26/07/2022
Short-term vs long-term rental
Short-term rental has become increasingly popular in recent years. This is backed by the number of properties available for short-term rent on booking.com and AirBnB.
There are a number of reasons why short-term rental has become so popular. Aside from the fact that platforms such as AirBnB have made the booking process very simple, it also provides guests more privacy and space for lower rates per person than hotels do.
There are a number of factors that should be carefully examined to help a real estate owner to make an informed decision whether to rent rent the property short- or long-term. We have conducted a list of positives and negatives for both types:
Long-Term rental
Fixed income / steady cash-flow
If you have managed to find a good and dependable tenant who pays a monthly rent on time, you have got yourself a steady cash-flow, hopefully for a long period. The tenant also pays for utilities, internet and tv connection.
Stability
In most cases the rental period is at least a year, which means you do not have to worry about vacancy until either party shows interest to terminate the rental the agreement.
Less extra work
When you have got yourself a good long-term tenant you do not have to go check on him every month, meaning you can focus on other things as long as the rent is paid on time. Unless there are some extraordinary problems, you have nothing to worry about.
The owner has no right to use his/her apartment
By signing a long-term rental agreement, the owner hands the right to use the apartment to the tenant, thereby having no right to use the apartment himself. In case of short-term rental on the other hand, the owner can block the needed dates according to his needs or show well maintained and clean apartment to potential buyers (in case the owner wishes to sell the apartment).
Lower income
Long-term rental agreement ties you to fixed monthly payment that is not easily changeable. In case of short-term rental the owner can change the rental prices according to different seasons and events to maximize the rental income. Best Apartments has earned its real estate owners on average 20% higher rental income compared to long-term rental prices.
Risk of an unpleasant tenant
With long-term rental there is a high risk of stumbling across an unpleasant tenant even if you have done a thorough background check. For example the tenant smokes in the apartment, does not take good care of the apartment or has financial issues. As the law favours tenants more than the owners, it is terribly hard to terminate the agreement when the tenant is unwilling to leave the apartment, especially when the payments are done on time. By not seeing your apartment for a whole year, you might face the fact that you will have to do a capital renovation to the apartment after the tenant has left.
Vacancy
One must also consider that in between two tenants there is usually a vacancy period, which might be a quite long period when trying to get the maximum monthly rent. In addition to the fact that the owner does not earn rent in this period, he also has to pay for all utilities from his own pocket.
Short-term rental
Higher rental income
One of the main purposes of short-term rental is undoubtedly higher rental income. For example the average long-term rental price for 1-bedroom apartments in Tallinn is around 500 euros whereas short-term rental produces on average 20% more rental income. If you have chosen a good property manager with experience and expertise, the rental income in high season and during events might even top the long-term rental income several times.
Flexibility
In case of short-term rental the owner has the freedom to choose how and when the property will be rented out. A very common practice is to rent the property for shorter periods of time in the summer and longer periods in the off season. Many owners also appreciate the possibility on occasion to use the apartment themselves or rent it out to their friends or relatives.
Maintenance and preservation
The apartment will be maintained and checked on regular basis after each guest. This gives the owner a full overview of the apartment at any period of time without having to deal with negative surprises after a long term tenant as they tend to hang pictures on the walls and move the furniture without any prior notice.
Possibility to keep the apartment on sale
One of the main advantages of short-term rent is that you can keep your apartment on sale and show them to potential buyers almost at any given time. And on top of that you will always have a clean and well maintained apartment - which is rarely the case when a long-term tenant is living inside.
Extra costs
By letting your apartment for short-term rental you need more than just a bed, couch and a kitchen corner. The guest also needs a tv, a dining-table, kitchen utensils, bed sheets, pillows and linen, toilet paper etc. Short-term guests must feel at home and have all common needs filled. This can be organized by the owner or a property management company such as Best Apartments.
Labor intensive
Compared to long-term rental where you just need to list your property and find a suitable tenant, short-term rental is much more labor intensive. To have high occupancy you need to do much more than just list your apartment. For example you must get involved in marketing and sales, meet the guest to hand the keys and show the apartment, check, clean and prepare the apartment for the next guest etc. At times people do not understand the level of work and effort that must be put into dealing with short-term rental before they really get involved.
Higher competition, especially on low season
Short-term rental market has increased rapidly in recent years with the increasing popularity of AirbnB and Booking.com. To be competitive and visible among the crowd you must really work hard and know the basics of revenue management. Property management companies who deal with short-term property rentals have better visibility with their implemented marketing plans than private owners who manage only a handful of apartments. This is also one of the main reasons that private owners decide to exit the short-term rental market.
If you own real estate and consider entering the short-term rental market, you might want to contact Best Apartments. Short term property management companies such as Best Apartments takes care of all labor intensive work from marketing to cleaning, so that you can focus on your day to day work, yet earn monthly income as you would with long term rental.
