Short Term vs Long Term Rentals

Welcome to Canada's Property Management Podcast, your number one resource for investing, managing, and maximizing the value of your real estate assets. Now here's your hosts, Carla Browne and Adrian Schulz, Canada's rental property experts.

Adrian Schulz (00:18):

In today's episode, we're going to be speaking about short-term versus long-term rentals. I think many of us in North America, actually, I think all across the world now know short-term rentals. Is it VRBO? Airbnb?

Carla Browne (00:35):

Yeah, there's a couple others out there, but those are the big ones for sure. Yeah, short-term versus long-term. So, I would say primarily Real Property Management deals with long-term rental management. We do however have a number of our offices, because of where they're located in resort communities and things like that, that do also work in short-term, but managing as an investor short-term versus long-term is very, very, very different. I don't even know where you want me to start on this one, Adrian.

Adrian Schulz (01:09):

What are the differences? What are the differences high-level?

Carla Browne (01:12):

Let's start off with the first one that most people don't realize. A short-term rental is a rental that is considered less than 30 days, so less than a calendar month. Long-term rental is over a month. So long-term rentals are actually guided and regulated by tenancy acts, short-term rentals are not guided by residential tenancy acts. Short-term rentals often require licensing in different municipalities, different than long-term. They're still licensing in long-term in some areas, but not as a rule all across Canada.

Carla Browne (01:46):

There is the whole mentality of the person who's coming to a short-term and coming to a long-term. If you're coming to a long-term, you are a resident and you are looking for a home. If you are going to a short-term, you are a guest and you want to be treated as a guest. I could go on and on, but I don't want to take this whole podcast with all of the differences. But probably the most important thing from a rental provider is that long-term rentals, you can charge less than what you would for short-term. Short-term is extremely a lot more, because it is. You're looking for a guest experience, they're looking for something totally different.

Adrian Schulz (02:21):

Furnishings and bedding.

Carla Browne (02:23):

And inventory. We tried it on a couple of properties ourselves, and I know you have a story, we're going to get into that for a second. They're just very different. So as a rental housing provider or an investment property owner, you need to make a decision on how you want to run this. Don't think you can run it long-term for a little bit, and then I can flip over to short-term for a month or two, and then I'm going to flip back over here to long-term. It will not work, you will go absolutely crazy, so you need to decide who you are in this marketplace.

Carla Browne (02:52):

There's a place for short-term though. I mean, people definitely like short-term rentals. We're seeing them more and more common, I would say there's even a preference for them over hotels a lot of times right now. Especially with the environment that we've currently gone through, they don't have to worry about common areas, there's no elevators, they're feeling it's that much safer and cleaner. But individuals I will say that are going to short-term are often coming to property management companies to look for those services now, because that's just what they feel another layer of protection in that whole safety zone.

Carla Browne (03:26):

So, Adrian, I always hate to call on you to tell us stories that maybe didn't turn out so good in your world, but you know what? Some things work out and some things don't. You're a risk-taker, so it's all good. I think our listeners know this about you, but I want you to tell our listeners the story about when you decided to buy this rental property in that short-term space.

Adrian Schulz (03:48):

Yeah, so we have to set the framework that any of the investment properties that we've purchased over the last 15 years, with the exception of one, we still own today. So yes, have there been mistakes made such as overpaying or sometimes underpaying, but that's okay, that's not a mistake. There's learning experiences from all of this, and I would actually argue that if you're working with an experienced property manager and the team that we've talked about in the past, such as a realtor, mortgage broker, insurance specialist, lawyer, accountant, et cetera, you can maybe not make these mistakes.

Adrian Schulz (04:24):

But what we had done is we found a beautiful triplex in an area that is full of young university students and young urban professionals, and it was a furnished short-term rental, actually they were called executive rentals for the business man that's coming in for two or three weeks at a time. The rents at that investment property were more than double of what a long-term rental property would be.

Adrian Schulz (04:55):

So the pro forma, the top line, the rents and the net income were much more than anything that we'd ever seen on a triplex here in Winnipeg. It was furnished with all of the necessary supplies and towels and linens, et cetera, dishes, even TV and wireless internet, et cetera. So because of those amenities in the short-term rental, the rents were double of what we were used to seeing, so we thought what a great way to test out if we would like the short-term rental business.

Adrian Schulz (05:33):

Immediately after taking possession, first, there were no tenants, right? Because they're short-term, they come and they go, they come and they go. It took us a couple of months to get tenants again, but they were not tenants, they were guests, because the level of expectation that they had of these serviced short-term suites were completely different than anything we'd ever dealt with before.

Adrian Schulz (06:00):

We're fans of five star hotels ourselves, and let me tell you, to give even a three star experience is really hard work, so we very quickly realized that the short-term rental business was not for us. The numbers are appealing, but there's work that goes into those numbers, be it if you're sharing part of the revenue with a professional property manager, or if you're doing the work yourself.

Adrian Schulz (06:27):

We had a regular cleaning lady that did the laundry and restocked the supplies, but at the end of the day, we decided we didn't want to be in the furniture and supply and laundry and cleaning and guest hosting business, we thought that our wheelhouse really was quality rentals in good areas at fair prices and managed them well and have a good resident experience.

Adrian Schulz (06:52):

For us, that meant that what we had paid for that triplex, furnished triplex was probably $100,000 more than what we would've paid for the typical triplex long-term rental. So, did we lose $100,000? No, it just means that our return on investment will have been delayed on that specific property, and the net outcome, of course, especially in Canada is there's so much year over year equity growth in real estate in all of the major centers, that you still win, it's just going to be a little more drawn out. But we learned our lesson and I guess we learned it the hard way, we put out some money that we probably shouldn't have or didn't need to. So yeah, I don't even have to go to church on Sunday, I've just made my confession with you, Carla.

Carla Browne (07:49):

Really, totally. I kind of feel bad for putting you on the spot and making you tell the bad news story, but it's not a bad-

Adrian Schulz (07:56):

At least it's not fashion advice today.

Carla Browne (07:58):

Yeah, exactly. I think that people just need to understand what they're getting into. So before we wrap it up, I would say some tips. If you are going to go short-term, because long-term to me, it's an easier conversation to have, but short-term, kind of like where are you located? Because that's what you're going to attract. For instance, if you want to be able to help people who maybe have loved ones in hospital, you maybe want to have your Airbnb by the hospital, so that makes it easy access, there's lots of activity that could come to you then.

Carla Browne (08:27):

If people are only booking on Friday night and Saturday night, you can be sure that you're probably going to have a party there, so just be aware. There's a lot of online booking apps and software that you can use to make the process a little bit easier for you. Having systems and processes in place is going to be key in order to make this one run smooth, because although you're getting that extra money, which is, again, kind of that shiny thing or one of those shiny things that investors will look at, there's a lot of work and stuff that needs to go into that.

Carla Browne (08:55):

So work to me is money, whether it's you doing it or somebody else doing it, so you just need to kind of weigh all of that out and then make your decision. Because there's definitely a place for them, but it is very different, so try not to commingle them too much, because otherwise it just won't work.

Adrian Schulz (09:10):

Well, that really is Real Property Management.

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