Short-Term vs. Long-Term Rentals: Which Yields Better Cash Flow?

When choosing between short-term and long-term rentals cash flow, the best strategy isn’t always obvious. This choice is challenging for many real estate investors because there’s a wealth of improtant information to sift through.

Fortunately, you don’t have to rely on guesswork to narrow down a strategy for your investment goals. Privy offers real estate investment software that eliminates uncertainty by providing real-time access to reliable, up-to-date data on home investment properties.

With the right strategy and software, you’ll be in a prime position to optimize your cash flow and achieve your investment goals. Without a strong strategy, you risk losing time and money on a rental that doesn’t pan out. 

Short-Term Rentals 

Short-term rentals refer to any rental unit available for a short period, such as vacation rentals and condos. If you’re considering looking into short-term rentals, there are several opportunities for creating higher returns on your investment. 

Short-term rentals are different from traditional hotels and motels because they’re still a form of residential real estate. Over the years, more and more travelers have gravitated to short-term rentals because they offer a personal and down-to-earth experience compared to hotels. Instead of a conventional room, vacationgoers can get an idea of what life is like for residents in the town or city they’re visiting. 

You can learn a lot about short-term rental demand by researching public listings from rental sites like Booking.com or Airbnb. Short-term rentals often generate peak income during high-demand triggers, such as holidays, seasons, or major events. You can further boost revenue by offering add-on services or by extending rental periods.

However, surface-level research isn’t enough to give you the full picture on your potential cash flow. How do you pinpoint lucrative short-term rentals from high-demand areas?  With the help of Privy’s market data, you can identify areas where your short-term rentals are more likely to yield higher returns. 

Our Live Comparison Market Analysis tool (LiveCMA) provides rental property comps, reflecting the latest conditions in your market.

Long-Term Rentals

While short-term rentals are often more volatile regarding cash flow, long-term rentals are on the other side of the spectrum. Long-term rentals come with longer lease agreements that range from months to years at a time. 

As a result, they provide more predictable income streams since occupancy rates don’t fluctuate as frequently. Compare two scenarios: you invest in a short-term rental where occupants can stay for a few days or a week, with frequent turnover and occasional vacancies during off-seasons.

In contrast, a long-term rental property, like a multifamily unit, involves renters signing leases of six months to a year. Tenant turnover is much less frequent, and you’re providing a stable housing option, making it easier to plan financially and manage cash flow.

When it comes to stability, long-term rentals are generally more reliable. However, finding dependable long-term rentals still requires extensive research so you can compare and contrast different properties. 

Our tools make the research process much faster. Our LiveCMA tool significantly reduces the busy work of manual search by providing real-time data streams. You can access data from property management companies directly, filter long-term rental properties from active listings, and estimate passive income forecasting all in one place. 

Cash Flow Comparison 

Should you choose short-term rentals or long-term rentals for your cash flow strategy? Let’s look at recent statistics to get a bigger picture on rental income comparison. 

Short-term rentals in the U.S. have now reached $64 billion in revenue. The growing demand for short-term rentals has surged due to more consumers wanting flexible pricing and authentic vacation experiences. 

At the same time, long-term rentals are also in high demand. Rental leases across the U.S. are projected to rise from 46 million to 49 million over the next five years. Opportunities for stable investments abound, but only if you leverage the right tools to identify them.

Let’s take a look at a side-by-side comparison example of short-term cash flow and long-term cash flow. Firstly, you calculate your cash flow by adding all of your potential income together, then taking out the expenses. The number you’re left over with is the net cash flow you receive from your property. 

Calculating your cash flow statement and your projected net cash flow takes on the following formula:

• Annual rental income
• Annual mortgage payment (PITI)
• Annual operating expenses and repairs
• Vacancy rate estimate
• Projected net cash flow

Here’s an example of long-term rental cash flow for a single-family home in a high-demand area where you’ve researched appreciation potential based on location, population growth, and property upgrades:

• Annual rental income: $15,000
• Annual mortgage payment:$8,000
• Annual operating expenses and repairs:$1,000
• stimated vacancy rate: (5%)$750
• Projected net cash flow:$5,250

Short-Term vs. Long-Term Rentals: Which Yields Better Cash Flow?

When choosing between short-term and long-term rentals, the best strategy isn’t always obvious. This choice is challenging for many real estate investors because there’s a wealth of information to sift through.

Fortunately, you don’t have to rely on guesswork to narrow down a strategy for your investment goals. We offer investor software that eliminates uncertainty by providing real-time access to reliable, up-to-date data on home investment properties.

With the right strategy, you’ll be in a prime position to optimize your cash flow and achieve your investment goals. Without a strong strategy, you risk losing time and money on a rental that doesn’t pan out.

Short-Term Rentals

Short-term rentals refer to properties rented out for short periods, such as vacation rentals and condos. If you’re considering short-term rentals, there are several opportunities to generate higher returns on your investment.

Short-term rentals differ from traditional hotels and motels because they’re still a form of residential real estate. Over the years, more and more travelers have gravitated to short-term rentals because they offer a more personal and authentic experience compared to hotels. Instead of a conventional room, vacationers can get a glimpse of local life in the area they’re visiting.

You can learn a lot about short-term rental demand by researching public listings from platforms like Booking.com or Airbnb. Short-term rentals often generate peak income during high-demand seasons, such as holidays or major events. You can further boost revenue by offering add-on services or by extending rental periods.

However, surface-level research isn’t enough to give you the full picture of your potential cash flow. How do you pinpoint lucrative short-term rentals in high-demand areas? With Privy’s market data, you can identify locations where short-term rentals are more likely to yield higher returns.

Our Live Comparison Market Analysis Tool (LiveCMA) provides real-time rental property comps, reflecting the latest conditions in your market.

Long-Term Rentals

While short-term rentals can be more volatile in terms of cash flow, long-term rentals offer more stability. Long-term rentals typically have longer lease agreements, ranging from several months to years.

As a result, they provide more predictable income streams since occupancy rates don’t fluctuate as frequently. Compare two scenarios: you invest in a short-term rental where tenants stay for just a few days or a week, with frequent turnover and occasional vacancies during off-seasons.

In contrast, a long-term rental property, like a multifamily unit, involves renters signing leases of six months to a year. Tenant turnover is much less frequent, and you’re providing a stable housing option, making it easier to plan financially and manage cash flow.

When it comes to stability, long-term rentals are generally more reliable. However, finding dependable long-term rentals still requires extensive research and comparison of various properties.

Our tools streamline the research process. LiveCMA drastically reduces manual search time by providing real-time data from property management companies. You can filter long-term rental properties from active listings and forecast passive income with ease.

Cash Flow Comparison

Should you choose short-term or long-term rentals for your cash flow strategy? Let’s look at recent statistics for a broader perspective on rental income comparisons.

According to a 2023 study, short-term rentals in the U.S. have now reached $64 billion in revenue. The demand for short-term rentals has surged due to the growing preference for flexible pricing and authentic vacation experiences.

At the same time, long-term rentals are also in high demand. Rental leases across the U.S. are projected to rise from 46 million to 49 million over the next five years. Opportunities for stable investments abound, but only if you leverage the right tools to identify them.

Let’s look at a side-by-side comparison of short-term and long-term cash flow:

To calculate your cash flow: add all potential income together, then subtract expenses. The remaining figure is your net cash flow.

Here’s an example of long-term rental cash flow for a single-family home in a high-demand area, where you’ve researched appreciation potential based on location, population growth, and property upgrades:

• Annual rent: $15,000
• Annual mortgage payment: $8,000
• Annual operating expenses and repairs: $1,000
• Vacancy rate estimate (5%): $750
• Projected net cash flow: $5,250

Now, contrast this with short-term rental cash flow for a vacation home in a seasonal market. Peak seasons (spring or summer) may bring in high income, but off-seasons (fall and winter) could lead to reduced or negative cash flow. Income variability and market volatility make it harder to plan compared to long-term rentals.

No matter which type of rental you’re interested in, our dynamic investment tool is crucial for filtering out information you don’t need as you research properties. With the aid of our Comparative Search tool, you can quickly hone in on promising properties based on details such as sale price, time frame, or housing market. You can even narrow details down further by looking at a property’s recent renovations and upgrades. 

Privy’s  Long-Term Rental Calculator can also estimate any property’s potential as a lucrative long-term rental. You’ll receive valuable insights into year-over-year returns as well as useful information on renovations, property taxes, vacancy rates, and more. 

Expenses And Risk Management 

Both short-term rentals and long-term rentals cash flow come with unique risks and expenses.  Anticipating these challenges will help you avoid potential headaches.

Let’s start off with short-term rentals. The most noticeable downsides are the high turnover rate and lack of consistent attention to your property. Not only does high guest turnover make your rental property cash flow less reliable, an inconsistent presence can make spotting maintenance issues trickier. 

Long-term residents are more likely to spot maintenance issues than brief visitors, making it easier to catch problems early before they get worse. As such, short-term rentals generally require more oversight when it comes to maintenance, booking, and managing off-seasons. 

While long-term leasing comes with steadier cash flow, this form of investment still has a few drawbacks. For starters, dealing with difficult tenants is much more difficult when they’ve signed a lease that runs for months or years. Should any disputes emerge due to their behavior – such as arguments with other neighbors or lack of cleanliness – you don’t have the luxury of them leaving in a week. You’ll have to spend more time on legal proceedings resolving the situation. 

This issue stands in stark contrast with short-term rentals, where expensive legal disputes are very rare due to high turnover rates. Reducing the risk for negative cash flow with a long-term rental can look like: 

• Encouraging on-time payments from tenants
• Having a financial cushion for capital expenses or emergency repairs 
• Using smart tools like Privy’s Comparative Search to select high-potential markets

Which Strategy Is Best For Generating Cash Flow?

Now that you have a better idea of short-term and long-term rentals for cash flow, it’s time to start narrowing down your best strategy. There are conditions in which short-term rentals may be preferable, as well as scenarios where a long-term solution is more beneficial. 

For example, you may find a lucrative property in a high-demand area that sees regular tourist activity. A short-term rental could provide steady rental property cash flow through multiple seasons (and may be high enough to offset slow periods). 

However, you may also find long-term investment properties in areas experiencing steady population increases and economic growth. Since long-term properties generally yield predictable cash flow due to lower turnover rates, this option could be more appealing. 

The best strategy for short-term rentals vs long-term rentals cash flow boils down to your experience level and financial goals. No matter which strategy you choose, you can assess market conditions using Privy’s real-time analytics to narrow down the best option.