Are you considering dipping your toe into the world of real estate investment? Buying and fixing up an investment property can be a labor-intensive undertaking, but it might also become a source of income.
If you’re just learning about real estate investment, we’ve created a guide about the differences between short-term-rentals and long-term rentals.
No matter what you decide to do with your investment property, you should know that Newrez has mortgage products designed specifically to meet the needs of real estate investors. Learn more.
What Is a Short-Term Rental?
A short-term rental is simply a property that is rented out for short periods of time – maybe for one night, a week or a month. Renters might be tourists visiting town on vacation, or business travelers. Operators often advertise and allow people to book their properties on apps designed specifically for short-term rentals, such as Airbnb® or Vrbo®.
Demand for short-term rentals may be extremely seasonal. Some cities and towns draw regular tourist traffic, while others see big influxes of visitors during specific sporting events, music festivals or business conferences.
Travelers can use mobile apps to browse short-term rental options in the city they’re visiting and select one based on amenities and location. Oftentimes, guests can send messages to the operator of the rental through the app to ask questions. Operators typically provide amenities similar to those provided by a hotel, and clean the rental or hire a cleaning service each time after a guest departs. Short-term rentals may require more frequent maintenance than long-term rentals.
Short-term rental income is typically treated as ordinary income for the host, and is subject to federal and state income tax.
What Is a Long-Term Rental?
Some real estate investors purchase and renovate a property with the intention of renting it out to regular residents who sign a lease to pay rent for a period of several months. Often, leases lock in a renter for 12 months. This usually means that the landlord can expect a steadier income stream than could be generated by a short-term rental.
Expectations for a long-term rental property are different than those for a short-term rental. Tenants sign a contract to pay regular rent or face fees, and to pay for any damage they cause to the property. In turn, landlords provide maintenance services if, for instance, the air conditioning breaks or the basement floods.
How Do I Qualify for a Mortgage as a Real Estate Investor?
If you’re looking to launch or expand your real estate portfolio, Newrez has loans tailored to your needs. A SmartVest mortgage that allows you to:
- Use market rent (cash flow) from your rental property to qualify
- Attach more than one property to your mortgage
- Access equity from your investment property to qualify for a loan
Because SmartVest is a non-qualified mortgage (non-QM) loan, you can enjoy easier qualifying criteria and submit less documentation than that of a conventional loan.
Ready to begin your real estate investment journey? Get started with us.
Airbnb® is a registered trademark of Airbnb, Inc. Vrbo® is a registered trademark of Homeaway.com, Inc. None of the above-mentioned companies are affiliated with Newrez, LLC.
