Hello everyone and Welcome to another
episode of Selling Greenville your
favorite real estate podcast here in the
upstate of South Carolina I'm your host
as always Stan McCune obviously I am a
realtor as I always tell you guys I am a
realtor here in the upstate of South
Carolina and I'm happy to help you out
with any of your real estate needs
should you need to reach me all of my
contact information is in the show notes
and just a reminder as always please
make sure that you have subscribed to
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if you want to and that you leave the
show a five-star rating and a review if
you can just take a minute to do that it
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love the show something like that
that's great I want to try to get as
many listeners to the show as possible
it's really been a great thing an
enjoyable thing for me and also a
help to my business and a help to a
lot of people out there as well and so I
want to try to get that out to as many
people as possible today we are going to
be talking about short-term rentals
versus long-term rentals because this
comes up a lot in in a lot of different
conversations and I think there's a lot
of misconceptions about the differences
between these two types of rentals and
and short-term rentals we can just go
ahead and start by defining what the
differences are here a long-term renter
at least the way I Define it is someone
that is under a lease for at least 6
months at least a 6month lease now maybe
that lease has ended and now they are
just going month to month that would
still be a long-term rental they were at
some point under a long-term lease
agreement whereas a short-term rental is
less than 6 months whether it be month
to month whether it be day to
day some people in their mind canate
Airbnb or VRBO which now they they
like to be called verbo which I don't
like I still call them
vbo but some people kind of conflate
those two things in their mind which is
fine it that's not entirely
accurate though because there are a lot
of short-term rentals that are not on
Airbnb and are not on BRBO
that are situations where people are
renting out their house month to month
to people that are are moving to
to the area and just need a place to say
to stay month-to Monon or maybe
they are renting it out to traveling
nurses which is a very common and and a
very large Market actually just a
variety of of different things there
that can fall under the short-term
rental bucket that don't
apply to Airbnb that being said in
this discussion I'm going to kind of
when I talk about the short-term rentals
I'm going to be talking about it through
more of an
Airbnb VRBO lens because ultimately
that that short-term rental market
that is just the month-to-month
Market it is very similar to long-term
rentals in a lot of ways now some of
this discussion will apply to to those
as well but those are kind of in between
so there's kind of a spectrhere
you've got the long-term rentals you've
got the the ultra short-term rentals
Airbnb types of of properties and
then you've got those that are in the m
in the middle that are the ones you know
being rented out month-to Monon to
traveling nurses and such I'm not
going to so much address that one in the
middle as the two on the the far sides
of the of the pendulhere if if I'm
using that term correctly I guess it
would be if it's a pendulit would be
the far sides of the clock I think I
just coined a new phrase in any event
we're going to be talking about
basically a traditional long-term rental
which is a something on a 6 to 12 month
lease versus a Ultra short-term rental
which would be something that would
oftentimes be advertised on a site like
Airbnb or
vbo so let's just kick this right off
with some practical things here
practically the and we've talked about
this a little bit in past shows but
practically speaking cities and HOAs do
not like properties that are
short-term rentals they do not like
properties that are
airbnbs the cities try to treat
those properties as hotels which is
understandable in a lot of ways but with
that comes licensing with that comes
additional Hospitality taxes things
that people don't want to pay and and
don't want to do obviously obviously
there's tighter regulations as well that
that go along with that HOAs same
thing HOAs a lot of them have written
into their bylaws that lease
agreements any type of rented property
must have a lease agreement of no
shorter than 6 months months so again
this is where we get that six-month time
time frame from a lot of HOAs have that
written right into their right into
their bylaws into their covenants and
restrictions and I'm not aware of any
communities that do not allow rental
properties at all and when we're talking
about long-term rentals it there are
probably some somewhere I'm I'm sure
that there's some somewhere here in the
upstate that don't allow any rentals at
all but that's that's not an
a compelling cell for most homeowners
remember homeowners
associations exist to serve the
homeowner most homeowners want to be
able to have some flexibility to do what
they want to do with their home so
whereas some
people understandably don't want there
to be a bunch of airbnbs in their
property which we'll talk about a
little bit later why that's why some
people don't like that but as far as
long-term rentals people typically want
to have the option of being able to rent
out their house for 6 or 12 months let's
say that they end up going somewhere
else for a year let's say that they end
up moving out of their home and deciding
you know hey I've got enough money that
I don't have to sell this I can I can
float two mortgages or perhaps they paid
the house off and they want to rent it
out now people typically want that
flexibility and so so usually you
don't run into any legal issues with
having a long-term rental property a
rental property of at least a six or
12-month lease some H say it has to be
12 months so that's something to
consider as well
another very practical thing
differentiating these two things and
I've just alluded to it short-term
rental properties Airbnb types of
properties by and large neighbors don't
really love them okay neighbors don't
love the idea of the fact that you
know there might be parties going on
there's unpredictability with who's
going to be next door I I've heard some
neighbors with regard to an Airbnb
property that I have concerned about
property values concerned about you know
the the community just becoming a party
Community kind of silly concerns on a
lot of levels but nonetheless that is
a common complaint neighbors it's just
reality of the situation neighbors don't
love them that's why so many HOAs have
outlawed them whereas with long-term
rentals your neighbors might not love
that as well but it's more tenant
dependent right if they like the tenant
then they're going to be fully okay with
that property being used as a rental if
they don't like the tenant then they're
not going to be happy about it and
that's just at the end of the day is
just how it goes you only have so much
control over that in in either
direction so those are just some
practical things right away like right
on the surface that are easy to
understand easy to comprehend easy for
me to explain that differentiate the
short-term rental market from the
long-term rental market from the get-go
you need to consider if you're in city
limits if you're in an HOA you might be
in trouble that might be a deal breaker
in terms of being able to use the
property as a short shortterm rental you
you're going to probably put up with
more Flack from your neighbors if you go
the short-term rental route as
well but getting kind of underneath the
surface and thinking about this now
that I've done this I I've had an a
property that's been on Airbnb for about
a year sorry about two years now
which is very interesting time you know
the majority of that time we've been in
a pandemic so not exactly the best
time to have a short-term rental
property
but I've learned a lot from it and I
think that the key thing that kind of
the main
differentiator between short-term
rentals and long-term rentals that if
you haven't done it it's hard to
comprehend but once you do it it makes
so much sense is that a short-term
rental it really is like a hotel and so
I I do understand some of the city's
arguments that it should be treated like
a hotel
in terms of of how you have to operate
it and how you have to run it you really
do in a lot of ways have to run it like
a hotel it is a business it's not a
rental in a lot of ways it is a business
and as such you have to to build that
business whereas a rental property a
long-term rental property is kind of oh
you may have just heard a weather alert
coming on my phone let me make sure I
silence my phone and all that we we
have tornado watches in the area as I'm
recording this on Tuesday the
17th
anyway as I was saying you have
to build your short-term rental business
whereas a long-term rental property is
plug-and play you acquire that rental
property if it doesn't have tenants you
just need to get that property in good
enough condition maybe it already is in
good enough condition you can rent that
thing out right away and whatever the
market says that property is wor you're
going to get that amount of rent
assuming that you play your cards right
whereas with Airbnb you've got to build
it like when you first get that property
on that website or on
VRBO you have
to almost build a customer base and in
in some areas and some you know
particularly if you're on the coast you
might have people that reserve it a year
in advance and that keep coming back
that are actually will repeat customers
that keep coming back year after year
but regardless of whether you have
repeat customers as you're starting to
to build up reviews and as you're
starting to to gain a reputation that
then increases your customer base it's
like a restaurant a restaurant as it
gets more positive reviews on Yelp or on
Google or whatever the case that drives
more traffic there I base a lot of my
dining decisions new places that I want
to try base based on what type of
reviews they get on Yelp with movies I
look at before I watch a movie I will
typically look at the movie reviews I
don't want to get an hour into a movie
and then be like this isn't going
anywhere I want to make sure that I'm
making a good choice well same thing
when people are are assessing okay which
you know I'm coming to Greenville for a
week I want to either stay in a hotel or
I want to stay in an Airbnb type of
property what are my options what what
are the prices what are the reviews
they're looking at all of these things
and when you first start you have to
have a lower
price and you're not going to have any
reviews and so people have to be willing
to look at all the options and say this
is I'm willing to take a chance with
this the pictures look good it doesn't
have reviews but but the pictures look
good the property manager may have a
good reputation that factors in
sometimes oftentimes I should say
and and then the price of course as
well so that's usually why people are
are going to be more willing at the
beginning to take a chance on a place
that doesn't have many or any reviews is
if the price is compelling enough that
it's like you know what I'm going to go
ahead and and take a chance with this
what could I how could I go wrong and
so I I think everything else underneath
this is important to realize that an
Airbnb a short-term rental type of
property a day-to-day short-term rental
type of property is a business it is not
a rental property in the in the
traditional sense of the word you can't
think of it as just a normal rental
property so you might be a great
landlord and you might find being a
landlord very rewarding and a and a
great way to to make money or whatever
the case may be but you might be a
terrible manager of an Airbnb property
if you're not a good business person if
you don't know how to run a business you
might not be able to to operate an
Airbnb property so so those are things
to
consider so let's go another layer
beneath the surface here so what are
some of the things that that
practically speaking how how does that
play itself out how does that play
itself out so obviously one thing
that people think when they think of
having a property on Airbnb versus
having a property just as a long-term
rental they're thinking I can make a lot
more money that's that's what goes on a
lot of people's minds and so they're
they're looking at this and they're
seeing okay there's 30 days I could rent
this out this property out for maybe
$100 a night and there's 30 days in
the month you know that's a potential of
like $3,000 a month whereas if I rented
this out as a long-term rental I might
get $15 or $1600 so it's double right
that's that's what I'll hear people say
well yes that is true in a lot of
cases you can bring in double the rent
that you would with a long-term rental
but your costs your expenses are
substantially higher in some cases it
might be double or more in terms of your
expenses versus a versus a long-term
rental now you still have all the same
expenses with a short-term rental as you
do with a long-term rental but then a
whole lot more on top of it so obviously
you got to furnish the place so that
might be an initial overhead expense
that you have to do you have to furnish
it you have to you know have everything
really nice in there and I know from
my own experience people break the
furniture like it's incredible how often
people will break the furniture I had to
replace all of my dining room tables
sorry all my dining room chairs in my
Airbnb property I have no idea how
people just destroyed my dining room
chairs but they did somehow someway
that's what happened so you've got
things like that obviously you have
to pay for utilities including you know
potentially like a direct TV or
something like that which can be
expensive you you've got cost of
water cost of electricity of course
people don't really don't don't care
whether that toilet is just running
because they're not paying for the water
so you know you might have a situation
where there is something that's leaking
or whatever the case may be and you
don't even find out about it until your
water bill is excessive that that month
so that's something to consider as well
obviously you have cleaning fees
after every renter comes in there after
every guest comes in there youve got to
clean the property and then sometimes
you have to do more of a deep clean as
well obviously that's something that
for a long-term rental you only have to
do once the tenant moves
out you've got higher management fees
and in many cases double the cost so a a
standard management fee for a long-term
rental is 10% of the gross rents a
standard
Airbnb property management fee is 20
to 25% now I have seen it as low as 15%
but often times is 20 to
25% of the gross rent so that's a a big
big difference obviously that you have
to consider a massive right off the top
overhead expense which of course
think about it this way if you've got
10% of property management fees on a
property that is bringing in 1,500 a
month that's only $150 I mean that's a
lot of money obviously but it's
$150 think about it if if you are making
more income but then your management fee
goes up to 20% you're paying let's say
now you're bringing in 3,000 a month for
the for that property you're paying the
property manager $600 a month if your
management fee is 20% of the gross rents
so it can actually be you you think
of it as well it's double but actually
it's more like quadruple the property
management fees so that's a very
important thing to consider of course
you can manage yourself but I don't
I don't have time for that I'm not
good at that kind of stuff I stick
with what I'm good at I'm good at
real estate I'm good as a
realtor I'm good at investing in real
estate I'm not good at the day-to-day
management side of things so I have
property managers for everything
everything every rental property that I
have Insurance costs more that's
another one excuse me to to
consider there's a lot more liability
when you're talking about a short-term
rental versus a long-term rental and so
insurance is going to cost more of
course you can lie to your insurance
agent and not tell them that it's a
short-term rental but you could also be
denied a claim on the basis of that or
and or get yourself in legal trouble so
I don't recommend doing that and then
there's just a whole bunch of other
things I mean you know having like
little gift baskets for the for the
guests when they come in and you know
obviously you know you've got to have a
bunch of tow TOs and you have to replace
those things I mean soap ongoing all
sorts of different things like that it
is a hotel you are managing a hotel when
you have an Airbnb property and hotels
have a lot of overhead and so you have
to consider that whereas when it's a
long-term rental really your expenses
are usually only obviously you've got
potentially Property Management
fees maybe your respons responsible for
the Landscaping which you're still
responsible for in an Airbnb property
but most of the upkeep of the home is
minor things and of course you're not
paying for furniture that's the tenants
responsibility usually the tenants
don't want to contact the the landlord
for you
know repairing things unless it's like a
major thing like the AC goes out or
something like that often times tenants
will just kind of take care of things
themselves if it's just a minor a
minor thing or or perhaps they'll just
ignore it
now where that changes is once the
tenant moves out and so then once the
tenant moves out you might have a big
mess on your hands you might have to
make a lot of repairs you might have to
replace appliances you may have a lot of
different things that you have to do at
that point and and that's something
that we're going to talk about a little
bit here in just a few minutes
obviously from a management standpoint
management of an Airbnb kind of to
piggy back on that last Point management
is much more Hands-On there is much
more
communication with the guests obviously
there's vetting of the guests making
sure that they
are you know going there for the right
reasons you might have restrictions on
why guests can stay there you know
for instance if if guests are wanting to
have a party you may have a no party
restriction you just say no we're not
going to allow you in there cuz you're
planning to have a party find someone
else that's that's willing to let you
stay there and have a
party and of course there's a ton of
pressure to keep reviews positive you
you if you start to get negative reviews
if you start if those start to flow in
you're going to find yourself in a
really tricky situation really quickly I
had a a situation earlier this summer
with my Airbnb property where we had
right at the end of our normal Pest
Control treatment schedule this always
happens right at the end when the the
pest treatment has started to to worn
off and it it needs that new that new
spray that new treatment we always get
some ants or some those big cockroaches
that we call palmeta bugs around here
and we naturally right at the end like
we always do we had some that got
through the barrier and got into the
house and we had someone that posted
a negative review about that but of
course we immediately took care of it as
soon as we found out about it
and we we did what we could well then
the next guest that came in also
mentioned that they saw some and then it
was like oh no if we have multiple
negative reviews say there are roaches
in this property like that could be
really really bad so there was a
little bit of pressure there now we took
care of it it didn't end up being a big
deal at least so far as I know but
that was something that that started to
be like oh man this could this could go
south really really quickly
whereas with a long-term rental you
have no concerns about that maybe a
tenant has a really bad experience and
leaves at the end of their lease because
they hated working with you and they
hated the house and they hated this and
they hated that they hated the neighbors
they don't like the dog next door that's
barking you can always start fresh with
a new tenant and they are none the wiser
there are no reviews being left about
the property and it's a it's a fresh
start for for all parties with regard
to money obviously when something is
booked through Airbnb there is kind of a
guarantee of money and VR boo is is
similar Airbnb kind of ensures that
right but of course people can try to
Swindle you out of that so the the
guy that I mentioned before that
complained about
cockroaches basically tried to barter
hey if you let me stay here for half the
price then I won't leave a negative
review well we went back and forth with
the person over that it was an
reasonable request cuz it was a long
stay that would have really hurt us
for that month not to mention that we
tried to as soon as we found out about
the roaches we we did our best to
address it and you know there's this is
the South and there are a lot of trees
and whatnot in that backyard you're
going to get roaches you're going to get
those palmetto bugs in there and
anyway that person tried to Swindle us
really Swindle us out of money it it
was almost like blackmail was the way
he he handled
it and in the end we didn't end up
negotiating at all we just absorbed the
negative review and just he had to pay
the full price and that was just because
he was unreasonable so you do have
that I that's fairly uncommon I've
not run into that a whole lot we've run
into it a few times a few minor times
but generally speaking that's not
happening whereas with long-term
rentals you have a little bit more risk
in some ways with this because a tenant
can if if for whatever reason they
lose their job or they're disrupted by
covid which of course we've talked about
eviction moratoriums at nauseon this
podcast which can really put you in a
bind if you're a landlord with a
long-term rental you could just have
a tenant that stops paying and if
there's an eviction moratorium
preventing you from evicting you're in
big trouble now you're not going to
have that money coming in and but
regardless if they stop paying or if
they don't pay you know the full amount
and then they start dragging things out
blah blah blah you have to deal with
that that's something that is just
another thing that you have to handle in
order to make sure that that the money
comes in it's on you you're that is the
big one of the big responsibilities of
managing a long-term rental is just
making sure the money comes in whereas
that's really a minor part of the
short-term rental side of
things and you know we mentioned
evictions of course with short-term
rentals you don't have evictions and so
that's really nice you don't have to
worry about that I mean I guess in
theory you could now Airbnb has
you know some things in place to
protect you know somewhat to protect
the landlords to protect the business
obviously guests on there there's kind
of a rating system for them as well
and if a if a
guest does things that are not right or
if they don't follow through on their
side of the bargain that's something
that they can get in trouble for
but regardless it's very unusual to have
to EV vict in a short-term rental type
of situation but there are other issues
I mean I one that i r into recently I
got a phone call from a neighbor that
was like hey just so you know there
are 11 cars parked in front of your
Airbnb property and I was like oh my
goodness we have a no party rule and
you know it was just kind of like why on
Earth would there be 11 cars parked out
here so I immediately called the
property manager that I have and they
got on the phone with with the guest
and the guests you know basically tried
to exploit a loophole that it wasn't a
party it was just a get together it was
just a bunch of Camp counselors that
were just having dinner together or
something like that and it's like no
that that's a party you know it's like
maybe there maybe there wasn't confetti
and and Gifts being given out but that's
functionally a party and so we run
into situations like that so you
don't have necessarily the nuclear
situations that you have with a
long-term rental where you know I did
have a tenant one time just completely a
long-term tenant just tear up a rental
property you don't run into that in
theory with
Airbnb because of the protections that
are in place there but at the same
time there are other you're trading that
out for
other headaches we'll call them that
you could run into last but not least
but I think that this is a a very
under the radar aspect of this and very
much plays into the differences of of
this being a business versus this being
a rental property in the long-term
versus short-term discussion but in the
short-term rental space it is a
completely different flow of money
the way money comes in and the way money
comes out is dramatically different and
maybe the simplest way is to think of
this is to start with thinking about
long-term rentals with a long-term
rental it's it's really simple you've
got the amount of rent that they are
paying you let's call it $1,500 a month
and really your goal you you just want
to make sure obviously that that, 1500
covers all your
expenses your property taxes your
insurance your mortgage your property
management fees your
maintenance and then you have to account
for vacancies and that's the tricky one
right because it's hard to know when
you're going to have a vacancy but you
you have to account for that in one
form or another and the vacancies are
are concentrated right when you have a
vacancy when you have a tenant that
gives you 30 days notice okay basically
they leave they finally get out of the
property now you've got to go in there
and assess okay what needs to be done
here then you've got to go do that do
those things then you put it back on for
rent then you have to find a tenant then
you have to get it filled so there could
be a several month lag several months
of vacancies because you know just the
normal way that this works in between
tenants now if the tenant does a lot of
damage to the property you might have
that property down for half a year and
so if you aren't prepared you might
find yourself in a really bad situation
where you're not getting any income
for that property for several months
while you're having to your expenses
have now shot way up right because
normally your expenses are just a little
bit of Maintenance you know just your
mortgage your property taxes your
insurance your property management fee
maybe maybe you know Landscaping fees
you know what those bizar every month
and your your income that you bring in
covers all of that so you're good but
if you have a a
major rehab that has to happen after a
tenant goes out your expenses have just
all of the sudden gone from okay here's
it's normally a th000 a month now you've
got a month where you have to drop 6 7
$8,000 into the property and you find
yourself simultaneous L getting hammered
on the other end of things that you're
not having that $1,500 a month come in
that you're used to and so again if
you're not prepared you can be
completely caught off guard and
Bamboozled by that and that's where a
lot of landlords get in trouble because
they don't prepare they don't have
Reserve funds you know they take the
rent that they get from a property and
they just pocket that and they spend it
and go do something with it rather than
than ensuring that they have an adequate
Reserve fund and so that's a a
major a major consideration in the
long-term rental space in the short-term
rental space it's complete all of that
is completely different so your
vacancies are not concentrated they're
spread out throughout the year so you
might have a month where your vacancy
rate was 50% for that month but then the
next month your vacancy rate was only 5%
you had had almost the entire month
booked up additionally because of
that obviously some months you're going
to make a lot more money than other
months and and some months you know your
expenses are going to be a lot more
variable than other months you know I
just mentioned that I had to to buy a
bunch of dining room chairs well that
was a random expense that I wasn't
exactly expecting to have to spend but
that's the kind of thing that happens
but what's happening is that you are
keeping up with the property rather than
the property kind of going into decline
like when you have a long-term tenant
the property unless it's just a great
tenant obviously but typically the
property is kind of going into decline
there's some deferred maintenance that's
happening the tenant is not keeping up
with the property
perfectly whereas with an Airbnb a
short-term rental type of property you
have to keep up with it when a guest
when their time ends you have to go in
there clean it anything that was that
was broken that needs to be fixed if it
wasn't already fixed and so you're
keeping up with it and so in theory
outside of you know like a roof that
that just gets old goes bad or an AC
that needs to be replaced something like
that you really shouldn't have any times
where there's just like a massive
expense that happens that you need to
take care of you should be keeping up
with it as
as each month goes
by and so again it's thinking about it
more like a business where you're having
some months that are good some months
that aren't so good but
ultimately everything is being kept up
with whereas with a long-term rental
it's just going to be pretty flat you're
you're pretty much going to know each
month this is what I'm going to bring in
this is what I'm going to put out until
that tenant leaves and then that's when
you're going to have a tremendous amount
probably of expenses combined with the
fact that there's not going to be any
income with an
Airbnb type of property it's much
more predictable yes you may have a
month where you lose money that that can
happen or maybe a month where you
essentially break even you know it's
very seasonal pretty much anywhere the
summer months are going to do better
than the winter months in some markets
perhaps the fall months you know for
instance in the mountains Gatlinburg
whatever the fall months might be
very good in some markets where it's
more of a skiing type of Market perhaps
the winter months are good so it it just
depends one month is going to vary from
the next but it's you're not going to
run into a month where you have a zero
vacancy rate like you or sorry a 100%
vacancy rate a zero occupancy rate like
you do with long-term rentals and so
there is a little bit more
predictability within the
unpredictability if that makes sense you
you know that you're not just going to
be completely crushed for a month or two
you might not do well for a month or
two but you're not going to be crushed
hopefully whereas with long-term
rentals you could so that
is and again it's kind of hard to
explain but just that flow of money is
just very different and I always
encourage everyone with rental
properties you must you have to have a
reserve fund you can't find yourself in
a situation where you're taking money
out of your personal bank account in
order to pay for a rental property
obviously you you might have different
accounts doing different things and of
course I have to always say I'm not a
financial adviser and I'm not giving
Financial advice but my
recommendation is that you have money
set aside for your rental properties
because you're going to need it you're
going to have something that comes up
and you don't want to be you know
robbing from Peter to pay Paul a phrase
that my my wife loves she was
questioning me what that means recently
it's a great phrase though right
You don't want to rob Peter to pay Paul
make sure that you're running a
business like a business should be run
businesses have Reserve funds businesses
are prepared for slow seasons and if
you have an Airbnb property you have to
be prepared for that and if you have a
long-term rental you have to be prepared
for a vacancy you have to be ready for
when that comes that you're not all the
sudden finding yourself with your pants
down oh my goodness I need to drop
$10,000 into this property while
simultaneously it's not bringing me
income what am I going to do so you
have to be prepared for that or else
you'll find yourself in that situation
of so many landlords where they have to
dump off a great property for below
market value because they find
themselves in financial
trouble well this episode has gone
longer than I anticipated but I hope it
was helpful I enjoyed it I hope you
all enjoyed it as well if you have any
questions let me know make sure that you
find my contact information in the
show notes if you don't already have it
you can reach out to me however you
want text email phone call I'm available
as well please make sure that you
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the tornadoes stay away from the
tropical depression or whatever it is
that's coming up and keep yourself
safe we'll talk next time
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