When you have an investment property, one of the largest dilemmas is what you want to do with it. You’ve probably heard a lot of rhetoric about AirBnB, from sky high profits to extremely dry periods. Having an AirBnB is a lot of unpredictability, as well as extra work – but it can also be very lucrative. Here are some pros and cons, and questions that you should consider if you are trying to decide how to best use your investment property.
- What type of property do you own? Would it be accessible for a short term renter, with ample designated parking? Does it have a good view, to draw in short term renters?
- Would it be expensive to furnish, for short term rentals? Or would it be better to lease long term, unfurnished?
- Is it in a tourist area, that could garner a lot of traction – or is it a suburban area, where a family or long term renter might fit better?
- Do you have a mortgage on the property? Will you be able to manage monthly payments, even if there are a few weeks with no bookings? Or, would the consistency of a long term renter be better suited to your needs?
- Are you comfortable putting in the extra work to make your home a vacation home, with marketing and finding good people for housekeeping, and property management? Or, do you prefer to have a more low maintenance situation, with a steady long term tenant?
In places like Orange County, you get a pretty mixed bag of both tourism and tenants that need long term rental homes. With places like Irvine, and Anaheim, there is a high volume of hotels that many travelers will opt to chose – particularly for business trips, or visiting places like Disneyland.
Your direct competition for an AirBnB would be these hotel chains, which offer an array of amenities and unique features that can be tough to compete with. However, many business travelers want the amenities of home, and get tired of hotels, and may choose to book through AirBnB. For Irvine specifically, you may also have many people visiting their kids at UC Irvine. For these areas, you will have most success doing a short term rental if your home is in a quiet, easily accessible area, for working business travelers and families visiting their kids. Having fast internet reception is also a very important, for the business travelers in Orange County. Now, if your home is in a beach town – such as Laguna Beach, Newport Beach, Costa Mesa, or Dana Point; you may also find benefit in doing AirBnB. If your home is beachfront, and you have a lot of space that could be rented, many people visit Orange County to experience the lovely beach culture that we have. Plus, hotels in beach towns can be very expensive – and quite a few haven’t been remodeled in a long time. People will often take to AirBnB, to visit these places and avoid the outrageous costs of the local hotel scene.
However, long term rentals have their benefits in Orange County as well. You may find that the stability of having a long term tenant may be far more beneficial, without all of the unpredictability of a short term rental. Orange County is a bustling area with high paying jobs and career individuals, as well as families. Many people move to Irvine for the school districts, or to surrounding areas for the jobs. Rentals in these areas are usually in high demand, and you can usually fetch a good monthly price for your home just based on location alone. Instead of relying on travelers to provide a steady income, it may provide more peace of mind to have a consistent monthly income and a tenant you can trust. There is always a risk of damage to a property, in having any tenant in your home – but with a long term rental, you have fewer people passing through the home, and can have a vetting process for the tenant you end up accepting. Plus, having a long term tenant has a lower risk of peeving off the neighbors – as short term rentals are notorious for getting noise complaints, and having higher tensions between neighboring houses.
In summary, here are the pros and cons of short term vs. long term rentals in Orange County:
PROS for an STR
- Potential for higher income earnings for your home, depending on the area and home type.
- Flexibility on when you have the property available, such as not accepting bookings during holidays so that you and your loved ones can still use it.
- Having the flexibility to convert to a long term rental later down the road, as you are not obligated to keep it as a STR.
- Having higher traffic for bookings in beach towns, and near popular locations like Disneyland, the convention center, and business conference centers.
CONS for an STR
- Variable pay, with no guarantee that you will get bookings.
- Potential for a higher rate of damage, particularly with furnishings.
- Costs for housekeeping, maintenance, and possibly property management.
- Potential complications with neighbors and homeowners associations.
- Uncertainty for the future, as counties are growing to regulate the STR market better with more intense approvals for permits.
PROS for a Long Term Rental
- The opportunity for more steady income, on a regular basis.
- High market value in areas like Irvine, Newport Beach, Laguna Beach, Santa Ana, Anaheim, and Costa Mesa.
- Less maintenance, aside from regular property maintenance.
- Vetting for tenants, with background and credit checks – as well as references.
CONS for a Long Term Rental
- Less flexibility on property use, as you are agreeing to contractually rent the property for a fixed period of time.
- Fixed income amount, that you will be locked into with a lease.
- Heavy regulation with tenant rights, rental price increases, and contractual obligations through a lease.
In general, one of the most important things for whichever route you decide on is ensuring you have the budget to maintain your rental property. If you run into issues with either a short term or long term renter, whether it is surprise maintenance, slow bookings, or a tenant that is late on rent – you’ll want to have money set aside, to be prepared. Plus, there is often an upfront investment that it will take to bring your home up to snuff. Whether it is furnishing an AirBnB, paying to take professional photos of the home to market it, or doing necessary repairs to the home… It is important to put the work in now, before putting it up for rent. After all, one bad review on AirBnB can be devastating, and having an unhappy tenant can be a bad situation for everybody.
If you don’t have the cash on hand to comfortably take that step, feel free to reach out to us today. We offer loan types that are specifically designed for rental and investment properties, and may even have solutions if you have credit or income issues.