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 the show that you download episodes 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 doesn't take very long even just saying 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 subscribe to the show that you follow the show whatever your app says that you need to do download episodes that's helpful leave a rating leave a review I appreciate that stay away from 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 [Music]