Long-Term Rent vs Short-Term Rent: What’s The Difference?
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When getting into buy-to-let property investment, there are many decisions to be made.
What kind of property should you invest in? Where should you invest? How big of an investment do you want to make?
These are all important steps to the process, but one of the most important questions you need to ask yourself should happen after you have invested your money: How long do I want the leases on my property to be?
In the same way that there are different types of investment properties, there are different kinds of rental agreements. The two different kinds of rental agreements, long-term lets and short-term lets, each come with advantages and weaknesses.
They can appeal in different ways to different kinds of renters, and landlords should be aware of each when investing in buy-to-let property.
Knowing what long-term let and short-term let mean is key for investors, and deciding which is right for you is important.
This article will explain what long-term let and short-term let means in the UK, examine their pros and cons, and look at which one you should consider for your rental properties.
Long-Term Letting Meaning
Long-term lettings are generally agreements between tenants and landlords that will cover a period longer than six months. They are ideal for those looking to stay in an area for a long time.
Long-term leases offer more stability for both the landlord and renter. The landlord receives a consistent cash flow of rental income, and the tenant avoids fluctuating rental prices and the awkwardness of having to move locations often.
However, landlords cannot make the most of changes in rental prices, and if long-term tenants cause problems, then it can cause issues in solving them.
There can also be more work for landlords due to additional legal requirements they have to meet throughout the tenancy. Property management companies can help manage this for you, but this does come with a fee.
Renters may find somewhere else that suits their needs, but being stuck in a long-term lease means they have to remain at their current location.
Long-term rental properties are often highly sought after by renters as they offer stability and allow both renters and landlords the ability to make long-term financial plans.
Who Is Long-Term Letting Suited For?
- Families looking for somewhere to settle.
- Professionals moving to a new area for work.
- Students enrolling in university for the year.
- People whose temporary situation has become permanent.
Pros of Long-Term Letting
- The consistent cash flow for landlords
This guaranteed income allows you to have peace of mind that you are making a return on your investment. While it will not increase over the term of the tenancy, it is a stable source of income.
- Avoids the hassle of finding tenants
Having to find tenants for your rental property can be a pain, so knowing you will have tenants for the long-term future makes your life much easier. It allows for landlords and tenants to operate in good faith.
- Allows for flexibility in negotiations
Seeing as landlords offering long-term tenancies expect to be working with their tenants for an extended period, tenancy agreements may be more flexible to ensure the relationship between landlord and tenant remains smooth.
- Less time and effort
One of the key benefits of long-term rent is that quite often, there is little for landlords to do once the tenancy agreement is set up. Many renters set up bank transactions to automatically send rent money every month, so it is often just a case of upkeep and collecting your money.
Cons of Long-Term Rent
- More complex negotiations
As renters will be living at the property for a longer period, there is likely to be deeper negotiations involved when setting up the rental agreement.
- Fixed-term contracts
This is a weakness for both landlords and renters. With the average tenancy agreement lasting around a year, this means the rental price is capped. If the rental market sees a rise, then landlords are not able to see the benefits of this until the tenancy agreement ends.
- More legal obligations
Tenants in long-term lettings will see the property as a home rather than just a place to sleep. Part of being a landlord is ensuring your tenants have a safe service, and so there are additional legal obligations that you will need to deal with.
Short-Term Letting Meaning
Short-term lettings are agreements between the landlord and the renter that can be anywhere from a couple of weeks to six months.
Offering a cost-effective alternative to staying in an Airbnb or hotel, short-term lettings are ideal for renters staying in an area for a short period.
These are ideal for tenants traveling a lot for work or other reasons, as well as landlords in areas with more demand than supply in the real estate market. This is because they can adjust rental prices easier, and get an increased return vs long-term letting.
However, short-term rental properties can be riskier for landlords, as it means having to regularly find new tenants to occupy the property. You may also have additional fees that long-term tenants would pay themselves, like furnishings, Wi-Fi, and bills.
Tenants may cause more wear and tear to the property, due to not seeing it like a home as with long-term agreements. Additionally, neighbours may not appreciate the constant coming and going of tenants.
Who are Short-Term Rental Properties Suited For?
- Professionals who move a lot for work
- People relocating for work and need somewhere to stay fast
- People visiting friends and family for a longer period
- People who are awaiting their main home to be sold or renovated
Pros of Short-Term Letting
- Higher Rental Fees
Landlords can make the most of the rising prices in the rental market through the ability to increase rental fees regularly. This means you can collect higher rent payments from tenants, to match the rental market as a whole.
- More Flexibility
If you are having issues with a tenant, it is easier to move on from them with a short-term let. This means you are less likely to be stuck with troublesome tenants, as you do not need to wait as long for their contract to run out.
- Easier for Convenience
Tenants needing somewhere to live fast are more likely to sign a short-term lease than a long-term one. In addition, a tenant on a short-term lease may ask to make it a long-term one. They are less likely to negotiate heavily, unlike with long-term contracts.
- Lower Exit Costs For Tenants
Unlike a long-term let, tenants do not have to wait a long time to move on from a tenancy if they choose to. This means they will not still be paying for the property if they move out for whatever reason.
Cons of Short-Term Letting
- Risk of Empty Properties
With a short-term tenancy agreement, landlords run the risk of empty properties as they have to find new tenants regularly. This makes it more difficult to maintain a steady income through your investments.
- Additional Costs
Short-term tenancies often mean renters will not want to pay for or supply things such as furniture, utility bills, or Wi-Fi. This means extra costs for property owners, so you will see less of a net return on your investment.
- More Time and Effort Required
Which Is Better?
There is no simple answer as to which type of tenancy is better. You will have a stable income from long-term let meaning it is good if you want to use your investment to generate a cash flow.
However, you are likely to get higher rental prices with short-term lets, meaning there will be more of a return on your investment if you can keep the property occupied.
Both long-term and short-term lettings are viable methods of managing your property. With the current demand for rental properties outweighing the supply, you will likely be able to find tenants for whatever contract you want.
It can sometimes be good to change between the two where possible to make the most of changes in the rental market.
It all depends on what your financial goals are when investing.
If you would like to learn more about different investing strategies, see our guide on different property investment strategies.
Alternatively, we have several brand new developments available for investors, including our most recent launch Central Park, offering the best prices in Liverpool and assured 6% NET rental returns.
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