Are Short Term Lets Worth It?
The property market in any given area should be as diverse as the characteristics of the different people within it. So in a wide and prosperous market there should be niche areas that don’t necessarily appeal to everyone, but are perfect for someone and will certainly cater for a sizeable demand. People have different lifestyles and changing circumstances and the property market needs to reflect that, which is why the emerging market for short term lets is gaining momentum, particularly in big cities.
Services such as Airbnb have gained popularity for the flexibility they offer, and this has led to variations on the theme of serviced apartments and has triggered the short term let market into offering all-inclusive living on a flexible basis. This is beginning to appeal to more and more people, so let’s take a deeper look at short term lets as a flourishing area of the market for existing and prospective landlords.
What is a short term let?
There are no strict parameters for what constitutes a short term let, and in that sense, the name is quite literal. The general rule of thumb is that a short term let can cover a tenancy of a few days up to six months. After that a tenancy is considered medium term, and anything over 12 months is considered to be long term.
Short term tenancies typically include all bills, including utilities and council tax, because the short term nature of the tenancy provides convenience and hence, the tenant wants one cost to cover everything. In the same vein, the property should be fully furnished and ready to move into, as the tenant has no time to think about providing their own home comforts.
As a result of this convenience a tenant will expect to pay a premium, and short term lets are typically priced at around 30% more than a comparable long term let. And because of the nature of a short term let, such properties are a little harder to find. They only appeal to a select band of landlords and tenants, so there are less of them, but there is still a healthy demand for short term lets.
Who do short term lets appeal to?
In the 21<sup>st</sup> century we have evolved to become far less bound by convention. Flexibility is something we have built into lifestyles, work patterns and even where we live. This is particularly true of young professionals, but in all walks of life we are learning that ‘commitment’ can mean many different things, and with property that doesn’t necessarily mean a long term commitment.
So short term lets can appeal to many different people in many different scenarios, such as:
People on a short term work project or secondment in a new city
Business travellers and corporate tenants
People waiting for a property purchase to complete
People having their house renovated with a new kitchen or bathroom
People travelling or enjoying a staycation in a big city
People looking to move to a new area and wanting to research and get a feel for it before committing
Contractors working on a development and who need accommodation during the week, but might travel “home” on a weekend.
In many of these above scenarios the alternative is a hotel, but this can become impersonal, dull and expensive. A short term let allows people to enjoy some home comforts, more space and flexibility and somewhere they can entertain friends, family and maybe business clients.
Why would a landlord be attracted to a short term let?
In simple terms, a landlord is attracted to short term lets for the same reason a tenant would be, it solves a short term problem and offers some flexibility. A serious property investor will always build diversity into their portfolio of properties, and this also includes short and long term lets. It means that the landlord is not over-committed to certain income streams and can draw on income as and when they need it – short term cash for short term needs - so short term lets are useful to mix into a range of other properties which are perhaps on longer term lets.
The most common reason why landlords get involved in short term lets, however, is that they are planning on selling the property. This might be in six months’ time or it may be on the market now. Either way, the landlord can’t afford for the property to be empty whilst they sell it, or at least it doesn’t make financial sense to leave it empty. So a short term let offers a handy income stream whilst the property is sold, and the landlord can be flexible in adding weeks and months to the lease as applicable. This way, the landlord doesn’t have to wait for the tenancy to end before they can put the property on the market.
In big cities there should be high demand for rental properties, and a savvy landlord who picks a property in the right area, will know that demand will see tenants take a property on any rental basis. So they might take a short term rental even if they are wanting a long term rental, as long as the property is sufficiently appealing. Sometimes a short term let applies some breathing space whilst a tenant re-assesses their plans. This outlines why it is important that the landlord maintains the property as ‘ready to move into’ at all times, as it always has the potential to solve a short term problem for somebody, and possibly at a few days’ notice.
Pros and Cons of a short term let
For the tenant, the advantages and disadvantages of a short term let are quite obvious. They are not over-committed to living in a certain property and area, which might suit their present circumstances, and they have a fully-furnished all-inclusive property, albeit they are paying a small premium for this convenience.
However, what are the pros and cons of short term lets for the landlord?
Lucrative - Quite simply, short term lets are more lucrative for a landlord. They can take advantage of the convenient nature of the property and charge a premium for this, compared to a similar property on a long term let.
No void periods - As previously mentioned, a short term let can enable a landlord to earn an income right up to the point of selling the property, and hence can help avoid the dreaded void periods that are difficult to budget for.
Flexibility - Short term lets allow landlords to add weeks and months to the tenancy should a property sale be stalling.
**Evicting bad tenants **– On a short term let the landlord doesn’t have to worry about the problem of evicting poor tenants, ie. those who cause nuisance or pay rent late etc.
**Repeat lets **– It is common for short term lets to benefit from repeat tenants, ie. the same tenant comes back at a later date or stays on in the property and signs up for repeated short term lets.
**Usage **– If the property is in a suitably attractive location, there is always the option for the landlord to use the property themselves, as a weekend retreat or staycation venue.
**Work **– A short term tenancy undoubtedly means more work for the landlord, unless they pay a letting agent to manage the property. The landlord will need to market the property, find tenants, arrange contracts and deal with maintenance issues, and of course the more regular turnover of tenants increases this workload.
**Insurance **– Insurance cover for the property may be more expensive because of the increased risk posed by a higher turnover of tenants.
**Wear and tear **– The more frequent changeover of tenants may lead to increased wear and tear on the property. The short term nature of the property typically leads to tenants taking less care of it, which may result in more upkeep costs.
**Nuisance **– It is not uncommon for neighbours to complain about short term tenancies. Some tenants may become a nuisance, but generally a regular changeover of tenants makes local people unsettled and anxious about nuisance, safety and security in their neighbourhood.
Are short term lets worth it?
Ultimately this will be a balance between the pros and cons outlined above, and whether the more lucrative income the landlord receives and the flexibility benefits outweigh the potential hassle. This could be a simple case of doing the maths. But there are some considerations to bear in mind too.
A landlord will need to check with their local authority before going down the short term let route. Some councils have restrictions on properties whereby they will only allow a minimum three-month let. The landlord should also check with their mortgage lender, because they may need to apply for a ‘material change of use’ for the property, if a short term let is taken on.
Presuming the landlord gets the go ahead, short term lets can provide useful income at a vital time, and allow flexibility to further property development ambitions by enabling a subsequent property purchase to progress. This could be the key to a landlord’s plans and certainly, if a short term let suits a person’s circumstances, it can be beneficial to all parties. And don’t forget, perhaps the most convenient aspect of a short term let is that there is nothing stopping the landlord switching the property to a long term let, and vice versa, if the arrangement isn’t working out.