San Diego is a unique rental market. While long-term leases are almost always the best option for investors, this is a tourist-friendly area with a lot of vacationers coming and going for a period of days, weeks, or months.
Plenty of property owners are finding that they can make good money on short-term and vacation rentals. If you’re trying to target vacationers or business travelers, a furnished, short-term rental home can bring in excellent business.
However, it’s hard to estimate exactly what you’ll be earning on your property. It’s a lot of work turning that property over between guests. State and local regulations, restrictions, and fees are becoming more complex for short-term rentals. And, as we’ve seen with the recent pandemic, tourism is an industry that’s dependent on a lot of things. When travel is restricted or the economy takes a downturn, renting out a short-term property becomes less profitable and more stressful.
Let’s take a look at whether short-term rentals or long-term rentals are better for you and your investment property. We’ll examine some pros and cons to each in an effort to help you decide whether you should rent your San Diego investment property out for the short or long term.
In the end, you’ll have to do a comparison that fits the unique position of your own rental property. Compare a year’s worth of income and expenses on a long-term lease to those same numbers on a short-term lease.
Every investor is different. Every property is different, too. Here’s what we can tell you works and does not work in general.
Short-Term San Diego Leases: Pros and Cons
Short-term rental properties provide flexibility for you as the property owner. If you’re renting out your own home because you’re leaving the area temporarily, you might want to come back to the property within a year. In that case, renting out for the short term makes sense. If you want to use the home yourself once in a while, you can’t have long-term guests staying there.
Short-term leases will allow you to get the home back when you’re ready.
Another benefit is you can typically charge more for the property if it’s rented for a shorter term. A lot of landlords do really well renting their property out as seasonal rentals or short-term stays and they generate great cash flow. The nightly or weekly rate you charge on a short-term rental is often double or even triple what you’d charge per night on a long-term rental.
There are, of course, drawbacks.
One drawback to renting your property out for a short term is that it requires more work from you. You must be responsive to those frequently changing renters. You could have five different guests staying in the course of a week. You’ll also 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.
If you cannot commit to the intense ongoing maintenance and care of your property, a short-term lease might not be best.
Vacancy is another concern. Even in San Diego, the property won’t always be occupied, so you’ll need to constantly look for tenants. That’s going to mean extra marketing dollars.
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 someone in for a 12-month term.
Think about the amenities and the furniture as well. Short-term lease apartments and homes need to be furnished and your renters will expect quality and functionality. Furnished short-term rentals will also need to include cooking supplies, linens, and established utilities including cable television and Wi-Fi.
Long-Term San Diego Leases: Pros and Cons
Long-term rentals are often better for a number of reasons.
If you’re planning to invest over many years, this is the best way to build wealth.
One of the benefits to renting a property for the standard 12-month term is that these are the homes a majority of the tenant pool is seeking. They want that stable property that they know will be their home for at least a year. You’ll usually find tenants who are hoping to stay for longer than 12 months.
With long-term leases, the average tenant will renew their lease agreement at least once. This will be a pattern especially if you’re providing a good experience and maintaining the home.
Long-term tenants also add some stability to your investment. You build a relationship with your tenant and you have a good idea of who is in your property. There’s less uncertainty, and usually less risk. You can plan what you’ll be earning over the course of a year. You won’t have to spend as much money on maintenance, cleaning, and prepping. There’s no responsibility for furniture. You can make your long-term tenants responsible for their own utility accounts.
On the downside, you might not get those super-high nightly rents that you can charge when a tenant is looking to stay somewhere for one or two days. You also have to respect the length of the lease period, and it will be difficult and expensive to move the tenant out through no fault of their own.
When we work with investors, we always recommend thinking about long-term investment strategies. Those short-term rentals have a place in the market, but for the serious real estate investor who is hoping to make real money now and in the future, long-term rentals can get you to your investment goals more reliably.
Choosing between short and long-term really depends on whether you want to earn as much as possible and you don’t mind the constant turnover, or if you’re looking for predictable and stable income with one tenant.
Please contact us at Cal-Prop Management. We work with investors in San Diego and the surrounding areas, including La Mesa, El Cajon, Encinitas, San Marcos, and Rancho Bernardo.
