Short-term lets vs long-term tenancies: A guide for landlords

Deciding whether or not to rent out your property as a short-term or long-term lease will very much depend on your personal situation as a landlord. You will need to take into account things such as the flexibility of short-term leases and the security that long-term lets bring. There will, of course, be pros and cons to either option; short-term lets vs long-term tenancies – which one is for you? 

What are short-term lets?

Let’s begin by taking a look at short-term lets and what exactly they mean for you as a landlord.

Short-term lets typically refer to rental agreements that last from a few days to a few months. Popularised by platforms like Airbnb, these arrangements are often favoured for their flexibility and potential for higher rental yields. This type of letting is popular amongst holidaymakers and professionals who travel for most of their working hours. 

Pros of short-term lets:

• Higher-income potential: Short-term rentals can often command higher daily rates compared to long-term tenancies, especially in tourist-heavy or high-demand urban areas. Also, this allows for higher rental yields in areas where demand for short stays is high. 
• Flexibility: They offer the flexibility to use the property for personal purposes during unbooked periods, for example, during ‘out-of-season’ times. This is ideal if you want to maintain access to your property at certain times of the year.
• Less wear and tear: With tenants staying for shorter periods, there’s typically less damage to the rental property compared to long-term rentals. Short-term tenants are also less likely to personalise or alter the space.
• Market responsiveness: With short-term lets, you can adjust prices to reflect changes in demand, such as increasing rates during peak tourist seasons or around special events, maximising your income.
• Diversified tenant base: Short-term rentals attract a wide variety of tenants, from tourists and business travellers to families on holiday. This diversity can reduce the financial risk associated with tenant turnover in long-term tenancies.
• Potential for higher quality maintenance: Because the property is cleaned and inspected regularly between stays, issues are often identified and addressed more quickly than they might be in long-term rentals. This frequent maintenance will help keep your property in top condition and will extend its longevity. 
• Avoiding long-term tenant issues: Short-term lets typically avoid some of the common complications related to long-term tenants, such as delayed rent payments, prolonged eviction processes, and the challenge of dealing with difficult tenants over extended periods.
• Testing the market: You can use short-term lets to test the market and experiment with different types of rental strategies, furnishings, and amenities to see what attracts the most interest and generates the best returns.

These advantages could mean that short-term lets are the way forward for you. 

Cons of short-term lets:

It is just as important, however, to highlight the cons of short-term lets so that you can make an informed decision about whether or not to choose this form of lease. 

• Increased management effort: Managing short-term rentals can be very time-consuming. Tasks include marketing the property, managing bookings, communicating with potential and current guests, handling check-ins and check-outs, and addressing any issues that arise during stays.
• Income variability: The income from short-term rentals can be less predictable and more volatile compared to long-term rentals. Earnings can fluctuate seasonally, and economic downturns or external factors (for example, travel restrictions during the pandemic in 2020) can significantly impact demand.
• Higher operational costs: Short-term rentals often incur higher costs related to frequent cleaning, maintenance, and the need to furnish and outfit the property with household items and amenities to meet guest expectations.
• Regulatory and legal restrictions: There are regulations on short-term rentals, including licensing requirements, occupancy taxes, or outright bans. Being up-to-date with these regulations can be complex and may require adjustments to your rental strategy.
• Dependence on market platforms: Many short-term lets are heavily reliant on platforms like Airbnb, as mentioned before, which can change their terms, fees, or algorithms, impacting visibility and bookings.
• Insurance and liability: Ensuring proper landlord insurance coverage for short-term rentals can be more complicated and expensive than for long-term rentals. You’d need to make sure you are adequately covered for any liabilities arising from short-term letting.

• Security and safety issues: With a constantly changing roster of tenants, security can be more of a concern with short-term lets. There’s also the potential for guests to host parties or engage in behaviour that could disturb neighbours or damage the property. 

What are long-term tenancies?

Long-term tenancies are agreements where tenants rent your property for a longer duration, usually anywhere from six months to several years. 

Pros of long-term tenancies:

This traditional rental model is often sought after for its stability and lower maintenance. Let’s take a look at the pros and cons of this type of tenancy. 

• Steady cash flow: Long-term rentals provide a consistent and predictable source of income. With long-term tenancies, you can rely on regular monthly rent payments, which will help you with financial planning and securing your mortgage payments.
• Lower turnover costs: Since tenants typically stay for longer periods, the frequency of tenant turnovers is reduced. This means fewer costs associated with finding new tenants, such as advertising, tenant screening, and potential vacancy periods.
• Simplified management: Managing long-term tenants generally requires less day-to-day involvement compared to short-term lets. Once you have a reliable tenant in place, the ongoing management tasks, like dealing with bookings and frequent tenant communication, are significantly diminished.
• Simpler expense planning: With long-term leases, certain expenses can be more predictable. For instance, maintenance costs can be planned and budgeted for in advance, and in some arrangements, tenants may even take responsibility for some upkeep, further reducing the landlord’s burden.
• Build relationships with tenants: Long-term rentals will allow you to establish stable relationships with your tenants, which can lead to better care of the property and prompt rent payments. It also makes handling any issues that arise more straightforward.
• Market resilience: Long-term rentals are generally less affected by seasonal fluctuations and short-term market changes, making them a more stable investment during economic downturns or fluctuations in tourism.

Cons of long-term tenancies:

• Limited flexibility: Once a long-term lease is signed, you will have limited flexibility in changing tenants or using your property for personal reasons. This can be restrictive if your circumstances change or if you wish to capitalise on a booming short-term rental market.
• Potential for long-term issues: Long-term tenancies come with the risk of having difficult tenants for extended periods. Issues like late payments, property damage, or disputes can become protracted and difficult to resolve.
• Market inflexibility: It can be challenging to adjust rental prices quickly to match market conditions due to the longer nature of agreements.
• Fixed rental income: Rental rates are typically locked in for the duration of the lease, which could prevent you from capitalising on market increases. Adjusting your rent to match current market rates usually has to wait until lease renewal, potentially resulting in lost revenue if the market is rapidly rising. 
• Less control over property condition: Since tenants in long-term rentals often treat the property as their home, there can be more wear and tear over time. Some tenants may make unauthorised alterations or neglect necessary upkeep, leading to additional costs for you, as a landlord.
• Tenant dependence: Having a single tenant or family for a long period can create a dependency where the rental income is heavily reliant on their continued occupancy and payment. Any disruption, such as the tenant leaving unexpectedly or defaulting, can significantly impact your financial situation.

Short-term lets vs long-term tenancies

So, which type of leasing agreement do you think suits you and your situation best? Are you looking to lease your property on a short-term or long-term basis? Before you make the decision, here are a few extra things to consider. 

Local market conditions

Understand the demand and regulatory environment in your property’s area. For example, a property near a major tourist attraction might thrive more as a short-term rental.

Personal involvement

Reflect on how much personal time and effort you can dedicate to your property and your tenants. Short-term rentals might generate more income but require a hands-on approach.

Financial goals 

Align your choice with your financial objectives. If immediate, higher cash flow is a priority, short-term lets might be preferable. For steady, long-term earnings, consider long-term tenancies.

Ultimately, the right choice depends on your personal circumstances, market conditions, and how actively you want to manage your property. By carefully weighing these factors, you can choose a path that maximises your investment while fitting your lifestyle. Whether you opt for the buzzing world of short-term lets or the steady pace of long-term tenancies, each has the potential to be a rewarding venture.

Owning property to rent out is an amazing opportunity and it’s crucial to make sure that you protect your investment. For more information on buy-to-let insurance, get in touch with our team of experts at CIA Landlords on 01788 818 670.