Whether you rent out an additional property or you have several rentals, you may be considering which tenancy option is best for you: short term or long term? The answer to this question depends on a range of factors. What are the pros and cons of short term vs long term tenancy agreements? What are your investment goals? How much leg work is involved in each?
From yields and rates to flexibility and legal requirements, read our guide to find out everything you need to know about long term and short term tenancy agreements.
Short term tenancy agreements – a risky business?
The popularity of short term tenancy agreements has boomed in recent years, especially with the introduction of easy rental platforms such as AirBnb. But how long is a short term tenancy agreement these days? A short term tenancy is classified as one that lasts for less than 6 months, but more often than not, they range from a couple of nights to a couple of weeks.
It’s common for people to want the comfort of a hotel without the high price tag, along with the appeal of short let properties tending to be more unique in character. Short tenancy agreements can be surprisingly difficult to find, so offering your property on a short-term basis could open you up to a healthy rental market.
• Flexibility– Short term tenancies provide you with flexibility, particularly when it comes to who you choose to let stay in your properties. If there is high demand for short tenancy agreements in your area, you have the luxury of being pickier about prospective tenants. If you find the people staying in your property are causing problems, it’s much easier to swap tenants with a short term agreement – which is especially beneficial if you’re looking to rent out your place for part of the year. It’s also important to consider taking out short term tenant insurance for landlords, to protect your rental property from potential damage.
• Higher rates – Because short tenancy agreements are typically priced at a day rate, they can achieve 30% higher rates in comparison to long term tenancy agreements. You can also charge a premium for rental properties during high-demand events, such as festivals. While this is financially advantageous, you should take into consideration when your property will be vacant, and how this will affect income. Managing a short-term property can also take up a lot of time and effort – so, is it worth it?
• Unstable income – You may be seeking a stable stream of income from your properties, which is where short term tenancy agreements can fall short. Due to periods of vacancy and the general upkeep of a property where so many tenants stay, income can be unpredictable. It’s important to consider your margins before offering your property on a short-term basis – how does it compare to the competition in your area? What about seasonal changes? Are there going to be long periods of time when no one is living in your property? If you’re operating on thin margins, a short term let may not be the best option for you.
• Additional costs– With a high turnover of guests, it’s likely that a certain amount of repair costs will be incurred, especially if your tenants don’t treat your property as well as they would their own. As well as this, landlords are responsible for footing bills that would usually be taken care of by long-term tenants – e.g. utility bills, TV licence, Wi-Fi and so on.
• Increased time and effort – Short term tenancy agreements mean a constant influx and turnaround of tenants, which results in more time and effort being spent to keep them happy. Tenants often expect similar standards to hotels, which is why it’s important to keep on top of everyday maintenance (scuffs on the wall, non-working lightbulbs, clean bedding). A letting management agency would be able to help in this respect, but be aware of additional dents in income.
Long term tenancy agreements – more stability?
So, how long is a long term tenancy agreement? In short, a long-term let is anywhere from 6 months onwards. While long term tenancies don’t offer the same flexibility or increased rates as short term agreements, they do perform better in several ways.
• Stable income – Many landlords opts for long term tenancy agreements due to the steady income they offer. A long term tenancy means collecting a payment from tenants who are responsible for taking care of everything else (namely utility bills). If you are a landlord with multiple properties, long term lets can also reduce the amount of juggling you have to do, while also guaranteeing income when it comes to things like buy-to-let mortgages.
• Less time and effort – Long term tenancy agreements mean landlords can set an agreement, and, so long as payments are being met, forget about them to a large extent. Once a tenant is settled in your property, it is really a case of collecting money when it is due. Many tenants set up bank transactions to automatically leave their bank at a certain point in the month, making it easier than ever for landlords to monitor payments.
• Lack of flexibility– While long term tenancies provide financial stability, there is also an element of rigidity which can prove difficult with rogue tenants. This rigidity also means that you are unable to take advantage of increasing rental prices in your area. There are ways to get around this, such as including get-out clauses in your contract. If this is something you’re considering, a solicitor will be able to advise the best course of action.
• Legal obligations – Legal obligations are something you should be aware of when it comes to long term tenancy agreements. Your property will become a proper home for your tenants, rather than a place to stay temporarily, meaning there are additional legal requirements that you need to abide by. Landlords sometimes see these legal obligations as burdensome, but really, it’s all part of offering a safe service for your tenants.
• Lower rates– While 30% higher rates are not always guaranteed with short term agreements, it’s very rare for long term tenancies to ever reach the same high yields. Whether you’re willing to put in the effort of short lets to reap strong financial rewards or you’d prefer the stability of a long term let, as a landlord it’s always worth considering the most important aspects of your investment portfolio.
Protect your property with landlord insurance from Endsleigh
Deciding whether a short term or long term tenancy agreement is the right option for you is largely down to your personal circumstances and preferences. If your property is situated in the hub of a city or near a popular tourist attraction, offering your property for a short term period may be the better option. If your property is in a residential area, it might be more sensible to research local rental markets and consider whether a longer term agreement is more suitable.
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