Making the decision to invest in Saskatchewan real estate comes with the question of whether you would like to invest in a short term or long term rental. While traditional-long term rentals are often the first that come to mind, the savvy investor considers both, realizing there are real advantages to both short and long-term rentals. Let’s dig deeper into the pros and cons of these two rental options.
Short Term Rentals
A rental agreement is considered short-term if the property is rented anywhere from one night up to one month, while anything longer than that is considered long-term.
Short-term rentals became popular between 2012 and 2017 with the introduction of AirBNB as an alternative to expensive hotels in vacation or tourist destinations. With over 150 million users worldwide, it quickly made short-term rental a very viable investment.
Tourism traffic is key when considering a property for a short term rental option, and typically the most successful markets are destination or vacation-heavy location. For example, here in Canada, the top short-term rental markets are Whistler, Canmore, Tofino, Niagara Falls, Kelowna, and Quebec City. Here in Saskatchewan, the most successful markets are Saskatoon and Regina, with lake properties also gaining popularity, as well.
The Benefits of Owning a Short-Term Rental Property
- Vacation Home – Perhaps the greatest benefit to owning a short term property in a hot tourism location is that you can use the property personally whenever you like, making it a great combination of an investment and a vacation destination for your family.
- Higher Income Potential – Short-term rentals can make more money—especially in vacation destinations. A property that could get $1,500 per month from a long-term tenant can often make more than double that amount as a vacation rental, with higher nightly rate charges and the possibility of inflating rates, as needed, based on demand. If inventory is filling up quickly, an owner can raise the rent to maximize profits.
- Maintenance is Better – As a short-term rental, you will likely have the property thoroughly cleaned between tenants, and can often pass this cost on to the renter. Not only will they be cleaned more frequently, but because there’s more turnover, it can be easier to identify maintenance issues before they become serious problems.
- Not Stuck with Poor Tenants – Even if you go through proper screening to find a tenant in the first place, you can get stuck with a renter who ends up not being a good fit for you and your property. This can be avoided with short-term rentals. Plus, you can also sell the property without having to worry about moving the tenant out.
- Less Wear & Tear – Short-term rentals tend to be occupied around weekends and busy tourism seasons, but not necessarily throughout the entire year. Because of this, it tends to take longer to build up noticeable wear and tear on the property.
Risks to Short Term Rentals
- Rental Horror Stories – Short-term tenants have no attachment to your property, or its furnishings, so they are less likely to take care of your property while using it and could potentially cause some major damage in a short amount of time.
- Revenue Tracking Difficulties – Keeping track of revenue is hard when it’s flowing in from different sources and at an accelerated rate.
- Upsetting your Neighbors – You must be respectful of other people’s right to privacy and peace and quiet in their own home. If your neighbors complain to the police or a condo association, you may have to face the repercussions.
- Screening Difficulties – When you rent your property out long-term, there is an intricate screening process for the tenants—especially if you use a condominium management company. But when you take in new tenants every few days, the screening process is largely ineffective.
- No Income Guarantee – Keeping your home occupied with renters is difficult, even when using a platform, like AirBNB. Schedules don’t always line up, and your unit may sit unoccupied for long stretches.
- Difficulty Getting Insurance – Not all insurance companies will cover short-term rentals, and you could be left stranded when you try to make a claim. If you’re looking into short-term rentals, you have to dive deep into what insurance companies cover and what they’ll do if something happens.
- May Not be Allowed – Some cities have strict rules and regulations regarding short-term rental properties, with some even having gone as far as disallowing them entirely based on their overall effect on the rental market. Before buying an investment property with the intent to use it as a short-term rental, be sure to check with your knowledgeable local REALTOR® about which guidelines may be in place in the area.
Long Term Rentals
Long-term rentals usually refer to investment properties where a tenant or tenants sign an annual or month-to-month lease with the owner acting as landlord. These types of rental properties have a longer-standing reputation than short-term rentals and there are some clear advantages to investing in them.
Benefits to Long Term Rentals
- Longer Lease Length – Having a consistent deadline and a year-long lease will ensure you always have someone in your property paying rent. This means there is no seasonal variance or off-seasons that would make it difficult to fill your property.
- Less Advertising – Short-term rentals have to be advertised constantly, usually every week to fill in for later dates. With a long-term rental property, you will only need to advertise when your tenant leaves. You can also require notice, which gives you ample time to find a new tenant.
- Less Tenant Turnover – This means having to do less paperwork, less cleaning, and less vetting of potential tenants and, overall, minimizes the need for day-to-day management.
- Easier to Manage – The less frequent turnover rate of long-term rentals contributes to the benefit of an easier property to manage. Landlords of long-term rentals spend less time worrying about their next tenant and source of income, which allows them more time to relax and step back from the management side of their properties.
- Cheaper Management – If you decide to hire a property management company to handle day-to-day operations of your rental properties, the cost will be significantly lower for long-term rentals. These require less vacancy filling, so the property management fees will be much lower than those of short term rentals.
Risks to Long Term Rentals
- Stuck with a Poor Tenant – When signing a rental agreement with a tenant, even if you properly screen the tenant, you may still end up in a situation where you would like to end the lease early. You will need to follow strict regulations for evicting and/or giving notice to your tenants.
- Difficult to Increase the Monthly Rent – Once you enter into an agreement with your tenant the monthly rent is set for the term of the lease. In order to increase the rent, you will need to give your tenant proper notice and follow the guidelines set out by your local Landlord/Tenant Regulations.
- Difficult to Sell the Property – If you decide to list the property for sale you will again need to give your tenant proper notice and follow the guidelines set out by your local regulations. Tenant-occupied listing can be less desirable for those buyers wishing to occupy the home themselves, since they will inherit the tenant with the sale and will have to go through the same process to terminate the lease. Also, your tenant may not be as focused on presenting your property as a desirable listing to buyers coming to view the property.
So, with these benefits and risks in mind, which investment avenue is best for you? Are you ready to explore the potential goldmine of short-term rentals, or play it slow and steady with a long-term lease? Or are you still unsure and need some guidance on what your next move should be? No matter what your questions may be, SaskInvestments is here to help—contact us and let’s discuss your investment potential today!