Real estate is all the rage these days. After all, despite the global economic recession and the ongoing health crisis, everybody still needs a roof over their head!
Thanks to the dynamic market and booming prices worldwide, you now stand to make a good deal of money if you own a piece of property that you can rent out. Whether it’s a single room, a studio apartment, a duplex, an entire house, or even a houseboat, there are several ways you can go about putting your place on the market to make some extra bit of cash.
On the one hand, a popular option you’ve certainly heard of is Airbnb, the relatively new, yet extremely successful San Francisco-based firm that connects hosts and guests through a dedicated web platform. It operates in over 190 countries and lists properties owned by nearly 3 million hosts. On the other hand, you can choose to lease out your place through the traditional landlord/tenant arrangement, which may provide further security in the long run. In both cases, you’ll be in complete control over the price of rent and pre-established house rules.
Meanwhile, despite these two strategies offering several advantages and disadvantages, if you’re a property owner, you may want to consider opting for a long-term rental rather than a listing on Airbnb.
So, for those who are still new to property investment, we’ve put together a useful, comprehensive guide outlining pretty much everything you need to know in order to make the most lucrative and viable renting decision.
Short-term vs. Long-term Rentals
First and foremost, many owners looking to monetize their idle properties will often wonder whether they should lease their accommodations on a short or long-term basis. The choice will naturally depend on several important factors, such as:
Where your property is located comprises a fundamental aspect of your investment strategy. For instance, if you own a studio or a 1-bedroom in a college town near the campus, your best shot would be to find a tenant for long-term rental. The same goes for multi-bedroom apartments and large houses in downtown areas or residential neighborhoods, particularly in urban centers, since there will be far more demand for long term rentals there. In contrast, if you have a condo or a penthouse in a coastal city that welcomes a lot of visitors during peak seasons, these accommodations are very sought-after and will be ideal for short term vacation-type rentals. So, always consider your property’s location and type, the kind of clientele it might appeal to, and seasonality.
State of the Market
Given the volatility of the real estate market, choosing a long-term rental over Airbnb may offer you better guarantees for the future. Now, although the demand for accommodations basically never ceases, it is still subject to a number of variables, including availability, punctual demand, cyclical price fluctuations, purchasing power, and the like. As such, you won’t have to worry so much about seeing your short-term rental unoccupied for longer periods of time, which may induce potential income loss (even though that remains a possibility with long term rentals).
Degree of Involvement
Think about how involved you want to be as an owner as far as operations go. In general, long term rentals require far less management and maintenance on your end compared to short term ones. In fact, when you lease a place over a lengthy period, tenants will be the ones responsible for utility bills and keeping up the place, yet they might call upon the landlord for major fixes like plumbing or electricity. Meanwhile, in a short-term setting, renters don’t bear any responsibility in paying electricity or water, costs which are already included in the price of rent.
On platforms like Airbnb, you can generally expect the maximum duration of a rental to be one month at a time. For long term leases, the duration is virtually endless. Now, if you’re a first-time landlord looking to lease your place in Northern UK, you should consider working with a team of property investment managers so that you can benefit from their expert advice and better understand how a long term renting arrangement can offer you more advantages over time. In any case, working with seasoned professionals is bound to make the process feel less daunting and smoother.
Property Costs and Expenses
As we’ve seen, long term wins over the short term in regard to up-front costs and ongoing expenses in most cases. Let’s go into further detail and explain why leasing your property as a long-term rental may be more beneficial, all things considered.
When you choose to invest in a property or list your existing one on Airbnb, the platform requires you to furnish the unit with everything guests will need throughout their stay. Think of it as a privatized apartment or a hotel suite. It will need to be fully furnished, with both furniture and household appliances (fridge, stove, microwave, washing machine, etc.), kitchen utensils, along with bedding, towels, and the like. Naturally, you’ll have to replace and/or restock some of these items (toilet papers and other toiletries) whenever you welcome a new guest. Likewise, all utility bills (water, heat, electricity, air conditioning, cable TV, and so on) will fall under your responsibility, leaving you with very little power to craft detailed budgets.
Traditional rentals require much less initial investment and active follow-through. This is mainly due to the fact that long term rentals are typically offered as unfurnished units, to allow the tenant to bring in their own furniture and personalize the space to their liking. As an owner, this takes a major financial burden off your shoulders. The only up-front costs on your end will include things such as paint, floorings, and making sure essential household systems are in the orderly function (plumbing, water supply, electricity, etc.). Depending on the contract, note that there may also be additional expenses for the landlord pertaining to sewer installations, garbage collection, and communal areas. In regard to utilities, it is up to the occupying tenant to pay for their electricity, gas, internet, TV, and the like.
Therefore, short term listings are great if you want flexibility and the ability to rent on and off. A major downside is that it can be quite time and energy-consuming if you choose to manage it personally. Of course, you can always hire a property management service to take care of the housekeeping and such, but that might eat into your margins significantly. Long-term rentals, on the other hand, allow you more freedom, entail less ongoing expenses, and are less demanding in terms of maintenance and property management. Furthermore, you’ll have the ability to select a tenant you will deem trustworthy and responsible enough, compared to Airbnb which presupposes that you welcome strangers in your property.
Money and Pricing
Knowing how much you stand to earn from putting your property on the market is a great consideration that will steer you towards either a short, or long-term renting option. As established, both arrangements enable you to fix the price at which you’re willing to rent your unit.
Short-term rentals do offer you the possibility to make more money, but only temporarily. Especially if you own a place in one of the popular holiday destinations or near a famous landmark, you could be sitting on a gold mine. Put simply; the higher the demand, the higher the price. And since you’ll be charging a pricey daily or weekly rent, this could potentially offset the maintenance costs. This would perhaps explain why Airbnb is proving so popular. The platform also allows hosts to adjust their pricing schemes depending on punctual demand and seasonality. Despite free listings, Airbnb does charge its hosts a standard 3% on every reservation for transactional and processing costs.
In contrast, a long-term rental is a guarantee for a consistent income stream. This is particularly advantageous seeing as, with a tenant living in your property full time, you won’t have to worry about seasonality and your occupancy rate. So, even though you probably won’t earn as much week to week, you’ll be guaranteed to receive a steady income throughout the year (provided the tenant pays his dues on time). Except for agency fees, if you choose to work with one, there will be no additional costs. Finally, you can set the rent as you please, but a sensible and well-reasoned landlord will always keep in line with market/neighborhood prices.
Insurance and Legal Matters
Making sure that you’re covered on all fronts upon renting your property is of the utmost importance. That way, you’ll be protected in the event of a disaster, theft, degradations, vandalism, and other types of damages to your property. Now, when you choose to rent on a long-term basis, you’ll need to subscribe to a special landlord insurance policy that provides coverage for property damages, late payments, asset protection, and such. It’s imperative that you conduct thorough research to find out which insurance plan will provide the most adequate coverage, as well as their cost. Renting your property long term is perfectly legal all around the world as long as you are its legitimate owner, although formalities might differ from one place to the other.
Airbnb also has certain measures in place to protect hosts and their properties against unruly guests, but in case something goes south (for example, guests organizing wild parties without the owner’s consent and trashing the place, which happened more than once in the past), you’ll need to prepare for an arduous battle in order to claim your rights and receive full compensation, if ever. Liability is not placed on the platform itself since Airbnb only claims to be a “facilitator” between hosts and guests, and that you agree to the company’s terms and conditions upon signing up. Contrary to traditional rentals, Airbnb services are severely restricted in major cities such as Los Angeles or Barcelona to avoid skyrocketing real estate prices. Make sure to check local zoning ordinances if you opt for this option.
In either case, whether you choose to be a host or a landlord, you’ll inevitably have to pay some amount of tax. Taxation laws and regulations can and do vary greatly. With Airbnb, depending on your country of residence, the number of properties you own, and the rented unit’s location, you may be subject to residential rental and/or property investment tax, along with a value-added tax (VAT) if you’re inside the European Union, Switzerland, or Norway. Nos, contrary to what many people believe, Airbnb transactions are not tax-exempt, for purposes of fairness and market competitiveness. This places them at about the same level as hotels, which, as hospitality establishments, are subject to substantial taxes.
Landlords also pay taxes on any profits made from residential rental income, contingent upon the local legislation in place and which tax bracket they fall under. In Scotland, for instance, anyone wishing to lease a property above £145,000 will pay taxes according to its value (up to 12% for properties above £750,000). There may be more taxes for those who purchase additional properties to rent out. In any case, it’s best to contact your local tax authority and do some research to be aware of what amount you’ll be subject to, to avoid any surprises and be able to forecast your final net income accurately.
In light of the ongoing COVID-19 pandemic, the demand for short-term rentals is plummeting. Due to quarantine protocols, and lockdown restrictions, more and more short-term accommodation suppliers and Airbnb hosts are desperately looking for ways to rent out their properties in the hope of making up for lost income. The current situation exemplifies one of the greatest advantages of long-term over short-term leasing for those who choose to become landlords. Once they have found a reliable and diligent tenant, they won’t need to worry about voids or unfulfilled occupancy caused by uncontrollable global circumstances. What’s more, they have fewer expenses to attend to, as they will enjoy more financial consistency and be better protected against property damages. All things considered, the advantages of long-term rentals clearly outweigh the flexibility and convenience that come with Airbnb listings.