Short-term vs. long-term rentals: Which is more profitable?

In recent years, as landlords’ costs have increased, some have moved from offering long-term rentals to short-term lets. While it’s easy to see the attraction if you look at the headline figures and factors, there’s a lot to consider in order to work out which is likely to deliver the investment returns you are hoping for.

Firstly, and most importantly, is the location. Different types of let work better in different areas, mainly depending on the infrastructure and availability of amenities.

For instance, the most profitable short-term lets tend to be flats in thriving city centres, where there’s a good choice of public transport, business people have quick access to workplaces, and there’s a wide range of attractions, dining and entertainment within easy reach for visitors. So, if you’re based in a smaller town or village that’s not a sought-after holiday destination, short-term lets simply might not be financially viable.

A good local letting agent will be able to advise you on what kind of accommodation is most in demand and which type of let is likely to work best for you. If you’d like to find out more, just get in touch with the lettings team in your nearest branch and one of our local experts will be very happy to help.

Here are five more key things to take into account:

Rental income

Rents are always higher for short-term lets because of the convenience, flexibility and standard of the accommodation. And in many locations, you can charge much higher rents at peak times of the year – e.g. June to August for holiday hotspots, or Wimbledon fortnight if your property is around SW19.

Regardless of how you let your property, the best overall returns tend to come from a long-term investment strategy where you benefit from capital growth as well as rental profits. So make sure you also look at the historical price growth and forecasts for the local area.

Occupancy rates and voids

A higher level of tenant turnover with shorter rental agreements means less stability in occupancy rates, which can result in fluctuating rental income levels. While your profits might be excellent at times, the property could be standing empty for several weeks through the year.

In contrast, while the monthly rent for a long-term let might be lower, there’s a benefit to having a consistent income, particularly if you rely on it to subsidise your own living costs. And because there’s usually a minimum notice period of a month when a tenant wants to leave, there’s time to line up a new occupant, reducing the chance of a void period between lets.

Property management

As always with property management, you have to factor in the cost of your own time. While the baseline rental income potential may look much more attractive than for a long-term let, the reality is that because of the frequent change of tenants and property turn-arounds, short-term lettings are much more work. And whether you do it yourself or pay a managing agent, there is a higher cost than with longer-term letting.

Furnishing and decor

Another significant cost to factor in is furnishing and getting the property ready to rent. In a furnished long-term let, unless it’s an HMO, you’re only expected to provide furniture. However, a short-term rental property needs to essentially be kitted out with all the fixtures, amenities and contents you’d expect in a home, including:

• Bedding and other linen
• Kitchen equipment
• Crockery, cutlery, glassware, etc.
• Soft furnishings
• Pictures and mirrors
• Entertainment systems – TV, music players, etc.

And because short-term tenants are most commonly business people or holidaymakers paying a premium for the accommodation, the décor and furnishing needs to be of a good standard, particularly if you want to command the best market rent and remain in high demand.

Maintenance

The more different tenants you have moving in and out, the greater the level of wear and tear and the more often the property will need cleaning and ‘touching up’ to ensure it remains desirable. And because you have to provide so much more in terms of property contents with a short-term let, there are more things that will need repairing and replacing. So your ongoing maintenance and repair bills are likely to be significantly higher than for a long-term let, which may only need light redecoration once every few years, especially if you have a careful long-term tenant.

If you need any more advice, we’re always here to help – simply contact our lettings experts in your local branch and have a chat with one of the team.