Imagine you have bought your first investment property in Desa Park City for rental income purpose. Here comes the question to offer long-term or short-term rental options to potential tenants. Recently, sharing economy platforms like Airbnb has becoming popular these days for generating passive income.
It allows property owners to put up their property for lease for short-term periods. Now, you begin to question yourself; long-term lease or short-term lease? Both have their own pros and cons to weigh in and consider which options best works for your financial situation and goals. You might be wondering what are the differences between long-term rental or short-term rental. Here’s the breakdown for both with their pros and cons
Pros And Cons The Differences Between Long-Term Rental Or Short-Term Rental
Long-term lease is more preferred for landlords because there is more security when a tenant signs on a fixed-period lease that typically spans from six to 12 months. The arrangements also mean less worry about vacant units and less work to scout for prospective tenants. It also provides steady flow of income for the landlord and relieves stress about meeting mortgage payment for the property.
However, if you intend to have a fixed-period arrangement means there will be fewer opportunities for landlord to make higher profits. For example, if rental rates for the area increase, landlord will not be able to raise tenant’s rent or adjust the rate to match market price until existing lease with a tenant expires.
For the landlord, short-term rental arrangement will come with higher tenant turnover and thus vacancy rates. On the other hand, tenants have been known to favour short-term rental as many do not want to be tied to a longer fixed period. Meanwhile, for a vacationer, they would prefer short-term residential property as it costs lesser than hotel.
The upside of short-term rentals deals
The upside of short-term rentals deals is that landlords are often able to charge more to make up for the lack of security in these arrangements. While the tenant often has to pay more for short-term rental, they do not have to worry about maintenance fees and has the flexibility to pick up their stuff up and leave in a jiffy.
Plus, it is also easier for the landlord to make necessary adjustments to the terms and conditions as well as to raise the rent without having to wait for an existing tenant’s lease term to end. This benefits the landlord who will be able to ensure healthy profit margin and to even out any fluctuations in market prices or increased expenses.
However, landlords who offer short-term rental will have to ensure their rental is enough to cover utility bills such as water, electric, and Internet. One of the drawback short-term rental is that there is a potential loss of revenue if the landlord cannot fill up the unit quickly. Short-term rentals depend on the season, as non-peak seasons may see a drop in tenancy. Every time a tenant moves out, the property owner will have to advertise the unit and get it ready for the next tenant. This can include cleaning, painting, replacing fixtures, carpeting and fixing any wear and tear which incur additional costs.
Speaking Of Costs
Speaking of costs, there are various factors to consider when it comes to deciding which rental arrangement will work best for you. Short-term rental deals do not offer the security of a long-term lease, but if your property is at a location that appeals to vacationers, a short-term arrangement can be lucrative for you.
On the flip side, you will have to put up with the recurring cost and process of putting up a rental ad. Services like Airbnb charge 3% as a service fee to the host every time a booking is completed on their online platform. The fee coverage of processing guest payments and comes out of the house payout.
There are no hard and fast rules as to whether a long-term lease or short-term rental will work best for your property, but it will help you to better understand the demographic around your area before you start looking around for tenants.