Ask an Advisor: I own a rental house in a popular Denver neighborhood. Am I better off financially by securing long-term renters, or should I list the property on Airbnb to generate income from short-term rentals?

Ask an Advisor: I own a rental house in a popular Denver neighborhood. Am I better off financially by securing long-term renters, or should I list the property on Airbnb to generate income from short-term rentals? – Anonymous

As the owner of a rental house, you’re not alone in wondering whether you should secure long-term renters or list the property on Airbnb to make extra income. It’s a common question I get asked as a financial advisor, especially when I work with tech professionals who own property in popular areas like the bay area or Boulder, Colorado. It’s an important decision to make because it can significantly impact your finances.

On the one hand, having long-term renters can be a reliable source of income and can save you the hassle of dealing with frequent turnover. On the other hand, listing your property on Airbnb can bring in more income, especially in high-demand areas. But it also comes with additional expenses and risks such as cleaning, maintenance, and potential regulatory restrictions as well as substantially more risk.

I believe that literally, everyone can benefit from owning a rental property, but the professionals who benefit the most are those with the professions at the highest risk of layoff. This includes recruiters, software developers, and high-level tech professionals in general. If you don’t have one and you’re in any of those professions, ask yourself what you’ll do if you’re caught up in a layoff and can’t find work for 6 whole months (if not more). This could be your reality if you earn over $200,000 per year.

Let me break down the financial implications of each option to help you make an informed decision that aligns with your financial goals and priorities so you don’t miss out on some potential income that could really help you reach your financial goals.

Long-term Rentals: Steady Income, Fewer Expenses

If you’re looking for a steady source of income and want to avoid the additional costs associated with short-term rentals, securing long-term renters may be the right choice for you. With long-term rentals, you’ll have a guaranteed source of income for the duration of the lease agreement, which can be anywhere from six months to a year or more. This predictable income stream can help you plan your finances and make informed decisions about your property.

Long-term renters also tend to be more responsible and reliable than short-term renters. They’re often more invested in the property and are more likely to take care of it, which can save you money in the long run. Additionally, you won’t have to worry about the costs associated with turnover, such as cleaning and repairs, which can be substantial.

However, there are some potential downsides to securing long-term renters. If you live in a desirable area, you may be leaving money on the table by not exploring short-term rental options. Additionally, you’ll need to screen potential renters carefully to ensure that they’re financially stable and responsible enough to pay rent on time and take care of your property.

Airbnb: Higher Income, More Expenses

Listing your property on Airbnb can generate significantly more income than long-term rentals, especially if you’re located in a popular area with high demand for short-term rentals. According to Airbnb’s website, hosts in Denver can earn an average of $2,000 per month by listing their entire home on the platform. This can be an attractive option for property owners who are looking to maximize their income potential.

However, short-term rentals also come with additional expenses and risks that you’ll need to consider. For example, you’ll need to furnish the property and provide amenities such as toiletries and linens, which can be expensive. You’ll also need to clean the property between guests and handle any repairs or maintenance issues that arise.

Additionally, short-term rentals can be subject to more regulations and restrictions than long-term rentals. Depending on where you’re located, you may need to obtain permits or licenses to operate an Airbnb, and you may be subject to zoning restrictions or homeowner association rules.

Lastly, due to the seasonality of Airbnb, you may find yourself paying to upkeep your rental for an extended period of time on a rare occasion without many tenants at all. This is why I rarely recommend any retirees own a short-term rental property. The risk is just too high. You should be able to afford both your mortgage and the cost of owning your rental property out of pocket for at least 6 months if you want to have a short-term rental.

Making an Informed Decision

Ultimately, the decision to secure long-term renters or list your property on Airbnb will depend on your individual circumstances, risk tolerance, and financial goals. If you’re looking for a steady source of income and want to avoid the additional expenses and risks associated with short-term rentals, securing long-term renters may be the right choice for you. However, if you’re looking to maximize your income potential and are willing to take on additional expenses and risks, listing your property on Airbnb may be a better option.

For additional details on building a rental property empire, we’ve prepared a free masterclass available for download by visiting this page.

Blaine Thiederman is a financial advisor based in Arvada, Colorado, who serves clients nationwide. As founder of Progress Wealth Management, Blaine is a financial planning expert for technology professionals with complicated finances.

Get to know Blaine by visiting his website at progresswealthmanagement.com.

Please note that Wealthtender earns a nominal monthly fee from Blaine in exchange for providing access to the benefits described here, subject to these terms. This compensation creates a natural conflict of interest when we favor promotion of Blaine and other financial advisors in the Wealthtender community over advisors not featured on our platform. Wealthtender is not a client of these advisors or firms.

This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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