Short-Term vs. Long-Term Lettings: Which Yields Better Returns?

When it comes to property investment, few decisions shape your portfolio’s long-term performance more than your chosen letting strategy. Short-term or long-term – two seemingly simple options that, in reality, come with vastly different operational demands, income potential, and risk exposure.

While it may be tempting to default to the idea that short-term lets (Airbnb-style) yield more, and long-term lets are safer and more passive, the truth is – as always – more complex. We’ve worked with countless investors making this decision, and while there’s no one-size-fits-all answer, there are clear patterns that can help shape yours.

Short-Term Lettings: Higher Income, Higher Maintenance

Short-term lettings – typically holiday lets or serviced accommodation – have gained serious traction in the UK market over the past decade. Particularly in high-footfall cities like Liverpool, Manchester, and Birmingham, where tourism, business travel, and university events create year-round demand.

On paper, the financials can be compelling. Yields for short-term lets often exceed those of traditional tenancies, sometimes by a significant margin. It’s not uncommon to see returns in the region of 8–12% gross annually – sometimes more – assuming consistent occupancy.

But (and it’s a significant but), this income doesn’t come without effort. Or cost.

With higher yields come higher expenses:

• Cleaning and maintenance between stays
• Furnishing to a hotel-level standard
• Booking platform fees (Airbnb, Booking.com etc.)
• Dynamic pricing software, if you want to stay competitive

And in some cities, new regulations limiting short-term rental availability are either already in place or likely to be in the near future. Let’s take the example of Edinburgh: while the city boasts highest density of Airbnb listings per square mile in Scotland (and also boasts the lucrative Edinburgh festival, a windfall for short-term rentals) it’s becoming increasingly difficult to become a short-term lets owner in the Scottish capital. As of October 2023, Edinburgh became the first city in Scotland to enforce mandatory licensing for all short-term lets, including Airbnb properties, making it one of the strictest regulatory environments for holiday rentals in the UK. And while there’s no guarantee that similar laws will follow across the rest of the country, it’s always good to know in advance what kind of administrative hurdles you could end up facing.

Occupancy rates are also susceptible to seasonality. A thriving summer might be followed by a bleak winter. Events, festivals, and local tourism trends can cause huge spikes or slumps – which makes revenue forecasting more volatile.

That said, for hands-on investors or those working with a strong short-let management partner, the upside can absolutely justify the extra effort.

If you’re exploring this route in more detail, take a look at our guide to short-term letting which breaks down the fundamentals.

Long-Term Lettings: Stability and Simplicity

By contrast, long-term lettings offer a more traditional route: assured shorthold tenancy agreements (ASTs), often lasting 6–12 months or more. Rental income may be lower month-to-month, but occupancy is often higher across the year – and with fewer gaps, admin, and turnover-related costs, net yields can be more predictable.

It’s a less volatile model – one that appeals to investors looking for passive income with reduced operational complexity. There’s also the benefit of tenant familiarity and a lower marketing burden (you’re not relisting every few days or weeks), and in many cases, property wear and tear is less severe.

You’re also less exposed to regulatory change in this space. While short-let rules are tightening across major UK cities, long-term rental markets remain stable and strongly supported by demand – particularly as housing shortages continue and Generation Rent matures.

Of course, long-term doesn’t mean entirely risk-free. You’ll still need to consider void periods, rent arrears, and ongoing maintenance – plus, if market rents increase rapidly, you’re somewhat locked into fixed agreements. That said, these risks are often seen as more manageable or insurable.

Which Letting Strategy Suits Your Investment Goals?

There’s no right answer, but there is a right fit for your portfolio.

If you’re aiming to maximise cash flow and have the systems (or management partner) to handle the operational load, short-term letting can deliver exceptional returns.

If you’re looking for predictability, reduced admin, and steady long-term capital appreciation, the conventional buy-to-let route may align better. Especially when you’re choosing among rental-focused property deals in locations that have proven, consistent tenant demand.

As always, your investment strategy should follow your circumstances rather than trends. The best returns come not from chasing the biggest headline figure, but from understanding what you can manage, what risk you’re willing to tolerate, and what will serve your goals in five, ten, or twenty years’ time.

This article is intended for informational use only and does not constitute financial, legal, or investment advice. RW Invest is not authorised to provide financial advice. Any projections, estimates or yield figures are based on current market data and are subject to change.