Long-Term Tenancies vs Short-Term Lets: Pros and Cons 13 Jul 2023

If you're a landlord or property owner, you may be wondering whether a long-term tenancy or a short-term let is the best option for your property. Each option has its pros and cons, and understanding the differences between the two can help you make an informed decision.

Long-Term Tenancies

A long-term tenancy is typically defined as a lease agreement that lasts for 6 months or longer. Here are some advantages and disadvantages of long-term tenancies:

Advantages of Long-Term Tenancy

• Security of tenure: Long-term tenancies provide tenants with a greater sense of security and stability, which can lead to longer tenancies and fewer vacancies.
• Stable rental income: With long-term tenancies, you can count on a steady stream of rental income for an extended period of time.
• Lower tenant turnover: Long-term tenancies usually result in lower tenant turnover rates, which can save you money on marketing and tenant screening costs.

Disadvantages of Long-Term Tenancy

• Limited flexibility: With long-term tenancies, you have less flexibility to adjust the rent or change the terms of the lease agreement.
• Potential for difficult tenants: Because long-term tenancies can last for several years, you may find yourself stuck with a difficult tenant for an extended period of time.
• Rental income may not keep up with market rates: With long-term tenancies, you may not be able to adjust the rent to keep up with market rates, which can result in lower rental income over time.

Short-Term Lets

A short-term let is typically defined as a rental agreement that lasts for less than 6 months. Here are some advantages and disadvantages of short-term lets:

Advantages of Short-Term Lets

• Potential for higher rental income: Short-term lets can often command higher rental rates than long-term tenancies, especially in popular tourist destinations.
• Flexibility to rent on a short-term basis: Short-term lets provide you with greater flexibility to rent your property on a short-term basis, which can be useful if you need to use the property yourself or want to rent it out during peak tourist season.
• Easier to manage and maintain: Short-term lets require less maintenance and management than long-term tenancies, as tenants are usually responsible for cleaning and upkeep.

Disadvantages of Short-Term Lets

• Higher management and maintenance costs: Although short-term lets require less management and maintenance, they can be more costly to manage due to the higher turnover rates and more frequent cleaning and upkeep required.
• Potential for erratic rental income: With short-term lets, rental income can be more erratic due to the seasonal nature of tourism.
• Greater wear and tear on the property: Short-term lets can result in greater wear and tear on the property due to the higher turnover rates and frequent use.

Table of Long-Term Tenancies vs Short-Term Lets: Pros and Cons

Factors to Consider

When deciding between a long-term tenancy and a short-term let, there are several factors to consider:

Legal considerations

• Lender restrictions on short-term lets: Some lenders may have restrictions on short-term lets, so it's important to check with your lender before renting out your property on a short-term basis.
• Planning controls on short-term lets: Short-term lets may be subject to planning controls in some areas, so it's important to check with your local planning authority before renting out your property on a short-term basis.

Management considerations

Level of management required for short-term lets: Short-term lets require more management and maintenance than long-term tenancies, so you'll need to factor in the additional time and resources required.

Potential for hostile neighbors with short-term lets: Short-term lets may not be welcomed by all neighbors, as frequent turnover and unfamiliar faces can cause discomfort and tension in the community. This is a risk to consider if you're thinking about investing in short-term lets in a residential area.

Wear and tear with short-term lets: Frequent turnover also means that your property is subject to more wear and tear with short-term lets. This can lead to more frequent repairs and replacements, adding to your expenses.

Erratic income with short-term lets: Short-term rental income can be erratic, as it depends on factors such as seasonality, demand, and competition in your area. You'll need to have a solid understanding of the market and adjust your pricing accordingly to ensure consistent and profitable rental income.

Planning controls for short-term lets: Short-term lets may be subject to planning controls in certain areas. For example, in some cities, short-term lets are only allowed in certain neighborhoods or require special permits. It's important to check local regulations before investing in short-term lets.

Which is Best? Long-term Tenancies or Short-term Lets?

When it comes to deciding between long-term tenancies and short-term lets, there isn't a one-size-fits-all answer. Both options have their pros and cons, and the best choice depends on your specific situation and goals.

Long-term tenancies are a good option if you're looking for stable, consistent rental income with less management required. They're also a good choice if you're looking for a more passive investment with less involvement on your part.

Short-term lets, on the other hand, can offer higher rental income potential but require more management and come with more risks. They're a good option if you're willing to put in the extra effort and want to take advantage of high demand in your area, especially in popular tourist destinations.

Ultimately, the decision between long-term tenancies and short-term lets depends on your priorities and goals as a property investor.

Conclusion

In conclusion, long-term tenancies and short-term lets are two options for generating rental income from your property. Long-term tenancies offer stable, consistent income with less management required, while short-term lets offer higher income potential but come with more management and risks.

When deciding between the two options, it's important to consider factors such as market demand, location, and your personal investment goals. By weighing the pros and cons of each option and considering your unique situation, you can make an informed decision that aligns with your priorities.

FAQs

How long is a long-term tenancy?

A long-term tenancy is typically six months or longer, although this can vary depending on local regulations and individual agreements between landlords and tenants.

Do I need special permits for short-term lets?

In some areas, short-term lets may require special permits or be subject to certain regulations. It's important to check local regulations before investing in short-term lets to ensure compliance.

Can I switch between long-term tenancies and short-term lets?

Yes, it's possible to switch between long-term tenancies and short-term lets depending on market demand and your personal goals as a property investor.

How can I ensure consistent rental income with short-term lets?

To ensure consistent rental income with short-term lets, it's important to have a solid understanding of the market and adjust pricing accordingly. It can also be helpful to work with a property management company that specializes in short-term rentals.

What should I consider before investing in rental property?

Before investing in rental property, it's important to consider factors such as market demand, location, financing options, and your personal investment goals. It can be helpful to work with a real estate agent or property management company to navigate the process and make informed decisions.