Great news! Short term lets are taking over!
Ten years ago you’d never heard of Airbnb, but now the site has taken over the world and all the smart investors want a piece – get in before it’s too late.
Renting out your property to long-term tenants used to be the big thing and there is still a place for it, but investing has moved on. Short-term lets are booming and holidaymakers want something nicer than a bog standard hotel. Equallylandlords get a lot more money; it’s a win-win for all.
In this article, we’ll talk all about short-term lets. The pros, cons, and the market.
What is a short-term let?
Good question, it’s nice and simple: a short-term let is a property rental that lasts anywhere from one night to six months. It’s also known as a holiday let or serviced accommodation. They’re like hotels but with a more homely feel and usually better quality. Unlike many long-term rentals, short-term let properties come fully furnished (because going on holiday with your furniture is a real pain).
Who uses short-term lets?
There are three main groups of people that will use your property: corporate visitors, holidaymakers and people who are relocating.
Companies are increasingly choosing to put their employees up in (and employees are increasingly choosing) short-term lets rather than hotels. It saves the company money and it provides a home away from home, which is nice.
‘Holidaymakers’ is a pretty generic term and can pretty much mean anybody. Frequently this ranges from a young couple on their first city break to a family of five. Most hotels just can’t compete with the price, privacy, space, and comfort of short-term lets. This is especially true if there are children and space or changing facilities are required.
People moving house are a new and growing market. Many people who are thinking of moving house like to get a feel for a neighbourhood before they buy a property there. Staying for a few weeks in someone else’s house is the perfect way to do this. They can sample the parks, walk the pavements, visit the local pubs and then make a decision. They then repeat this while their home is being organised for them to move into.
Why are short-term lets growing?
So why are short-term lets so popular all of a sudden? A study from the Residential Landlords Association found that the number of Airbnb listings in ten UK locations increased by a whopping 200% between 2015 and 2017. There are a few key indicators about why this is:
- Short-term lets can be way cheaper than hotels for guests, and, they’re more profitable for property owners than long-term lets.
- Advertising short-term rentals used to be a tiresome and costly process, but sites like Airbnb, HomeAway and FlipKey (plus many more) have made the whole thing quick and simple.
- No more mortgage interest relief. Landlords used to be able to deduct mortgage interest from their tax returns. The UK government have started reducing mortgage interest relief and by 2021 it’ll be gone. According to the RLA, in 2017 one in three landlords moved to short-term lets because of these changes.
Advantages of short-term lets
Short-term lets come with a bunch of benefits, but there are two particularly huge ones:
Higher rental income
The property can be one big cash cow, so you need to make sure you’re milking it properly. Switching from long-term to short-term lets can work wonders for your annual rental income. Some industry professionals suggest that a 30% increase is the average, but others estimate up to 60% and beyond. It all depends on a handful of factors, such as the time of year, the location of your property and the strength of its online ratings.
Why is short-term letting more profitable? Supply and demand. When you let out a property on a long-term basis, you fix a rental price and it stays the same for the duration of the tenancy. With short-term lets, you can increase your prices in the summer months when demand goes up. Likewise, if your property’s in the same location as a big event, you can hike up your rates even more. For example, London landlords can make a killing during Wimbledon.
Imagine you’ve hired out your property for a whole year, and then six months down the line you realise you need to live there. Sounds dreadful, right? If you use your property for short-term lets, that means no tenant is ever going to be there for very long. You can move in and out pretty much whenever it suits you.
Disadvantages of short-term lets
Like everything, short-term lets naturally come with their cons, although luckily there are ways around them.
No guaranteed income
The prices are higher, but there might not always be someone there to pay them. You’re sacrificing the income security that long-term lets provide. Your summers are likely to be full to the brim with keen tenants, but off-peak seasons potentially not.
As the landlord of a short-term let property, you have responsibilities, such as greeting new guests, cleaning the rooms, repairing things that break and paying the utility bills, that doesn’t mean you have to be the one that does it but you do have to arrange it. Most long-term tenancy agreements demand that the current occupants deal with this stuff, but in the world of short-term lets it’s a different situation. With a high footfall of new tenants, wear and tear is much more common, and you need to get stuff fixed as quickly as possible.