ADU Rental: Long-Term VS Short-Term

There have been quite a few discussions about this subject since renting out an ADU is not an easy task. As a homeowner, you think that being able to build an ADU is the last process well in fact it is just the first step of your investment. To help you know what to anticipate or which rental goal would suit your need and purpose, here are a few factors you would like to compare before setting up a long-term or a short-term rental. 

1. Frequency of Communication

Long-term: 

So the first thing to keep in mind is the frequency of communication. Generally, with the long-term tenant, you put them into the property, they move in and things will relatively be quiet unless you have a routine maintenance issue that comes up or maybe some type of dispute between the tenants but other than that it should be smooth sailing once you get the tenant in. Keep in mind also that your ADU is a new construction so everything should be tight in terms of repairs. If you are looking to really kind of create the same experience you have with another investment property, you might want to look more towards a long-term tenant for your ADU space.

Short-term:

With a short term rental, the frequency of communication is going to be much higher. Tenants are going to want to confirm move-in and move-out times and reservation times. There's going to be a lot more communication going back and forth—if they're unhappy with certain things they'll have all of your contact information. In short, you're going to be fielding a much higher number of inquiries so if that's something you're prepared for, if this is something you're willing to put your time behind as your full-time job then potentially making it a short term is a good option.

2. Consistent Revenue

Long-term:

With a longer-term tenant, the income is going to be a lot more consistent over that 12-month period. You would typically move someone in for a year assuming they're a good tenant. You would want to renew them and keep them on the property so this approach is designed to net you a little bit more money or a little bit more consistent money over the course of that term 

Short-term:

With a short-term rental, you may be able to make slightly more money per month with a furnished rental or charge a slightly higher premium for some of those shorter days but that's also going to come with a significantly longer vacancy period. While people do go on vacation throughout the year, there are generally busier and slower times so you're just going to have to work that into your forecast and budgeting.

3. Housing Crisis

Long term:

When you make it a long-term rental, you are actually helping the housing crisis. You're alleviating some of that stress for affordable housing units on the market so you can consider yourself part of the solution. That's just also something to keep in mind, you want to be thinking about the greater real estate climate and how your individual decisions may affect that.

Short-term:

When you make your property a short-term rental, you're making it available to people who don't live in California (or a certain city). Those people are like tourists who are coming on vacation and that's not a bad thing by any means. Everyone has their own right to do with their property what they want and not all property owners are the same.

4. Different Regulations

Long-term:

You"ll usually have a very similar set of parameters for the whole metropolitan area. It'll vary considerably less than with the short-term rental so that's just easier for you to wrap your head around as a landlord—fewer things to worry about and you'll have more time to enjoy the things that you really like doing.

Short-term:

There are various cities just within California that have specific regulations or that have outlawed them entirely. So it's very important that you need to stay on top of that in order to make sure you're going to make this short-term rental successful.