Long-term vs Short-term Rentals Comparison For Property Owners

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Long-term vs Short-term Rentals Comparison For Property Owners

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As a property owner, you might be wondering whether it’s more beneficial to rent your property on a long-term or short-term basis. In this guide, we will delve into the pros and cons of each rental type, discuss which option might be best for different properties and owners, and offer some final thoughts and recommendations.

Long-term Rentals:

Long-term rentals typically consist of leases that last for six months or more, often extending for a period of a year. Tenants sign an agreement that outlines the terms and conditions of their stay, and usually pay a security deposit along with monthly rent.

Key points and Figures

  • The Canadian rental market is carrying strong momentum into 2023, driven by robust labour market conditions, record high population inflows, and generational lows for homeownership affordability.
  • It is expected that rents for units available in the market will increase by an average of about 5% in Canada during 2023, which is more aligned with current rates of income growth and the long-term historical average for rent inflation.
  • Impact on Long-Term Housing: The research also indicates that long-term housing for residents is being converted into de facto hotels, which is a concern for the housing market.

Pros of Long-term Rentals

  1. Stable Income Stream: With a long-term rental, you secure a regular monthly income that offers stability and financial predictability. This makes it easier to manage property expenses and mortgage payments.
  2. Lower Turnover Rate: Longer leases mean less tenant turnover, which results in decreased vacancies and fewer resources spent on tenant acquisition and property maintenance.
  3. Less Time-Consuming: Long-term rentals generally require less hands-on management, as property owners need not worry about constant check-ins, check-outs, and property cleaning between tenants.
  4. Lower Operational Costs: Property owners save on marketing, cleaning, and maintenance costs that are usually associated with short-term rentals. This increases ROI and helps accumulate wealth over time.

Cons of Long-term Rentals

  1. Less Flexibility: Long-term leases lock you in for an extended period with the same tenant, potentially hindering you from making desired property adjustments or taking advantage of more lucrative rental opportunities.
  2. Lower Earning Potential: Long-term rentals might generate lower revenue than their short-term counterparts due to fixed rental rates and fewer opportunities for dynamic pricing strategies.
  3. Increased Risk of Problem Tenants: Lengthy lease agreements can make it challenging to remove troublesome tenants, leading to potential damage to your property or negative rental experiences.
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short term rentals, long term rentals, toronto, canada, niagra falls, airbnb rentals

Short-term Rentals:

Short-term rentals, often referred to as vacation rentals, are properties that are rented out for shorter durations, typically ranging from one night to a few weeks. They cater to tourists, business travelers, and individuals seeking temporary accommodation.

Key points and Figures

  1. Regulations: Short-term rentals (STRs) are not currently permitted in the City of Toronto. New regulations were introduced in 2017 and 2018, limiting STRs to a host’s principal residence. These regulations are pending approval from the Local Planning Appeal Tribunal (LPAT) as of August 2019.
  2. Market Overview: As of April 30, 2019, there were 21,000 active STRs in Toronto, an 11% increase from the previous year. Toronto has the most STR listings of any city in Canada, and its 14,000 STR hosts earned $208 million in revenue in the previous year.
  3. Listing Distribution: STR listings in Toronto are heavily concentrated in the downtown area. The STR market is dominated by entire-home listings, which represent two-thirds of active listings and five-sixths of host revenue.
  4. Revenue Distribution: STR revenue in Toronto is highly unequal. More than two-fifths of all revenue was earned by just one in twenty hosts, and the top ten percent of hosts earned 56% of all STR revenue.
  5. Commercial Operators: Nearly two-fifths (38%) of active listings were commercial multilistings, which earned 53% of total host revenue.
  6. Housing Loss: STRs have removed more than 5,500 housing units from Toronto’s long-term housing market, a 24% increase from the previous year. This is equivalent to the number of housing units vacant and available for rent.
  7. Violation of Regulations: Approximately 40% of Toronto STR listings are likely in violation of the STR bylaws’ principal residence requirement. These 8,700 listings would not be permitted if the bylaws come into effect.
  8. Short-term rental market in Niagra Falls, Montréal, Toronto, and Vancouver reveals an increasingly concentrated, commodified landscape. A few large players are making significant amounts of money, while small-scale home sharing is a modest and shrinking piece of the market. Journal article
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RefShort term rentals in Canada Overview   –   Short-term rentals in Toronto:

Pros of Short-term Rentals

  1. Higher Earnings Potential: Property owners can potentially charge more per night for short-term stays than they would with monthly rent, significantly increasing overall revenue.
  2. Dynamic Pricing Opportunities: Short-term rental platforms (e.g., Airbnb) enable property owners to adjust their prices based on demand, special events, and seasonality, maximizing earnings.
  3. Property Accessibility: Hosting short-term tenants means you maintain more control over your property, giving you the flexibility to use it for personal purposes or make adjustments as needed.
  4. Lower Risk of Problem Tenants: Short-term rentals decrease the likelihood of having to deal with problematic tenants, as the average stay for guests is much shorter compared to long-term rentals.

Cons of Short-term Rentals

  1. Higher Operational Costs: Property owners must frequently clean, maintain, and market their short-term rentals, incurring more significant expenses, which can hurt overall profitability.
  2. Inconsistent Income: Unlike long-term rentals, short-term leasing revenues are less predictable, making it challenging to budget for property expenses or mortgage payments.
  3. Increased Time Commitment: Managing short-term rentals requires greater input from property owners, especially when dealing with constant check-ins, check-outs, and guest communication.
  4. Legal Restrictions: Some regions have strict regulations or even prohibitions on short-term rentals, which can restrict your options or expose you to potential fines.

Which Option is Best for Different Types of Properties and Owners?

short-term-vs-long-term-rentals-toronto-canada-niagra-falls-airbnb-rentals

Now that we’ve covered the pros and cons of long-term and short-term rentals, let’s discuss which option might be best suited for different properties and owners.

Both long-term and short-term rentals come with their pros and cons, and there’s no one-size-fits-all solution. As a property owner, it’s essential to weigh these factors based on your unique needs and goals.

Assess your desired level of involvement, willingness to handle operational costs, and financial objectives before making a decision. Location and property type are also critical factors to consider, as certain properties may be better suited for either long-term or short-term rentals based on the local market, property features, and surrounding amenities.

By thoroughly evaluating these factors, you’ll be well on your way to making the right decision for your property and setting yourself up for success in the rental market.

  • Location: If your property is located in a popular tourist destination or an area with high demand for short-term accommodations, short-term rentals can be a lucrative option. On the other hand, properties in residential neighborhoods or areas with limited short-term rental demand may fare better as long-term rentals.
  • Owner’s financial goals: If you’re seeking stable, consistent income, long-term rentals might be the better choice. However, if you’re willing to invest more time and effort into managing your property and want to maximize revenue, short-term rentals could be the way to go.
  • Owner’s lifestyle: If you prefer to use your property occasionally for personal use or need flexibility to sell or change rental rates, short-term rentals may be more suitable.
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Conversely, if you prefer a hands-off approach to property management, long-term rentals might be a better fit.

In conclusion, both long-term and short-term rentals have their own sets of advantages and drawbacks. Ultimately, the best choice for your property depends on your financial goals, lifestyle, and the characteristics of your property.

By carefully weighing the pros and cons of each rental type, you’ll be better equipped to make an informed decision that aligns with your unique needs and circumstances.

Need Help?

Are you seeking a top-tier, luxury property in Toronto, Ontario to transform into a profitable short-term rental? Interested in offering your guests high-end amenities like a gym, a pool, private parking, and all-new appliances? Look no further than Full Home, your premier Airbnb property management company in Toronto. We specialize in managing luxury properties, ensuring they provide all the comforts of home and more.

At Full Home, we help you showcase your property’s best features and amenities, attracting guests who appreciate the finer things in life. Whether your property is in a specific neighbourhood, ZIP code, or the best area in town, we can help you maximize its potential.

Full Home is here to make your property management journey seamless. We offer comprehensive services, from marketing your property and managing bookings to providing round-the-clock guest support. No matter where your property is located, we’re committed to turning it into a successful investment.

In Niagara Falls ON? Let Full Home help you navigate the world of luxury short-term rentals. We’re ready to assist you in creating an exceptional experience for your guests while ensuring your peace of mind. Your journey to successful Niagara Falls Airbnb property management starts here.

References

Rentals.ca January 2023 Rent Report

Why Canada’s short-term rental hosts are in for a harsh winter


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