As a buy-to-let landlord, one of the key decisions you’ll have to make is whether to let your property long-term or short-term.
Profit, of course, is the factor that drives this decision. However, calculating which type of letting will be more profitable is a bit more complicated than just looking at the average earnings of long-term and short-term rentals.
The revenue a property will generate is dictated by unique factors such as location. Your own needs and capacities as a landlord will also factor into how you’ll lease out your property. Short-term and long-term lets both have pros and cons that will make each type more or less suitable for your investment portfolio.
To help you decide which one is right for you, let’s first break down the advantages between short, medium, and long term lets.
What Is A Short-Term Let?
A short-term let is a property that is rented out to tenants for a period of ninety nights or less. The period can vary based on local council regulations. The only area with a hard limit is London, which caps short-term lets at ninety calendar nights a year. These types of properties usually cater to holiday makers.
It’s not hard to see why more than 2.7 percent of the UK’s landlords have moved to the short-term letting market. The rapid growth of platforms like AirBnB and Booking.com is proof enough there’s serious money to be made in these lets. Properties can earn thrice as much when leased for the short-term.
Short let properties give you tighter control over who leases your property and void periods. This ability will be especially appealing for landlords who are letting holiday homes they plan to occupy themselves during certain parts of the year.
Faster Tenant Turnovers
Difficult tenants are a landlord’s worst nightmare. In London, rogue tenants can leave behind an average of £41,358 in damages. With short-term lets, getting stuck with a bad tenant is less of an issue. Even if you do find yourself with a difficult tenant, you’re won’t be legally bound to put up with them for more than a few weeks or days.
Short-term lets pay out more per day. However, the trade-off for such high yields is stability. You may find yourself in prolonged void periods, especially if your rental is in a holiday destination where demand is seasonal.
Higher Maintenance Costs
Holiday makers may not be the most conscientious tenants. As they’re only residing in a property for a few weeks–even days–they may not be as careful with your facilities as long-term tenants. Faster turnover also means your rental will need to be cleaned and checked for damages more frequently.
Requires More Effort To Manage
Landlords of short let properties will constantly be managing the flow of tenants. You’ll either find yourself fielding questions about the property, or assisting current guests. Landlords managing multiple properties or who buy-to-let for passive income while working a full job may struggle to give tenants the attention they require.
What Is A Medium-Term Let?
Medium-term lets are a happy middle ground for landlords. Like short lets, medium lets are fully furnished and have utility bills baked into the rates. These homes are ideal for professionals looking for accommodations while on temporary work assignments, or families who are renovating their homes and need a place to stay in the interim.
Flexible Yet More Manageable
Medium lets are ideal for landlords who want to reap higher yields and while minimising maintenance duties from quick turnovers. The tenancy duration of a medium let can last anywhere from a month to 8 months.
Short lets have holiday makers and weekend warriors, and long lets have families looking to settle down. Looking for tenants for a medium let is trickier. The variability of the tenancy periods and demand can make it difficult to effectively plan against vacancies.
What Is A Long-Term Let?
Long-term lets are properties that are rented out for longer than 6 months, although typically landlords set the minimum lease period to a year. Long-term letting is the traditional model in the buy-to-let industry, and attracts families and individuals looking to put down their roots.
Steady Source Of Income
Stability has always been the main draw of long-term lets, making it ideal for landlords working full time elsewhere. On average, private renters live in homes for 4.3 years. Given a healthy portfolio of long-term lets, landlords can establish a very lucrative source of passive income. Landlords won’t have to chase after payment, as these are required to be taken by standing order at a set date every month.
Takes Less Effort
With long-term lets, much of the daily maintenance and upkeep falls to the tenant. Barring any major repairs for structural damage and wear and tear, it’s up to renters to keep the property clean and livable. Landlords also won’t have to communicate with a stream of changing guests.
Easier To Secure Financing
If you’re planning to take out a mortgage for a buy-to-let property, the only choice you may have will be to rent it out long-term. Because of their riskier and less stable nature, many lenders still hesitate to approve loans for short-term lets. Some banks consider listing a property on AirBnb a breach of contract for residential mortgages.
Once the i’s have been dotted and the t’s have been crossed, rates are locked in place for the rest of the lease period. You’ll be unable to increase rent even if market rates rise in your area. Rates are also simply lower for long-term lets,
Risk Of Bad Tenants
Long-term contracts will be hard to break. The process of evicting a difficult client can also be a drawn out and expensive affair. Even tenants who refuse to pay rent can take months to legally remove from a property; you’ll be paying mortgage and utilities in the meantime.
Individuals and entire families call long-term lets home for years. Landlords of these properties are bound by more regulations that were established to protect the safety of both tenants and landlords. Legally, landlords must pass inspections, secure certain safety certificates, and register a tenant’s deposit under one of the government’s approved schemes.
Across the UK, rental rates continue to rise for short-term and long-term lets alike. Landlords can further capitalise on the industry’s growth and maximise their profit by choosing the rental property that fits their needs and capabilities.