It’s a big question: do I offer my property for short term or long term rental? The answer to this question depends on a number of factors, ranging from where your property is located to what your investment goals are, and how much leg work you want to do.
With that in mind, we created this article a little while ago to break down the pros and cons of each form of letting. A few years later and the popularity of short lets has risen more than most would have expected. We’ve updated this article to give you the most comprehensive breakdown we can.
Let’s start with the now firmly establishes short let method…
Short-term lets – Big income, more work?
What exactly classifies a short let? A short-term let is generally considered to be one that lasts for less than 6 months. With the booming popularity of Airbnb and other letting platforms, short lets can last from as little as a few days. Nowadays, potential tenants are looking for all the comfort and amenities of a hotel, but without the high prices. There’s also the advantage that short lets properties tend to have some character about them – at least more than a bland hotel. This is beneficial for tourists who want a more authentic stay. Having said all of that, good short lets are not always easy to find, so offering your property for letting on a short term basis could open you up to a healthy rental market.
Short-term lets give landlords a lot of flexibility when it comes to who they choose to have in their property. This is great if your property is in an area where demand is outstripping supply as you will generally be able to take your pick from a choice of prospective tenants. Should things not work out, or if the market takes an upward turn, switching tenants is also far easier with a short-term let.
The kind of flexibility afforded to landlords is especially beneficial when they are not looking to let out the flat for the entire time, perhaps because they want to occupy the property for part of the year. Landlords have consistent control over who is in the property and for how long. Of course, this is also particularly useful when you have bad or ‘rogue’ tenants.
Higher Rental Yields
Perhaps the greatest benefit for investors when comparing short term to long term lets is the rental yield. Some short-term rentals can command 30% more than long term equivalents. That’s frankly a staggering jump in income. But is it worth it?
Many landlords are looking for a stable, simple income stream from their property. Unfortunately, short-term lets can be lacking in this regard. Because of void periods and general wear and tear, the precise income generated can be unpredictable.
The frequency of vacant periods will depend somewhat on the location of property and how it compares to the competition in your area, including seasonal changes. Sometimes that healthy 30% advantage over long-lets can be eaten up by simply having periods where nobody is letting your property. If you’re a landlord operating on thin margins this may not be the option for you.
A high turnover of guests, especially ones who maybe are not treating your property as well as they would treat their home, can lead to a certain amount of repair costs coming from wear and tear or worse. Added to that, short-let landlords will have to pay costs normally incurred by long-term tenants. Most of the time these will take the form of utility bills, TV license and so on, but you will also have to consider general upkeep, bed linen, and functional furniture.
This is what all the above adds up to. The effort required to manage a constant influx and rotation of tenants while keeping them happy should not be underestimated. Tenants will be expecting stellar service, the kind normally experienced in a hotel. Things that might seem ordinary or insignificant like non-working light bulbs or scuffs on the wall can turn into bigger issues as tenants will be expecting near perfect conditions.
There is one solution to this issue of greater effort, and that is to use a letting management agency. Of course the trade off is sacrificing effort for money, but a reduced workload combined with healthy (if not the strongest) returns could provide the ideal middle ground for many investors.
Long-term lets – Stability at a cost?
A long-term let will usually be anywhere from six months onwards. While they may lack flexibility and the possibility of the biggest returns when compared to a short-term let, they do perform better in a number of ways.
The stability offered by long-term lets is attractive to many landlords. Essentially it is a matter of collecting a regular payment from tenants who will be taking care of their own utility bills. Long-term lets are especially attractive to those who have multiple properties and want to keep the juggling that they have to do to a minimum. It also allows those with buy-to-let mortgages to calculate their ROI more accurately, as their income will be all but guaranteed for the duration of the tenancy.
Long-term lets offer landlords a way to set-and-forget their agreements to a large extent. Once a tenant is in their property it usually just boils down to collecting the money whenever the rent is due.
Inflexibility – getting stuck
Offering longer terms to tenants means that an element of rigidity enters into the equation, tying you in to what could prove to be a problematic tenant or prevent you from taking advantage of increasing rental prices in your area.
There are, however, steps that you can take to build get-out clauses into your contracts if you so wish. Your solicitor will be able to advise you on the best course of action if this is a route that you would like to go down.
Added legal obligations
Perhaps not a ‘con’ so to speak, but something to be aware of. As your property will be a proper home for your tenants, rather than somewhere to stop over temporarily, there are added legal requirements to abide by. Some might see these legal requirements as red tape, but in reality it is all part of offering a good and safe service for your tenants.
Long-term rentals simply don’t have the asking price of short lets. As we’ve seen, there are factors that can cut into short-let profits, but even so, long-term rentals will not approach those highs.
Whether you opt for a long- or short-term let will largely come down to your own individual circumstances and preferences. If you have the time to put in the effort short-lets often require, you can reap very strong financial rewards. The viability of this also depends on the location of your property. If you’re lucky enough to own property in a tourist hotspot or city centre, renting on a short term basis could make a lot of sense. Not so much the case if your property is in a residential area. You must do your research into the local rental markets to make an informed decision.
Knowing what you want to get from your buy-to-let business will allow you to make the right decision on whether stability or flexibility are the most important aspects of your investment portfolio.
Here at Aspen Woolf, we specialise in offering top performing buy to let investments. Have a look at our projects to find out more.
If you enjoyed this post and would like to read similar content, you might also be interested in How Amateur Investors are Using Their Buy-To-Let Investments.