Some key differences between long and short-term rentals
Category Rentals
Real estate investment offers a variety of options to property owners. One such would be rentals, but here too, the landlord is able to leverage different choices, each with advantages and drawbacks.
The long-term residential market is often chosen as it tends to be the safest bet for those with a low risk appetite. A key advantage is that it limits the risk of vacancy and ensures a steady stream of income. It is also not subject to seasonality which means you could find a tenant at any time of the year as there is usually a constant stream of people looking for rental accommodation.
The costs associated with long-term rentals are also generally lower. The property does not need to be furnished because tenants often prefer to bring in their own furniture and finishes. Long-term tenants also tend to look after the property better because they view it as their home.
Management of the property and the associated costs are also usually lower for long-term rentals. A drawback though is that it lacks liquidity. Should you for example want to sell, you would need to consider the tenant and potentially wait until the lease has come to an end and the tenant has vacated.
Non-payment and arrears could also be a risk for long-term rentals as you would not for example hold credit card details which you would have in the event of short-term bookings. Getting the tenant out of the property is also more problematic as you would need to follow a legal eviction route.
A key advantage of short-term rentals is that you can generally earn higher rental rates. You may also be able to use the property yourself and then rent it out for only part of the year. While the income potential is much higher, short-term rentals do come with higher costs.
These properties usually need to be furnished and offer basic necessities, including electronic goods such as a washing machine, microwave and television. In most cases, you would also need kitchen goods and sometimes linen and towels as well.
This type of rental also requires more hands-on management. It will require regular cleaning, inventory management and preparation for guests. The bookings will also need to be managed and enquiries attended to.
The drawbacks include that you are unable to vet the tenants who will be occupying your property. While you may have a security deposit or credit card details, there is always the risk of damage or theft which may exceed this.
Short-term rentals also tend to be seasonal with rates varying depending on the time of year. While there is often a shortage of stock during the high seasons, you may find an oversupply outside of peak periods which can affect your ability to fill the unit.
Short-terms rentals are also not suitable for all areas. This market tends to be more susceptible to economic decline as holidays and short stays are usually one of the first things that people will cut in the event of financial difficulty. Either way, the risk of the property being empty for a period of time is much higher. You may also have to drop your rental to get tenants or even take longer term bookings.
Regardless of your choice, working with an experienced rental agent who knows the local area will offer several advantages. This includes insight about the local market, rental rates, proper tenant vetting and more so that you are able to make a more informed and secure choice.
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Author: Gina Meintjes
