As a landlord, one of the most critical decisions you’ll face is choosing the rental duration for your property. Both short-term and long-term rentals have their advantages and drawbacks, making it essential to evaluate your options carefully. In this guide, we’ll explore the definition of these two rental types and discuss which rentals are often the better choice for landlords.
Short-term Rentals are typically characterised by the rental of properties for brief periods, often measured in days or weeks. This form of rental is popular among tourists and travellers looking for temporary accommodation. Examples include holiday rentals and Airbnb properties.
Advantages of Short-Term Rentals
- Flexibility: Short-term rentals offer flexibility for both landlords and tenants. You can adjust rental rates and availability to maximise income based on demand.
- Higher Income Potential: With the ability to charge premium rates during peak seasons, short-term rentals can result in higher income than long-term leases.
Disadvantages of Short-Term Rentals
- Fluctuating Income: Short-term rental income can be inconsistent, with periods of high demand followed by potential vacancies.
- Higher Turnover: Frequent tenant turnover and the need for regular property maintenance can be time-consuming and costly.
- Increased Management Effort: Managing short-term rentals requires more effort, including cleaning, communication with guests, and handling booking platforms.
- Highly Dependent on Tourist Locations: Short-term rentals are often limited to specific areas. You can invest in properties in tourist destinations, urban hubs, but not usually quieter suburbs.
Long term Rentals
Long-term Rentals, on the other hand, involve leasing a property to a tenant for an extended period, usually measured in months or years. Long-term rentals are the traditional approach to real estate investment, where individuals or families seek a place to call home.
Advantages of Long-Term Rentals
- Stability: Long-term rentals provide stability, with tenants often staying for an extended duration, reducing the need for frequent turnover.
- Steady Income: Landlords enjoy a steady stream of income with predictable monthly rent payments.
- Lower Vacancy Rates: Long-term rentals typically have lower vacancy rates as tenants commit to longer leases.
Disadvantages of Long-Term Rentals
- Limited Flexibility: Long-term rentals restrict your flexibility to adjust rental rates based on demand.
- Slower Appreciation: Property values may appreciate at a slower rate compared to short-term rentals in popular tourist destinations.
- Tenant Challenges: Dealing with challenging tenants can be a downside of long-term rentals, as eviction processes can be lengthy and costly.
Why Long-Term Rentals Are Better
- Rental market stability: Long-term rentals are more stable than short-term rentals. This is because there is a consistent demand for long-term housing, regardless of the season or economic conditions. They are also more likely to appreciate than short-term rentals, according to a study done by Stanford Graduate School of Business.
- Passive income stream: Long-term rentals can provide a passive income stream for landlords. Once the property is rented out, landlords can typically sit back and collect the rent. Further to this, as Forbes puts it, “if you’re banking on your property for a consistent return of passive income, going long term is your best choice.”
- Reduced vacancy risk: Long-term rentals have a lower vacancy risk than short-term rentals. This is because tenants are more likely to stay in a long-term rental once they have settled in.
- Lower management effort: Long-term rentals require less management effort than short-term rentals. Landlords do not have to coordinate check-ins and check-outs, clean the property between tenants, or deal with as many maintenance issues.
- Favourable financing options: Lenders typically offer more favourable financing options for long-term rental properties. This is because they are seen as less risky investments than short-term rental properties.
- More resilient and higher ROI: According to studies done by the University of Pennsylvania and the National Association of Realtors, it was found that long-term rental properties are more resilient to economic downturns and have an overall higher total return on investment than short-term rentals.
Factors to Consider When Choosing the Right Rental Property For You
When deciding between short-term and long-term rentals, consider the following factors:
- Property Type: Different property types are better suited for either short-term or long-term rentals. For example, vacation homes are ideal for short-term rentals, while multi-family units are better suited for long-term tenants.
- Location: The location of your property can greatly impact the rental duration. Urban areas and tourist destinations are more conducive to short-term rentals, while suburban or residential neighbourhoods are better suited for long-term leasing.
- Investment Goals: Your investment goals, such as maximising income or long-term appreciation, should guide your rental duration choice.
- Property Management Preferences: Consider your willingness and capacity to manage the property personally or hire a property management company to handle it for you.
- Local Regulations: Be aware of local regulations and restrictions that may impact your ability to offer short-term rentals, such as zoning laws and homeowners’ association rules.
While short-term rentals offer flexibility and higher income potential, long-term rentals generally provide greater stability, lower management effort, and a more reliable income stream.
Ultimately, your choice should align with your investment goals, property type, location, and local regulations. By carefully evaluating these factors, you can make an informed decision that suits your needs as a landlord.
At Complete, we walk you through the process of choosing your rental preference, with the help of our property experts.
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