If you are thinking about investing in a rental property, it is important to consider whether you want to use if for long- or short-term rentals. Each has unique aspects and will earn you different rental rates, but may also come with different risk elements to consider.
Long-term rentals
Long-term rentals are usually for residential periods of up to 12 months (sometimes 24 months) and are generally renewable thereafter. The lease will include all of this information including the conditions of renewal.
Rental rates are set as a monthly rental which tends to be lower compared to short-term rentals, but given the longer periods, these types of rentals provide more security and stability for the property owner.
They are also not seasonal and if you invest in a high demand residential area, there is usually demand for rental accommodation on a year-round basis. The rental rate tends to escalate annually and the escalation percentage is usually linked to the prevailing CPI/inflation rate.
Provided you screen and vet your tenants properly, this should be a fairly low-risk option as you will hopefully find tenants who will treat your property as if it is their own, thus reducing the maintenance risks and costs.
Short-term rentals
Short-term rentals tend to be anything from a day to 6 months (sometimes longer) and could be for a variety of reasons including holiday tenants or business visitors.
Due to the shorter period, this type of rental tends to yield higher rental returns and will often be set as a daily rental rate. The demand for short-term rentals tends to be very seasonal, so during peak holiday seasons you might find that your property is fully occupied, but during the low-season periods, it could be vacant for long periods.
Given that you will have a lot of people coming and going in your property, it would require higher maintenance. It would need to be furnished and equipped with extras which short-term visitors will need during their stay. This would include bedding, towels, a TV, internet and basic kitchen equipment and cooking and fridge facilities.
Short-term rentals offer more flexibility and is ideal for an owner who may want to use the property during certain times of the year for holiday for example and can then rent it out when not needed.
This type of rental property though comes with higher risk as a poor tourist season could see a notable drop in demand for your property.
Choose carefully
Whichever option you choose, it is always advisable to do your research and ensure that you are not just adding to an already overstocked area.
It is always best to work with a credible area specialist who is best placed to give you vital insight into the local market conditions, types of rentals which are in demand and at what rates.