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STR vs. MTR vs. LTR

Parker Borofsky

November 22, 2023


Which Investment Option Is Right For You?

You're ready to start generating long-term wealth through real estate but have no idea where or how to start. Wealth Builders Mortgage Group is here to help, breaking down three popular investment options so you can establish or diversify your portfolio.

Short-Term Rental (STR) Properties

What are STRs?

What is a short-term rental? It's a residential home or accessory building that is rented out for short periods of time, typically less than a month. The maximum length varies from state to state and can even change based on the jurisdiction in which the property is located.

Think of these as the "self-employment" of investing. While STRs have a lot of potential, they require effort on your part or a knack for hiring skilled professionals who can manage the property for you.

STR Pros

STRs are popular investment options for a number of reasons, including:

  • High ROI potential.
  • The ability to use it as a second or vacation home for yourself, friends & family.
  • Typically located in vacation destinations, making the above point that much more enjoyable.
  • Freedom to design and decorate as you wish.
  • Short stays mean less time for damages from renters to happen or build up.

Things to Watch Out For

Of course, no investment is risk-free. When it comes to short-term rentals, be mindful of:

  • Your income; even without a steady contracted tenant, you're on the hook for on-time mortgage payments. Be sure you can easily cover the ebb and flow of the vacation market.
  • Per the above point, it's imperative to choose properties in popular destinations, which requires more research on your part.
  • Securing property in a sought-after destination can be tricky, as those markets are competitive.
  • Without a team to assist, managing a short-term rental property can be time-consuming.
  • Purchase points are often higher than other types of investment properties.
  • Without STR resources, navigating restrictions and regulations can be difficult on your own.

Mid-Term Rental (MTR) Properties

What Are MTRs?

Mid-term rental properties are those with a rental agreement typically for more than one month but less than one year. Currently, the standard is between 3-6 month periods.

When it comes to real estate investing, MTRs can be a happy middle ground, as they're not as expensive as short-term rentals and not as limiting in their return on investment as long-term rentals.

MTR Pros

Many things draw investors to MTR properties, including:

  • Purchase prices tend to be affordable/middle-of-the-road.
  • Less active management than STRs.
  • No build-up of damages, as owners or cleaners are typically on the property every few months.
  • Fun to decorate as you see fit.

Important Things to Note

If you're considering investing in a mid-term rental property, here are a few key things to keep in mind:

  • It may not generate as high of a return as an STR.
  • Does require effort and marketing on your part, as tenants won't reside there for long periods of time.
  • There are some tricky regulations to navigate on your own.

Long-Term Rental (LTR) Properties

What Is a Long-Term Rental?

As you may have guessed, long-term rentals are properties that are rented out for longer periods of time at once. Typically, rental agreements are for a one-year term at a fixed monthly price.

In terms of STR vs. LTR, If short-term rentals are the "self-employment" of investing, long-term rentals are the "W2s." They're the safer investing option, as they produce steady, reliable income. But that doesn't mean there are no LTR downsides! Let's look closer.

LTR Pros

Long-term rental properties offer many perks, like:

  • The ability to count 75% of the rental income once you have a lease. This helps ease debt-to-income ratios for future purchases.
  • Typically lower entry purchase prices.
  • Less management.
  • Little to no setup unless you're using the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat).

Important Considerations

Like any type of investment, long-term rental properties come with a few important things to be aware of:

  • More limiting on returns; typically not much opportunity to create a tremendous increase in cash flow.
  • Lower cash-on-cash numbers.
  • If extensive repairs are needed (due to tenants mistreating the property), much of the initial profit will be lost.

Which Investment Option Is Right For You?

Now that you know about three popular real estate investment opportunities, you may be wondering how to choose which one is the right portfolio-building move for you.

Here are a few questions to answer that will help you decide!

  1. What markets are you interested in?
  2. What's your risk tolerance?
  3. How much work are you willing to put in?
  4. How are your cash reserves in case you need to cover mortgage payments for some time?
  5. How much have you saved up to potentially purchase a property?
  6. Do you have a feel for a loan amount that you may be able to qualify for?

Get Started With Help From Team Parker

As you can see, the difference between short-term and long-term rentals, even mid-term ones, is not only about time length. There are many other factors to consider!

Getting into real estate investing can feel overwhelming or intimidating, but it doesn't have to be. As long as you've done your homework and are working with lending experts, like the team here at Wealth Builders Mortgage Group, you'll be well on your way to investing success.

History shows that real estate is a tough investment to beat, so make your income-generating move today – schedule a consultation with Team Parker now!

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