are now driving the concept of being able to live anywhere.

As Airbnb continues to reinvent the short-term rental industry, it highlights the slow-burn advantages of a long-term rental property.

It does raise the question of whether it makes sense to switch from a short-term to a long-term vacation rental strategy during the low season.

Each approach to maximizing the return on your investment property has unique benefits, as well as disadvantages. As the low season creeps in, let’s take a look at each approach to vacation rental property and what it means to ensure consistent income from your property portfolio.

What’s the difference between short-term and long-term rental?

When buying an investment property, owners need to decide the location and purpose. There are several factors to consider before selecting a long or short-term vacation rental approach. Most often, these decisions can be made quickly depending upon the nature of the goals you have for your property.

Short Term Vs Long Term Timeframes

The difference between the two business strategies comes down to time, not property type.

Renting your property for one evening, to one month is often considered a short-term rental. While a property rented for one month or longer is considered a long-term vacation rental.

As a host, your preferred style and specific cash flow needs will guide your strategy.

Restrictions on short-term rentals

When evaluating the long-term or short-term option, you should always consider due diligence and research local lease rules. It’s essential to know how long you’ll be able to rent a property to a guest, without any legal hassles.

Markets attracting tourists often limit the availability of short-term rental services. Because these are so lucrative, most landlords are tempted to enter the short-term rental market.

However, this affects affordable housing for local people and as a result, some municipal authorities ban short-term renting websites like Airbnb.

With that said, let’s take a look a the benefits of each time-framed approach in order to decide which is best for your vacation rental business.

Benefits of Long-Term Rental

Short-term rentals can be financially rewarding, with high-volume turnover and higher rates. However, your short-term rental properties can do with the stability of a long-term rental, done at the right time, even if it is offset by lower earning margins, like during the low season.

Here are some of the benefits of long-term rental property:

Consistent cash flow: Rent is paid on a weekly or monthly basis, giving you access to consistent income.

Utility bills paid: Having tenants for a long-term vacation rental of a month or longer creates a significant saving on running costs for you as the host.

Cheaper management: If you enlist the services of a property management company, your costs are significantly reduced with a long-term rental than with frequent short-term rentals, as there are fewer marketing requirements to fill occupancy.

Less admin to steal your time: Longer rentals certainly mean less churn. You will have less paperwork, fewer cleaning expenses and overall a decrease in the time required for the day-to-day management needs of your guests.

Although, if you manage a portfolio of properties as part of your vacation rental strategy, iGMS automation tools can certainly ease the management of your vacation rentals, irrespective of making the switch to long-term vacation rentals.

Cons of Long-Term Rentals

Investing in and managing long-term rentals comes with its own unique set of challenges. And while the passive income is great, these are some of the negative factors to keep in mind when it comes to a long term vacation rental:

Landlord Regulations: As we mentioned earlier, due diligence around laws and regulations you must follow to rent out a property is vital. These laws strongly protect tenants when it comes to application and eviction processes.

Finding the Right Tenant: Long-term rental usually requires a typical lease term of one year. This makes reviewing your tenant applications very important, to avoid any tenants with rental arrears and any other red flags noted by past landlords.

Lower Profit Margins: Long-term rentals are an excellent source of passive income, but the monthly rent will be considerably lower than the income generated during a popular holiday period with high demand.

No Personal Property Use: Your property will likely be rented out consistently, which means you won’t easily have access to use the property as you want. Some states legally require owners to give advance notice before visiting their property, even to perform maintenance duties. Do your research to avoid any potential legal issues.

Benefits Of Short-Term Rentals

Greater rental income potential: As an owner, you are able to charge a higher nightly rate for short-term rentals, compared to long-term vacation rentals, despite the rental income not being consistent.

Price Adjustment: Hosts have more pricing flexibility when doing short-term rentals. Rates can be adjusted to demand and seasonality or even to offer discounts for midweek stays to encourage occupancy. Short-term rental hosts are not bound by year-long lease terms that long-term rental homeowners experience.

Personal use: Blocking off your preferred dates for the personal use of your property is much easier when you cater to the short-term rental market. If you invested in your property with the intention of enjoying the location, then this is the option for you.

Better Property maintenance: Since your short-term rentals will most likely only be occupied over the weekends and busy tourism seasons the impact of wear and tear on the property will be far less. In addition to this, short-term rentals are cleaned and prepared for new occupants more regularly, which is good for the overall upkeep of the property.

Cons of Short-Term rentals

Short-term rentals have their own potential downsides. Rental income is directly dependent on demand, which means short-term rental owners have to put in more effort to market their vacation rental property. These are some of the challenges to consider before adopting this investment strategy.

Competitive Markets: A profitable short-term rental is heavily dependent on its location. Owning an investment property in a sought-after area minimize vacancies and maximize profits. But it does mean you have to compete with other rental owners and even hotels in the area. It is vital for your property to offer a competitive edge, especially when adopting this short-term rental approach.

Maintenance and Repairs: While this is also a benefit as your property is not rented out all the time, high-volume turnover over shorter periods could also end up costing you money. New tenants each week also means proper cleaning of the property to keep it well maintained, which ultimate also increases your costs.

Off Season Vacancies: Depending on the location of your property, the off-season could see a real dip in your income. In order to run a profitable business, you would need to factor seasonal vacancies into your overall rental pricing or opt to switch strategies to long-term rental to avoid any loss of income. This would involve lowering your rental rates and offering set deals during the off-season to attract tenants.

Property Management: More frequent tenants always generate more admin. In fact, if you want to ensure a professional service to your guests, taking care of the finer admin details is an absolute necessity, whether you’re doing short or long-term rentals. Take the stress of coordinating guest check-ins, cleaners, and maintenance workers out of your daily tasks with iGMS’s automation tools. Qualified property managers have found it more cost-effective, and you can too.

Short-term rental market tax implications vs long-term rental market

One of the biggest areas for confusion when looking at short vs long-term rentals relates to the different tax obligations associated with each. The tax obligations of short vs. long-term rentals can vary.

It is vital that your keep records of the dates you rented out your property to prove that your rental income is taxable or non-taxable to the IRS. A vacation rental agreement is a seamless way to provide the required documents should you need to, for an IRS audit.

Short-term tax savings

The Internal Revenue Service (IRS) provides a 14-day vacation rental tax exemption. This means that if you rent out your property for less than 14 days each year, you don’t have to pay taxes on your rental income.

Short-term tenants are able to deduct furnishings and basic expenses for cleaning, while short-term property owners can deduct any losses incurred during the operation of their property in certain circumstances, such as a short stay of under 7 days.

Long-term tax savings

Many short-term rental property owners exceed the allowed tw0-week timeframe. This is why long-term rental properties are more commonly associated with tax benefits. While long-term landlords are required to pay taxes on their rental income they can also deduct rental expenses such as property tax and mortgage interest.

Essentially, as an investment property owner, you need to take time to review your tax obligations no matter how long you rent out your vacation property. This can help you avoid a hefty bill when tax season rolls around. Further, take time to discuss any concerns with a qualified tax professional.

Deciding Between Short Vs Long Term Rentals: Listing on an OTA and which is more profitable?

Some listing sites require longer-term listing, so it’s important to learn the most efficient way to build an online rental company for you. Vacation rental platforms such as Airbnb and VRBO have made it much easier to ensure a consistent form of income from short-term rentals.

However, with the correct strategy in place, a long-term vacation rental may be a better fit for individuals who prefer to have less tenant turnover and as a result less property management stress.

You can advertise a long-term rental through your website, which gives you a wide choice of property types and options for listing. Listing sites give you a limited amount of freedom to advertise on your site – a challenge.

How to market your long-term vacation rental if you switch during the low season?

There is no reason to dread the low season when the tourists and other travellers go home and the vacation rental reservations dry up if you opt for a smart approach to marketing your long-term vacation rental.

There are a few time-tested tips you can use to net the limited market and maintain a steady flow of guests, even during the slowest times of the year.

1. Identify Your Low Season Period and Guests

The low season can vary depending on the type of property, location, and other factors. Determine exactly when your low season is by looking at analytics detailing what months people are booking and what months they’re staying.

Take advantage of the forecasting tools provided by OTAs like HomeAway and Booking.com to establish upcoming trends.

It’s also important to know what kinds of guests you’ll be attracting during the low season, from business to budget travellers. Specific demographics is one of the biggest parts of successful selling, so make sure to do your homework.

2. Reach Out to Your Existing Customers

People who have previously stayed with your are considered “warm” prospects and tend to convert better on average. Follow-up with past guests or those who previously enquired about booking.

The most straightforward strategy to reach out to previous guests is to simply contact them directly, especially those who visited during a previous low season. Off them a “repeat customer” discount. You could also make it worth their while if they offer you a referral guest

Similarly, reach out to customers who emailed or messaged with a reminder or special offer as well.

Ultimately you can always use targeted ads across various social media platforms, but this will eat into your costs too, so make sure you’re effectively leveraging the approved data of your guests in a secure way. Want to find out more about iGMS’s messaging tools to improve efficiency, book a demo today.

3. Update Your Listings

Pictures that don’t reflect the season can also impact your bookings. So it’s important that you make sure that your vacation rental website design allows you to be that flexible.

Add to this, highlight features that suit the low season, like fireplaces, hot tubs, and other seasonal options.

Business travellers are also a lucrative option during this time. They book more weekdays and off-peak dates than weekends and holidays and tend to spend more money at the property on things like food, drinks, and other services. So its a good idea to upsell your property’s appeal in this regard if applicable:

• wireless internet
• desk or workspace
• self-check-in
• essentials, like toilet paper, towels, and linens
• iron and hairdryer

4. Low Season policies

You cannot expect the terms you apply during the peak season to work for your guests during the low season. These off-peak travellers usually value flexibility as much as a lower price. Now would be a good time to offer free cancellation until two weeks before arrival. You can also set up multiple cancellation policies – each with the benefit of different price points.

Of course, offering these options doesn’t mean you actually want guests to cancel. Use the low-season to craft a more personal approach. Let guests know how much you value their vacation rental reservation and appreciate their decision to choose your property.

5. Make Weekdays Attractive

Weekday travel is often less attractive, especially during the low season. Discounts are an obvious choice to convince guest to book on a weekday instead of a weekend.

But you have to be smart about how you offer discounts, as it doesn’t help if a guest sees a special price and isn’t aware that it is in fact a discounted rate. For example Airbnb merchandising is a promotion tool for hosts to make their listing more appealing, specifically targeting the displayed price point.

By applying special tagging, like strike-through pricing and a “new lower price” message, guests are encouraged to click on it, which ultimately increases the traffic your listings receive, thereby upping the conversion rate.

And then finally, you can increase your weekday business by simply making your property more available. Listings that accept last-minute direct bookings receive four-times more vacation rental reservations. And make sure you’re flexible on arrival days.

Make the Most of the Low Season

As we covered above, there are many pros and cons to switching between a short-term and a long-term rental offering, depending on what works for your business needs. A lot of it also depends on your property type and location, so you’ll likely always see some drop-off in guests during certain months.

Ultimately you should always be evaluating your short-term vacation rental strategy  if you want to get ahead.

Different strategies can boost your low-season vacation rental reservations, and some of them only take minutes to implement if you have the right direct website and vacation rental software automation tools like iGMS. Benefits include:

• Managing multiple accounts and listings on the major vacation rental platforms
• Using the unified inbox to organize your messages into a single feed and automated templates and triggered messaging to improve guest communication
• Automating the process of guest reviews creation and send-outs 
• Managing direct bookings using a direct booking management toolkit
• Creating essential reports on your business results and tracking metrics with the Dashboard feature
• Receiving payouts and creating invoices by connecting your Stripe account to iGMS
• Sharing daily schedules with your team and auto-assigning tasks.