Pros & cons of short vs long term rentals for owners

We’re often asked by property owners whether it’s better for them to rent out their properties either on a short or long term basis. This article attempts to highlight some of the factors property owners should take into account when making such a decision.
If you want to know more about the definition of what is a short, mid or long term property, find out more here.

Income (best = short term rentals)

Generally speaking, the net income from a well managed short term rental property in a good location should produce on average more money than a long term rental.

That said it really depends on:

• The type of property
• The location
• The supply and demand factors of the property market
• How well you manage & maintain it

Please contact us for the latest market information and advice for properties in your area.

Flexibility (best = short term rentals)

The very nature of short term rentals means you can choose when and for how long you rent out your property, giving you maximum flexibility.

It also means you can choose to use the property for yourself or friends/family should you wish to.

If you ever wish to sell the property, by not having long term tenants in there it allows you to arrange viewings and sell the property without having to deal with being tied into a long term rental contract with a tenant who may not wish to move out.

Wear & tear (best = depends)

As the yearly occupancy tends to be lower in a short term rental property, and usually short term rental guests tend to use a property as a base to sleep in rather than day to day living, the wear and tear tends to be less in a short term rental property than a long term rental property.

The main factor is what type of guests/tenants you have in the property as bad ones can easily cause significant damage in both short and long term rental cases.

Long term rental tenants also tend to make more personal changes to the property (moving furniture, putting up pictures and so on) which can cause damage to the property.

Hassle (best = long term rentals)

Once a long term tenant is living in the property, in most cases they are less hassle to deal with than short term guests (assuming they pay on time and there are no major maintenance issues).

Short term guests on the other hand, need to be checked in and out, cleaning needs to be arranged, the guests tend to have more issues as they don’t understand how to use equipment in the property and so on.

In most cases there is significantly more hassle with short term rentals (even if you have a good property management company dealing with it for you, you are likely to be more involved in the process than with long term rental properties).

Control (best = short term rentals)

With a short term rental property you have more control over what goes on with the property in terms of guests, planning maintenance, access and so on.

Costs (best = long term rentals)

Short term rental properties tend to have higher costs. Your costs for utility bills are higher, management costs are higher, cleaning costs, internet & TV, replacing household goods and maintenance costs all tend to be higher. Some of these costs might be hidden and hard to plan for.

Cashflow (best = long term rentals)

Assuming you have a long term tenant that pays on time then long term rentals provide more stable and predictable cashflow.

With short term rentals a lot of bookings come at the last minute and they tend to be seasonal which can lead to large void periods certain times of the year.

Short term rentals can also be more easily affected by short term issues that affect tourists (such as transport strikes, poor economy, health scares, weather and so on).

Upfront investment (best = long term rentals)

With short term rentals you need to have a place that is fully furnished and fully equipped with kitchenware, bedding and so on. Whereas with long term rentals you can often rent it our unfurnished or at best furnished (with no equipment), depending on the market your property is in.

The extra cost, in terms of both time and money, for setting up properties for short term rentals is significant.

Ongoing maintenance (best = long term rentals)

Most long term tenants who live in a property will care more about the place than the average short term tenant (also depends on how much deposit you hold for the tenant). There are more items that can break in short term rental place and problems may occur that you don’t find out about immediately as you may have no guests in the property. Thus maintenance tends to be higher in a short term rental property.

Hassle with neighbours (best = long term rentals)

Particularly with apartment buildings, other neighbours may not like tourists turning up at all of hours of the day or night and such guests may also cause more noise. This could lead to more issues with neighbours with short term rental properties, but at least these issues tend to be short lived as they move out, whereas a long term tenant that causes such issues can take time to solve (especially if its in a legal grey area that can not be easily solved with police assistance).

Management overhead (best = long term rentals)

Short term rentals require significantly more management overhead to checkin/out the guests, organise cleaning/laundry, replace household goods, maintenance, track payments. Even if you have a management company taking care of it, the chances are you will tend to get more involved in the management process than with a long term tenant.

Payment upfront (best = short term rentals)

Usually with short term rentals you get paid upfront, and if they don’t pay you either don’t rent the place to them or you can more easily get them out.

With long term tenants you have to wait/hope for the payment each month and if they don’t pay the law often protects the tenants and it can take time/money to get them out and retrieve the lost income.

Legal risks & regulations (best = depends)

Short term guests are easier to get out of the property should there be any issues with them, so it reduces your risk of your property being tied up with no income coming in.

Short term properties run the risk for increased regulations being introduced which increase costs or place fines on owners in certain circumstances (this has already happened in eg Berlin and some US cities).

In either case you need to be informed about the local laws and regulations.

Taxation (best = depends)

In some countries there are tax breaks for short term rental properties. The exact answer to this can vary greatly depending on your personal situation and where the property is located.

Referencing of tenants (best = depends)

Its harder to check (eg credit check) short term rental guest (especially if foreign) compared to a long term tenant, but with the rise of online booking websites such as Airbnb the reviews help to build up trust on both side so you can choose the best guests for your pace.

 

Sim Property provides both short term and long rental property management in a number of locations. Please contact us for more information to see how we can best advise you what to do with your property.