We talk with a lot of investors and rental property owners about whether it’s more profitable to rent out a home to short-term visitors or long-term tenants. The answer, especially in Florida, is that it does not have to be one or the other. A hybrid approach is also possible, and we’re always surprised that more investors don’t take this path and invest in both property types.
By keeping multiple properties in your portfolio, with the lease terms flexible, rental property owners can appeal to a larger pool of tenants and create a system where it’s always possible to rent out one of their vacant homes, whether it’s for a weekend or a full year.
Here’s our hot take on why combining short-term and long-term rentals in your investment portfolio is the best way to diversify, maximize earnings and avoid risk.
Short-Term Rentals: Southwest Florida and Tourism
Short-term rentals are undeniably a money-maker in our market. This is Florida, and with the beaches, the natural beauty, and the warm weather, people are coming here from all over the country and even all over the world. That creates a thriving market for short-term rentals and vacation homes. The positive business environment also attracts visiting professionals, entrepreneurs, and remote workers who may be looking to spend a month or two in the area, and they’d rather spend their time in a home than in a hotel.
Short-term rentals should be part of your investment portfolio because there’s potential to earn a high per-night rent. There is also plenty of demand all year long. Southwest Florida does not exactly have a tourist season. We have a busy season in the summer, we have snowbirds from colder climates visiting in the winter, and we serve a steady stream of spring breakers as well. There is not likely to be a lot of downtime for your rental like there might be in other markets. As long as you’re strategic with marketing and committed to a high-quality guest experience, there’s a good chance that you won’t suffer through a lot of vacancy loss throughout the year.
Renting out a short-term property provides owners with more flexibility, too. Perhaps you want to use the property for your own purposes. If you live outside of Florida, this is especially attractive. Keeping the investment as a short-term rental allows you to block out as much time as you need or want throughout the year to enjoy your own vacations and visits.
Long Term Leases and Portfolio Stability
While short-term rental properties offer the potential for higher earnings night by night and stay by stay, a long term lease comes with its own benefits, and that’s why we recommend a hybrid approach to both property types.
Offering a long-term lease will invite a stable rental experience for both owners and tenants. There’s more of an opportunity to budget, plan, and establish an investment plan that looks at ROI and earnings over the course of several months. With long-term tenants, you’re less likely to encounter frequent vacancies and turnover, which can disrupt your cash flow. This stability allows investors to plan more effectively, allocate resources efficiently, and build a reliable income stream over the years.
Management costs are lower, too, when you’re looking at this investment type. Managing long-term leases typically requires less hands-on involvement compared to short-term rentals. With tenants staying for a year or longer, you won’t need to worry about constant cleaning, frequent check-ins, or ongoing marketing efforts to attract new guests. This reduction in daily responsibilities translates to significant cost savings, as you’ll spend less on professional property management services, maintenance, and advertising.
Diversifying Investment Portfolios in Southwest Florida
Diversifying an investment portfolio is always a good idea, and for multiple reasons.
- There’s an opportunity to earn more income and ROI, because each property type captures a different pool of tenants. The short-term rentals in a portfolio will reach vacationers, tourists, and people who might be in town for business assignments and family get-togethers. The long-term rental will appeal to tenants who are looking for a rental home for a year or longer.
- There’s less risk. During the pandemic, we saw a momentary drop in demand for short-term rentals as people were staying home and vacations were rare. If your entire portfolio was made of vacation homes, there might have been a lot of loss. Similarly, the long-term rental market has its strengths and weaknesses. When you own both property types, you can do a better job of managing the downturns in one market or the other. Risk is better managed and income is coming from different sources.
When it comes to renting out short-term properties, owners have to deal with the following challenges that don’t necessarily come with long-term investments:
- Constant Turnover
One drawback to renting a SW Florida property out for a short term is that it requires more work from you. Owners must be responsive to those frequently changing renters. There could be five different guests staying at the property in the course of a single week. There’s also the time required in marketing a short-term rental; you’ll have to locate new tenants and move them in every few days, weeks, or months. You’ll need to handle the rental agreements and make sure the property is in good condition during each turnover. Property management is always a good idea, unless you have the time to take on all of this work.
- Vacancy
Vacancy is another concern. While we’ve talked about this market’s high demand for short-term properties, the rental won’t always be occupied, and that can create some instability and revenue loss.
When you take all that vacancy you’re incurring over the long haul, it will add up to a lot of money that you would have saved had you locked in a tenant for a 12-month term.
- Furnishing a Short-Term Rental in Florida
When it comes to this type of rental property, there are also the amenities and the furniture that owners will be expected to provide. Short-term rentals need to be furnished not only with the big-ticket items like sofas and beds, but also with any amenities and appliances that their guests may need. That includes cooking supplies, linens, coffee makers, tea kettles, and televisions. It’s important to have all the utilities kept on and services like cable and Wi-Fi included. Guests are going to expect hotel-grade comforts, especially when it comes to linens and convenience.
Having long-term properties in your portfolio will balance the challenges that come with those vacation rental homes.
Conversely, your short-term rentals will allow you to move away from some of the challenges that come with your long-term rentals, which include:
- Earnings are Stagnant for the Lease Term
It starts with earnings. Doing the math can be discouraging with a long-term rental, especially when compared to what a short-term property can potentially earn. While your monthly rent will be comfortable and predictable, especially as rents are rising, it’s going to stay the same for the full term of the lease. You cannot increase rents until the tenant moves out or you negotiate a lease renewal.
- Less Flexibility
You’re also locked into the lease agreement. If you decide you want to move into the home yourself but the tenant still has seven months on the lease agreement, you’re going to find that it’s practically impossible. You don’t have the same kind of flexibility.
- Rental Laws
Landlord and tenant laws are pretty easy to navigate in Florida, but those long-term leases will have to comply with fair housing laws, security deposit requirements, and specific leasing disclosures and tenant protections.
How to Do It: Embracing the Hybrid Rental Model in Florida
Whether you are thinking about acquiring a new property or you’re making decisions about the assets in an existing portfolio, the hybrid approach is likely to serve you and your investment goals well. A few immediate and actionable steps can help you get started.
First, partner with a property management expert who understands both the short-term market and the long-term market in Southwest Florida. We help investors identify the properties that will make better vacation homes and we share our data and insights that tell owners how much rent they can expect to earn on a long-term rental and what types of maintenance might be required.
Next steps include preparing properties for the rental market, whether we’re talking about the short-term vacation market or the long-term residential leases. Each property type will require different types of preparation. Both property types will need services like landscaping and pest control.
Establish some investment goals that reflect a desire to rent out both property types. Re-visit those goals often, and make sure the investment decisions you’re making are aligned with what you’re trying to do.
Working with innovative, professional property management partners can also help. Let’s take a look at your options together. Whether you’re thinking about an investment property in Estero or Fort Myers, we can help you make the right choices and appeal to the best tenants. Contact our team at Realty Group of Southwest Florida, where we manage both short-term and long-term rental homes.
