In the areainvestment property, renting is a big problem for investors. Deciding between long-term and short-term rentals can be difficult. This article invites you to analyze advantages and disadvantages of each type of leasein order to determine which rental investment strategy is the most profitable.
What is a long-term lease?
PUSH long-term lease is a type of lease where the minimum duration of the lease is usually one year, or even three years if the owner is a legal entity. It focuses primarily on people who want to have stable housing for a longer or shorter period of time.
Characteristics of a long-term lease
The main points of a long-term lease are:
- Lease for 12 months, automatically renewable
- Rent is collected monthly
- Moderately high but regular rate of profitability
What is a short term rental?
PUSH short-term lease, also called a seasonal rental, refers to short-term rentals, generally less than 12 months, with more flexible leases. It is aimed at tenants who want to rent a property for a limited period of time, such as vacationers or people on professional missions.
Characteristics of short-term rental
The main elements of a short-term rental are:
- A rental with a duration that can vary from a few days to a few months
- Rent is usually collected daily, weekly or monthly
- Potentially high rate of return but subject to seasonal fluctuations
Comparing the pros and cons
Each type of lease has its specifics, advantages and disadvantages according to different criteria.
Financial returns
First, in terms of revenue, a long-term lease often offers regular profitability and less volatile compared to short-term rentals. This can indeed generate more income in certain periods (tourist seasons or exceptional events), but it is also exposed to a greater risk of vacancy (vacant accommodation without tenants) in the off-season.
Lease risk
Leasing risk is then another variable that needs to be taken into account when evaluating rental investment options. A long-term lease helps reduce this risk due to a more stable tenant profile as well as rents that are less exposed to market fluctuations. On the other hand, short-term rentals often change tenants, which increases the risk of property depreciation and non-payment of rent.
Real estate management
From a real estate management point of view, long-term rental is common easier for the investor to manage owner. Turnover is lower, the number of vacancies in rentals is lower and administrative procedures are often simplified. Short-term rentals require more involvement, particularly in terms of maintenance and tenant sourcing, with activities that may be subject to specific regulatory restrictions depending on the geographic area.
Selection of rental type will depend on the investor’s goalsits ability to manage its assets and expected financial performance.
Investment goals
For those who are looking above all profitability short-term high and ready to be more involved in the day-to-day management of their property, short-term rental can be an interesting option, despite the higher level of risk. And vice versa, if we want to constitute immovable property sustainable and ensure a stable rental income over time, a long-term rental will be preferred.
Managerial capacity
PUSH rental property management long-term is often less time-consuming and complex, especially with leases that are easier to set up. On the other hand, short-term rentals require special attention, more administrative procedures and the need to constantly adapt to the demands and needs of tenants.
Expected financial performance
In terms of profitability, both types of leases can be interesting depending on local property market conditions: a well-located property can generate extraordinary profitability in a short period of time, while another can offer stable rental income for a long time. It will therefore be necessary to evaluate the foreseeable development of applied prices according to the geographical area and type of target property in order to choose the most profitable option.
There is no single answer to the best choice between a short-term or long-term rental: each investor will have to determine his priorities and goalsand analyze the opportunities and risks specific to each type of lease. It is recommended that you be accompanied by a real estate investment professional who can provide advice and expertise to determine the most profitable rental investment strategy tailored to your profile.