Airbnb has profoundly impacted the rental real estate market, inducing real estate investors to buy property for vacation rental income. Many earned far more with short-term tenants than they would have with long-term leases.
But then came the coronavirus pandemic — and while landlords continued to incur property-related expenses, Airbnb bookings plunged 85% as the pandemic took hold. With little Airbnb income, many face a choice — sell the property, and fast, or change strategy. The current dearth of long-term rentals in many parts of the country, combined with the shortage of travelers, is making the long-term rental business attractive to property owners.
If you’ve never been a traditional landlord, there are important points to understand before you switch to long-term rentals.
Advantages of Long-Term Rentals
Although the per-night income for Airbnb rentals can be spectacular, replacing vacationers with long-term tenants confers a number of advantages:
- Income is ongoing and consistent. Short-term rental income depends on the economy and is often seasonal as well. If you don’t get enough winter snow, for instance, your ski condo may go unused all winter.
- Property management is easier (if you do it yourself) or cheaper (if you pay a management company). You are not constantly screening, advertising, administering, and cleaning your rental. Property management fees for long-term property average 10% of your gross rental income, while those for short-term rentals average about 40%.
- Long-term tenants are responsible for some of the maintenance, while short-term tenants expect you to restock toilet paper and change lightbulbs.
- Most long-term tenants have the utilities in their name and are responsible for those bills. For short-term, you have to pay all utility bills.
How to Convert Short-Term Rentals to Long-Term Leases
If demand for your Airbnb craters due to a pandemic, a saturated market, or rules making it illegal to rent your home to vacationers, you can convert it to a long-term rental in five steps.
Research your local rental market and price your property
Check your home’s estimated rental value on Zillow and other real estate sites. Look at available advertised rentals, and judge whether you are working with a renter’s market (lots of inventory) or a landlord’s market (not much inventory).
Peruse photos and specs of the homes that are your competition — in your neighborhood and in a similar price range. Price your home accordingly — in a landlord’s market, you can rent your home by setting a price that’s similar to your competition. But in a renter’s market, you may have to price your rental more aggressively.
Hire a property manager or learn local landlord laws
You’ll need to learn local rules about tenant screening, anti-discrimination statutes, property livability and safety standards, security deposit escrow, tenant privacy, landlord access, lease-breaking, and rent collection.
Mistakes can be costly, so if you are not willing to educate yourself, hire a reputable local property manager to handle the headaches for you.
Prepare your rental for long-term use
Your short-term rental is furnished, but many long-term tenants in the U.S. prefer their own furniture. You can offer it furnished or sell the furniture for extra cash. When the home is empty, take the opportunity to make repairs, deep clean, and perhaps make changes.
A weekend renter may love the happy nautical decor in your beach cottage, but a long-term renter may find it a bit too cute. You might want to remove some of the “personality” to appeal to more potential tenants. Paint it with colors that are most appealing to a wide audience, colors that people can see themselves living in, not vacationing in.
Preparation might also include updating your home insurance policy to include landlord’s coverage and making sure a long-term rental could be covered under your home warranty.
Market your property
You won’t have Airbnb listing your property anymore. So, how will you market it to long-term renters?
If rentals are in very short supply, a sign in the yard may do the trick. But you should probably advertise to widen the pool of potential renters. That gives you access to those with the best credit, references, and income, and more competition increases what you can successfully charge.
Many real estate sites also have rental listings. And companies such as Rent.com and Rentals.com offer even more, with tools to advertise your home, collect online applications, screen tenants, and even collect rent. Make sure that the amount you charge applicants for credit checks and security screening is legal in your state.
Write your lease
When Airbnb handled everything for you, you did not have to deal with creating a lease agreement for each tenant. But now you do. You can find boilerplate lease agreements in office supply stores and online.
It’s important to use an agreement specific to your state, like the free forms available at Law Depot. Determine whether you want a six-, 12-, or month-to-month lease. Your choice depends on your reason for converting — are you trying to tide yourself over until the pandemic is over, or are you moving away from the headaches of short-term tenancy for good? Who will be responsible for yard maintenance, utilities, and trash pickup?
You’ll also want to consider requiring your tenants to buy rental insurance — many landlords do this to avoid lawsuits if their tenants or their guests experience mishaps, theft, or property damage.
You’re Not Alone
One of the beauties of Airbnb is that they take care of much of the administrative work — marketing, taking payments, scheduling guests, and more — so it’s understandable if you have zero experience with these processes.
Luckily, there is a wealth of help available to new landlords. A good property manager can take the entire load from your shoulders — hiring cleaning and repair workers, scheduling items such as yard maintenance, pricing and marketing the rental, screening tenants, collecting rent, and reporting income and expenses. The time and aggravation you save may easily be worth 10% of the gross rent.
Alternatively, Zillow allows you to list your first property for free and provides a lot of exposure. Tenants can apply through the site for $29 including credit and background checks. And rental sites like Cozy include a suite of landlord services for free. You’ll still have to deal with repairs, maintenance, and complaints, but the site handles listing, screening tenants, leasing, and collecting rent payments at no cost to you.
If you’re becoming tired of vacation rentals or not getting the income you need, it might be time to switch to long-term leasing for fewer headaches and more money.