Before investing in rental properties, investors must conduct thorough due diligence. Various property types provide different levels of profitability, influenced by factors such as location and rental demand. Austin, Texas, has high rental demand, so it's crucial to determine whether you prefer a short-term or long-term rental option.
Gross Rental Income Potential
- Vacation Rentals
A short-term vacation rental can be lucrative in Austin, given that we’re a known tourist spot. Being close to tourist destinations means high gross rental income. During certain times of the year, short-term rentals can even supply more revenue than residential rentals. Of course, this is also subject to rental market fluctuations, which means the income can depend on peak seasons and local events.
- Residential Rentals
Compared to a short-term rental property, long-term rentals can be more reliable due to the tenant's monthly rent payments. With a long-term lease, it will also be a source of consistent income for real estate investors who want to have long-term, stable cash flow. While short-term rentals might earn more at times, especially during peak season, residential rental properties provide stability through long-term renting.
Flexibility
- Vacation Rentals
Due to the turnover rate, vacation rental owners have the luxury of using the property for personal purposes from time to time. However, this also serves as a disadvantage since vacancies, especially for an extended period, negatively affect cash flow. When it comes to consistent passive income, a vacation rental property is not the best option, but it is if you want to occasionally use the property for personal reasons.
- Residential Rentals
Residential rentals typically have long-term leases, which means that units are occupied for extended periods of time, leaving little vacancy. You can't just choose to occupy the space before the lease term ends, as that would violate local landlord-tenant laws.
Rental Market
- Vacation Rentals
The vacation rental market differs from the residential one since you're primarily looking for tourists. Unlike long-term rental properties, you must constantly market your short-term rental listings after every stay and make adjustments to match rental market demand.
You'll need a more creative rental strategy than for residential properties, as the short-term rental market has a smaller target audience.
- Residential Rentals
The market for long-term rentals is larger, meaning it can be easier to avoid vacancy and fill your unit. More people are looking for places to settle down than vacation rentals, so long-term rental property investments are the safer option. Compared to short-term rentals, long-term rentals have a stable monthly rent flow.
Maintenance
- Vacation Rentals
The maintenance for short-term rentals and long-term rentals can be largely different. Vacation units require more frequent cleaning, laundry, and overall repairs from wear and tear. That means short-term rental expenses can be higher, and maintaining your investment property can be harder because of all the upkeep.
- Residential Rentals
While you still have responsibilities to your long-term tenants, such as performing property inspections, these will not be as frequent as those for short-term rentals, where you have to clean the unit for every stay.
Long-term rentals can be easy enough to maintain as long as the lease agreement outlines tenant responsibilities, such as property upkeep and security deposit fees.
Management
- Vacation Rentals
Since property owners will be actively handling guest inquiries, resolving issues, screening guests, and more, managing a short-term rental can be more demanding than managing long-term rentals.
You should hire a property manager to ensure that your rental business is running smoothly, just as property owners do with long-term rentals.
- Residential Rentals
Managing short-term rentals vs long-term rentals can be very different, especially in aspects like tenant/guest screening. Since you will be renting to long-term tenants, you won't have to conduct screening processes as often, which can help you reduce management fees if you hire assistance.
Short-term rentals also use more comprehensive screening criteria since short-term rental properties are more prone to theft and other issues.
Taxes
- Vacation Rentals
Unique tax breaks come with short-term residential rentals, like the Texas State Hotel Occupancy Tax, which is 6% of the listing price, including any cleaning fee, for reservations of 29 nights or less.
You can also claim depreciation deductions. It's better to consult tax professionals to learn more about your real estate investment's tax requirements and prevent unnecessary payments.
- Residential Rentals
Long-term rental landlords will find it easier to handle property taxes for residential homes compared to vacation rental homes, but consultation with professionals is still advised. You need to be knowledgeable about things like Tax Sheltered Cash Flow, among other things, as learning what deductions you can take advantage of can lead to higher rental income potential.
Short-Term, Long-Term, or Both?
When deciding which rental property type to invest in, it's essential to consider every factor, such as local market demand, investment strategy, maintenance costs, level of involvement, and more.
Researching and consulting rental market experts can lead to a lucrative business for you as they will know which are typically rented in specific locations and how you can manage your rental property efficiently.
With the Help of a Property Management Company
There are experts available to make your rental business flourish quickly, and Austin Property Management is one of the companies that can assist you in accomplishing this. Regardless of whether you decide to invest in a residential or vacation property, our services can support you in managing both effectively.
With years of experience in the industry, our company provides services that can reduce landlord stress and allow you to earn passive income so you can focus on other important matters.
Feel free to take your time! You can book a complimentary consultation to see if we suit your business needs.
