How Short-Term, Midterm, and Long-Term Rentals Improve Property Values for Everyone
As the owner of 716 Realty Group, Vacation Rentals and Property Management, I’ve spent years helping clients navigate the complexities of property ownership, management, and investment. One of the most important—and often misunderstood—aspects of real estate is the impact of rental models on property values. Today, short-term, midterm, and long-term rentals each play unique roles in shaping both cash flow and property valuation.
While it’s not uncommon to hear concerns about certain rental types, especially short-term rentals, there’s a growing body of evidence that these diverse rental strategies, when managed well, contribute positively to neighborhood values. By understanding how different rental models affect cash flow and valuation, we can see why rentals can actually improve property values for everyone.
How Cash Flow Drives Property Valuation
When it comes to real estate investment, cash flow is key. Cash flow, or the net income a property generates after expenses, is not only an indicator of the property’s financial performance but also a primary driver of its market value. Real estate investors, buyers, and appraisers often use a formula known as the income approach to determine property value: Property Value=Net Operating Income (NOI)/Capitalization Rate (Cap Rate)
Net Operating Income (NOI) is the annual income generated by the property, after deducting all operating expenses (taxes, insurance, maintenance, etc.). The Cap Rate, which is typically determined by the market, helps investors understand their return on investment. A higher NOI translates into a higher property valuation—and different rental models generate very different NOIs. For this example were using rough numbers, and assumptions only seen in some areas of Buffalo, NY where there’s low taxes vs other townships.
Valuation Example: Long-Term Rental Income vs. Short-Term Rental Income
Let’s look at a practical example to highlight how rental type affects property value. Suppose we have a two-unit property that’s rented as a long-term rental and another as a short-term rental. This is not to say one is better than another, I would argue they both serve a need and every investor should weigh the options.
- Long-Term Rental Scenario: Each unit rents for $1,000/month, resulting in $2,000 in total monthly income, or $24,000 annually. After subtracting taxes, insurance, and other expenses (around $5,000), the Net Operating Income (NOI) is $19,000. Applying a Cap Rate of 7%, we find: Property Value=19,000*0.07=$271,429
- Short-Term Rental Scenario (40% Higher Income): Now, imagine the same property is rented as a short-term rental, generating $1,400 per unit per month (40% higher than long-term which is our own internal estimate), or $2,800 total monthly. This yields an annual gross income of $33,600. With similar expenses, we have an NOI of $28,600. At a 7% Cap Rate: Property Value=28,600*.07=$408,571.
The difference in property valuation here is significant: by shifting from long-term to short-term rentals, this property’s valuation increased by $137,142. This higher cash flow translates directly to a higher asset value for the owner, allowing them to build more wealth over time. In addition, this makes not only easier to tap equity in this home but helps others buy homes in the area as well (When rental data is published helping investors utilize DSCR loan types)
The Balance of Rental Models and Their Community Impact
A combination of short-term, midterm, and long-term rentals can bring stability and flexibility to a property owner’s portfolio. For communities, this variety supports local economies by offering accommodation for tourists, temporary workers, and residents, while helping meet the needs of various tenant demographics.
Many communities have seen a positive impact from short-term and midterm rentals. These rentals bring more visitors who support local businesses, encourage the upkeep of properties, and, when managed responsibly, enhance the overall neighborhood’s appearance and desirability. Responsible property managers who specialize in these rental types, like my team at 716 Realty Group, Vacation Rentals and Property Management, bringing the expertise needed to balance tenant demand with community needs.
Conclusion: Improving Neighborhood Values with Responsible Management
While there are valid concerns about rental properties by local owner occupants, especially short-term rentals, the reality is that when properties are managed by licensed and insured professionals, they can be a net positive for neighborhoods. I too am an owner occupant with a rental property above me in Buffalo. Property owners MUST have a vested interest in maintaining these assets, and how they choose to rent them should be largely their decision.
In communities with managed rental properties, property values can rise due to increased cash flow potential, reduced vacancy rates, and enhanced property upkeep. Licensed property managers like us at 716 Property Management and 716 Vacation Rentals brings the systems, experience, and commitment needed to keep properties in great condition, while ensuring that owners are able to retain their assets long-term.
Bottom Line
Responsible rental management isn’t just about maximizing income; it’s about fostering a sustainable model that benefits both owners and the neighborhoods we serve. By creating a system that encourages owners to hold onto properties, rather than cycling them through speculative markets, we’re helping to improve property values for everyone—one rental at a time.
In what could be one of the biggest financial decisions of your life, having the right pro by your side is a game changer. Let’s connect and make sure you get the best outcome possible.
About the Author and Broker:
Gregory Straus started building his real estate business in 2013, trademarked 716 Realty Group in 2017, and is the Real Estate Broker and CEO of 716 Realty Group WNY. In 2022 we added 716 Vacation Rentals to the group with management of short and mid term rentals from Buffalo to Ellicottville, and no expanding to the finger lakes and Chautauqua Lake. In 2023 we partnered with an established Property Manager to for 716 Property Management specializing in Long Term tenants. Under the 716 Family of Companies, we do it all.