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There are a number of considerations when deciding whether or not you should rent your property out as a short-term or long-term let.
Written by
Ben Luxon
PUBLISHED ON
27
Apr
2022
Depending on the property, your long-term financial goals, and the flexibility that you require from your rentals, there are a number of considerations when it comes to deciding whether or not you should offer your rental property out as a short-term or long-term let.
For example, a small apartment in a popular holiday destination may bring in more cash as a short-term let. On the other hand, a single-family home in an area close to transport links to London is likely to generate better returns as a long-term let with lower vacancy rates.
Landlords and investors must understand the pros and cons of each investment strategy, as well as the potential yields and rates, the flexibility of tenancy length, and the legal requirements that come with each type of tenancy is vital.
A short-term let or short-term tenancy is typically referred to as a rental agreement that is under six months. This can be a bi-annual or month-to-month tenancy. More often than not this can range from single nights to week-long visits. Short-term lets are most commonly occupied by holidaymakers and people travelling for business.
The most popular marketplace for finding short-term tenancies is Airbnb, though there are others. The popularity of these sites has boomed over recent years because there’s a huge demand for alternative hotel accommodation. Hotels are typically more expensive and less comfortable with fewer amenities.
Because of this huge demand and the fact that sites like Airbnb have made it incredibly easy for anyone with a property to become a short let host or landlord, the popularity of short lets has increased.
Generally, a short-term holiday let is a property that is let out to holidaymakers for short periods, usually from 3 nights to a few weeks, or up to 31 days.
To qualify as a furnished holiday let for tax purposes, your property must be available to let for at least 210 days a year and be let commercially to the public for at least half of that time, equalling 105 days in the year. This doesn’t include days you’re staying there or days that your property is let out to family and friends for free or at reduced rates.
A long-term let (also known as buy-to-lets) is typically a property that is let out for 6 to 12 months at a time. You can read more about furnished holiday lets on the .gov site here.
Typically, short lets are priced at a day rate. As such, a good property can normally achieve an average of 30% or more in returns than if the same property was let out under a long-term tenancy. In fact, depending on location, you may easily be able to achieve greater returns than 30%.
Having a short-term tenancy offers landlords a much greater amount of flexibility because it allows them to keep the property vacant for portions of the year for their own use.
Additionally, if you have bad tenants, you don’t have to be overly concerned because they’re only staying for a short period.
Digging into the idea of bad occupants, the two major issues that tenants come with can be reasonably avoided. The first of these is rent arrears and the second is the refusal to vacate. With a short-term let, you don’t have to worry about these. For example, if you let your property on Airbnb, then the tenant will pay upfront and they will be vacating at the end of a short stay.
In order to run a successful short-term tenancy, you need to do more than simply list your property and secure a great tenant. You need to offer rentals as a service. This means offering your tenants advice on good restaurants and activities to do in the area. It means ensuring the property is professionally cleaned between each tenancy and of course, checking your guests in and out.
If you’ve got guests that are staying for one or two nights at a time, you might have as many as 15 to 20 guests in a single month that you have to manage and communicate with.
Related: Best Property Accounting Software For Landlords In The UK 2022
Short-term occupants expect you to treat them as guests, and they expect similar service levels as a hotel. This means maintaining your property to a very high standard. Additionally, because of the high guest turnover, general wear and tear and maintenance costs are often higher.
Generally speaking, short-term lets achieve a much lower occupancy rate than long-term lets. In fact, the average occupancy level for holiday lets is between 20 and 24 weeks per year.
This loss of income quickly offsets the 30% or so premium that you might be charging for day rates.
It’s safe to say that short-term lets are significantly more demanding and more costly than operating a regular long-term let. However, if you have the time and desire to put the work in, the financial turns can be much greater. Especially if you manage to keep occupancy rates at a reasonable level.
If you are considering whether or not you should rent your property out as a short-term let, it is worth first asking if your property is suitable for this type of tenancy.
Long-term tenancies or traditional long-term residential tenancies are generally 6-12 months, though some can be longer. After listing your property and securing a tenant, you need to maintain the property, collect rent, and do the general day-to-day admin.
A long-term tenancy will bring in regular and steady income every month. Because of this, you have greater assurance of cash flow and can make predictive models of future cash flow. While you will undoubtedly have vacancies, these will generally only occur at the end of a tenancy and you’ll only have to go through the process of finding new tenants once a year. The average vacancy rate in the UK is approximately 4%.
Anyone that’s been a landlord for any length of time will tell you running rentals isn’t passive. However, compared to short-term rentals, as long as you do your due diligence when finding great tenants, most long-term tenancies are fairly subdued. Good tenants will pay the rent on time, make little fuss, and treat their accommodation like their home.
Often mortgage lenders will need to commit you to rent your property out as a short-term let.
Most lenders though will need assurance that the cash will keep flowing and greatly prefer long-term tenancies for this reason. As such, loans for investing in short-term holiday lets can be harder to obtain.
The amount of legal and regulatory compliance requirements are only growing for landlords and landlords of long-term lets need to get it right. For example, gas safety certificates, EPCs, fire safety, HMO licences, and electrical safety are all major concerns for landlords.
Despite popular belief, most short-term lets are in fact assured shorthold tenancies, which means that the legal requirements regulations are the same as long lets. However, with long-term tenancies, there’s more of a focus on getting the legal specifics and compliance absolutely spot on. Short-term occupants don’t have a wish to make a legal fuss, they’re on holiday and are only there for a couple of days.
Failing to ensure that all obligations are met with a long-term tenancy, legal or otherwise, could easily result in hefty fines at best.
As mentioned, short-term tenancies will command higher rates. That being said, you’re also much more likely to have fewer vacancies and lower overheads.
However, if you’ve got the right property and the will and time to operate a successful short-term let, then you may be better off financially doing so.
Most UK housing regulations are designed to ensure the safety and security of tenants in their homes. They are not designed to promote business growth as a landlord. This is mostly a good thing, as it ensures that rentals are maintained to high standards and prevents bad actors in the market.
But it also means that if you have a legitimately bad tenant it can be incredibly difficult, even financially crippling to get rid of them. The laws protecting landlords are from rogue tenants are few and far between.
Related: What Landlords Need To Know About Evictions: England and Wales
If you want consistent rental income every month with the least amount of effort, then long-term lets are the preferred choice. However, this requires you to find great tenants and requires you to be extra diligent when it comes to fulfilling all of the legal requirements and obligations as a landlord.
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