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Short-Term vs Long-Term Rentals: Which is More Profitable for Property Owners?

Landlords are trying to squeeze as much revenue out of their properties as possible and one of the ways they can do this is by being flexible with their rental terms.

Cash flow and other differances

It's not uncommon for landlords to offer both short term let and long term lets, but a lot of people are still confused by these terms. What is the difference between a short term lets and a long term lets? And is there any area between them?

Owning a rental property. Short or long term

Understanding the differences between these types of rental agreements and their pros and cons is very important, as you may not fully understand their implications. You should also know about the rules governing them. Let's take a look at what is a short-term rental vs long-term rental, the benefits and disadvantages of both options, and how to make them work for you.

The importance of choosing the right rental agreement that suits individual needs and preferences
Landlords and tenants can optimize their experience with long-term rental arrangements.

What is a Short-Term Rental Exactly?

In the UK, a short-term rental is anything under six months. While this is the formal short-term rental meaning, in most cases, short-term rentals last about a few days or weeks. A short-term tenancy agreement can be made directly with a landlord or through a platform like Airbnb.

What are the Rules Surrounding Short Term Tenancies?

As you may or may not know, short-term tenancies have been something a lot of cities, especially cities that see a lot of tourist activity, have been struggling with. They want to level the playing field and allow the local hospitality business to survive, and short-term rentals upset housing markets in many ways.

Temporary accommodation rules

They can drive the price of long-term rentals higher, for instance, since landlords will be incentivised to offer short-term rentals at higher prices. Cities were also not designed to have a mix of high traffic and low traffic areas.

When an influx of people goes to an area of the city that was not designed for it, it can cause traffic issues and also affect the fabric of these neighbourhoods. This is why city administrations around the world are trying to regulate the short-term market while still giving landlords a bit of leeway.

Property owner limitations

As a landlord, you can only rent your property for a total of 90 days per year without a planning permit. If you want to go over that, you will need a permit and get an exemption for Airbnb. Know, however, that there is no limit on how long you can rent a room in your house if you live there. And, if you want to do arbitrage, it has to be written into the agreement with your landlord.

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What is a Long Term Rental

A long-term rental is anything over six months and will usually stretch from six months to twelve months. These agreements are usually between the tenant and the landlord directly. The landlord sets specific terms and the tenant has to abide by them. The tenant can either leave the property at the end of the let or extend it.

The Benefits of a Short-Term Rental

One of the benefits of a short-term rental is the flexibility you have. You don't have to be stuck with a tenant for six months or a year.

Getting rid of new tenant

If a tenant is bad, then getting rid of them will be much easier and you will only have to endure them for a short period. Long-term tenants have more rights than short-term tenants and getting rid of them could sometimes be close to impossible. And you could have to spend money out of your pocket if you get involved with litigation.

You can also afford to be picky with tenants, especially if you're in a high-demand city and you're renting during the high season. And, since revenue tends to be higher on short-term lets, you could make as much during the high season as you would an entire year with a full-time tenant.

Advantages and challenges of short-term tenants
Contemplating between short-term and long-term tenants, with various factors to consider

The Disadvantages of a Short-Term Rental

One thing about short-term rentals, however, is that they come with a fair share of risk and are not always easy to manage. You can't assume that your room or house will be booked 24/7, even if everything is perfect. You still don't know how much you'll be making, and disruptive events could affect bookings.

Time consuming passive income

Managing short-term lets, especially on Airbnb, can also get complicated and take up a lot of your time. If you don't understand how the platform works or what Airbnb guests are looking for, you might struggle at the beginning and make mistakes that could ruin your reputation as a guest.

Legal requirements with professionals

This is why it is sensible to consider working with a property management company like UpperKey if you want to get into this business, whether you want to manage one short-term rental or multiple ones. They will be able to keep communications with guests professional and clear and take care of the whole booking process for you. They will also help you stay on top of your books, make your listings as attractive as possible, and provide laundry and housekeeping services.

Guaranteed income

In addition, UpperKey can also help you stay aware of trends and make sure that your property is up to par. They can also provide concierge services and can even strike a guaranteed rent agreement with you to take some of the financial risk off your hands.

Routine maintenance

Another thing you have to know is that short-term leases often cost more to maintain. All it takes is for one bad guest to come in and destroy your property. This is something you'll eventually need to cover. This is also why we recommend that you start looking at short-term rental insurance and see how much it will affect your margins.

The Benefits of Long-Term Rentals

Long-term rentals have many benefits for landlords, and you should consider those when choosing which way you're going to go.

Long term stability

The biggest benefit of long-term rentals is stability. If you do your due diligence and conduct all the background checks you're legally allowed to, then you should be able to see if you have a potentially good or bad tenant in front of you.

Long term lease

Long-term rentals are much easier to manage as well. Once you have a tenant, all you have to worry about is payments and some maintenance work. If you've vetted your tenant carefully, there is little chance that they'll suddenly become destructive. So, your costs will be much easier to predict. Not to manage that the tenant will be responsible for paying for utilities unless specified otherwise in the terms of the rental.

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The Disadvantages of Long-Term Rentals

Long-term rentals are not perfect. Since you'll be stuck with the tenant, you have to think of the possibility of them going rogue. This can be due to changes in their personal or professional lives. It's rare for a perfect tenant on paper to go bad but it happens and getting rid of someone when a tenancy agreement is still in force can be very difficult.

Another issue is that you can't take advantage of price fluctuations in your area. If you live in a very touristy area, you could easily adjust prices in a short term let and maximise your revenue. So, this is something you'll have to think about.

Council tax and legal obligations

You should also know that you'll have more legal obligations as a landlord when dealing with long-term tenants. This will be their proper home and not just a temporary thing, and you're responsible for providing them with a proper place to stay.

You also probably already know that rental income is much higher on short-term lets. Rental income on short-term rents is 30% higher than on long-term lets on average. While vacancies can affect how much you make in total for the year, most landlords report higher annual revenues on short-term rentals or a mix of short-term and long-term rentals than on long-term rentals only.

So, Which Option is the Best?

Short term rentals or logn term

Short-term vs long-term rental, which one is better? Well, it depends on what you're looking for. If you want to know if a long-term vs short-term rental is better, you first have to look at your area. If the area isn't very touristy, then going for short-term lets would not make that much sense.

Real estate standard

Another thing you have to consider is the state of your property. Airbnb guests expect a certain standard, and if you can’t meet it or don’t know what the standard is, you might be disappointed with the results you get and the reviews people give you.

Highlighting the potential benefits of short-term rentals in popular areas
Short-term rentals in high-demand tourist areas.

If your property is up to par and you live in a city or area that is very popular with tourists, short-term rentals become a no-brainer. You do have to know what you're doing, however, and consider hiring the services of professionals to help you build your reputation.

Short-term and long-term rentals should both be considered by landlords who want to maximise return on their properties. They can work for one type of property better than others, and can also be used in combination, so look at all your options and see which one would be the best in your case. Remember you can alwasy use property management company to advice you.

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How to prepare a short term rental agreement? Professional poperty management for property owners, real estate investor | short term rentals and long term rental.

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