‍Understanding the Basics of Short-Term and Long-Term Lets

Short-term and long-term lets are both popular strategies with buy-to-let property investors. Each option comes with its own benefits and challenges. Deciding which approach works best depends on the location of the property, current market conditions and individual investor goals. Understanding some of the key differences between the two can potentially help you make an informed decision.

What Are Short-Term Lets?

Short-term lets typically involve renting out a property for a few days or weeks. These are often marketed on platforms such as Airbnb or Booking.com. They are popular in areas popular with tourists, city centres and locations with seasonal demand. Short-term lets can generate higher income compared to traditional long-term lets. This is because landlords can charge more per night. However, they also come with additional costs and responsibilities. Regular cleaning, maintenance and marketing are required to attract new tenants. This also makes them more time-intensive to manage.

Benefits and Challenges of Short-Term Lets

One key advantage of short-term lets is their flexibility. Landlords can adjust pricing based on demand, such as during peak holiday seasons or popular events. However, local councils can also impose strict regulations on short-term lets. In some areas, there are restrictions on how many days a property can be rented out each year for short periods. This can limit earnings and may require careful planning.

Short-term lets are also facing increasing competition. Popular platforms have made it easier for new landlords to enter the market. This means existing hosts must offer competitive pricing and high-quality accommodation. Reviews and ratings play a big role in attracting guests. Poor reviews can harm your ability to secure future bookings. High standards of cleanliness and customer service are essential. This can also increase the costs and time needed to manage the property.

Exploring Long-Term Lets

Long-term lets involve renting out a property to tenants for over six months. These are usually offered on an assured shorthold tenancy basis. Long-term lets provide more stable and predictable income. Tenants typically pay rent monthly, which gives landlords steady cash flow. Landlords are also less involved in day-to-day management. Once a tenant is in place, there is less need for constant marketing, for example.

Pros and Cons of Long-Term Lets

One of the main advantages of long-term lets is reduced workload. Property management tasks are fewer compared to short-term lets. Long-term tenants often take better care of a property as they see it as their home. This can also reduce repair and maintenance costs, over time. However, landlords must still comply with all their legal obligations. These include deposit protection, periodic safety checks and dealing with any maintenence issues promptly.

One of drawback of long-term lets is the risk of late payment or non-payment of rent. These situations can disrupt cash flow and lead to prolonged disputes, which may require legal intervention to resolve. Another challenge is the potential for problematic tenants who may cause damage to the property or violate the terms of the tenancy agreement. Long-term tenancies also provide limited flexibility for landlords, as they are bound by the terms of the agreement. This lack of flexibility can also restrict the ability to switch to a different rental strategy without waiting for the tenancy agreement to expire.

Location Matters in Rental Strategies

The choice between short-term and long-term lets also depends on location. Tourist destinations and city centres may be better suited to short-term lets, as they attract visitors looking for convenient and flexible accommodation. Properties near major attractions, transport links or event venues may be especially suited for this market.  

Long-term lets work well in residential areas, near schools or in towns with strong employment opportunities. Families, students and professionals often seek long-term tenancies in such locations.

The Impact of the Economic Climate

The economic climate significantly influences the profitability and practicality of short-term lets versus long-term lets. During periods of economic growth, short-term lets often thrive due to increased travel and tourism. People are more likely to take holidays or business trips, which increases the demand for short-term accommodation. During economic uncertainty, consumer spending decreases, potentially making short-term lets less reliable.

Economic instability can have mixed effects on long-term lets. Rising living costs and inflation may push more people towards renting rather than buying homes, increasing demand for long-term lets. However, economic uncertainty can also result in job losses or reduced income, making it harder for tenants to meet rent payments and potentially leading to lower rents and higher risks for landlords.

Rising mortgage rates and inflation can also have a direct impact on landlords. For short-term let landlords, increased operating costs may erode profit margins, while long-term landlords might face difficulties maintaining affordable rent levels for tenants. Understanding these economic factors and assessing their implications is also important for landlords when choosing between short-term and long-term strategies.

Taxation and Financial Considerations

Taxation is another important consideration. Short-term lets are often classified as furnished holiday lets. This status provides certain tax advantages. However, the property must meet specific criteria, such as being available to rent for at least 210 days a year and being occupied for at least 105 days during the year. Long-term lets, on the other hand, are subject to standard income tax on rental earnings. Landlords must also consider costs such as letting agent fees, property repairs and void periods.

Matching Strategies to Goals and Resources

Investors should also consider their personal goals and resources. Short-term lets require more time and effort, which makes them better suited for landlords who are hands-on or have property management support. Long-term lets are better for those seeking passive income. Understanding your own capacity and risk tolerance is key to making the right choice.

Navigating Regulations and Policies

Navigating the regulations and policies surrounding short-term lets can be challenging, particularly as rules vary significantly across the country. Local councils often impose restrictions on the number of days a property can be let out on a short-term basis. For instance, in London, short-term lets are limited to 90 days per calendar year unless the landlord obtains planning permission. Some councils require landlords to register their properties or obtain specific licenses to operate legally. Failure to comply with these regulations can result in fines or legal issues.

For long-term lets, regulatory requirements are more standardised but still demand careful attention. Landlords must adhere to tenancy laws. This includes providing tenants with a written agreement and protecting their deposits in an approved scheme. Compliance with health and safety standards, such as ensuring gas and electrical safety, is also mandatory. Recent changes, such as the abolition of Section 21 no-fault evictions, mean landlords must follow potentially more onerous procedures to regain possession of their property. Understanding such requirements and keeping up with legislative updates is critical for avoiding disputes and maintaining a successful rental business.

Making the Right Choice for Your Investment

Both strategies have their pros and cons. Short-term lets can offer higher income potential and flexibility but require more time and management. Long-term lets provide stability and lower involvement but may have limited income growth potential. The best approach often depends on your specific circumstances, property location and financial goals. Some investors choose to combine both strategies across their portfolio.

Staying Adaptable in a Changing Market

In today’s market, adaptability is key. The rental market continues to evolve, shaped by changing regulations, economic conditions and tenant preferences. Staying informed and flexible can help you succeed, whether you choose short-term or long-term lets. Taking the time to research your options and seek professional advice can also help you achieve your investment goals.  

FAQs

Q: Which option makes more money?

A: Short-term lets can make more money if your property is in a high-demand area. However, long-term lets can offer a steadier income.

Q: Is short-term letting worth the extra work?

A: It depends on your situation. Short-term lets can be rewarding if you have the time to manage bookings and guests. If you prefer a less hands-on approach, long-term lets are better.

Q: What about tax benefits?

A: Short-term lets may qualify for special tax reliefs. Long-term lets do not offer the same benefits, but have more straightforward tax rules.

Q: Can I switch between the two strategies?

A: Yes, but it requires planning. Switching may involve changes to the property, marketing and legal compliance. Make sure you understand the requirements before making the change.