Long-term vs short-term rental
Category Newsletter: Article
The Atlantic Seaboard and Cape Town City Centre are ideal locations for both long-term and short-term rentals. Given the abundant amenities and proximity to the best the city has to offer, generating income from either rental strategy is possible.
But in a changing economic climate, it's not only about generating income but generating it consistently and sustainably while making investment properties pay their dividends.
The debate about which is better is more prevalent now than before.
In this short-term vs long-term rental comparison, we highlight everything you need to consider before making the decision.
Short-Term Rentals: Benefits and Drawbacks
Short-term rentals became exceptionally popular because of players like Airbnb. The kind of peer-to-peer holiday rentals that didn't require the infrastructure or investment in something like a guest house or BnB.
Benefits of Short-Term Rentals
For those who've been fortunate enough to benefit from short-term rentals, there are endless benefits. But for most owners, these are the provable benefits.
Fluctuating Rates Earned Daily or Weekly
Peak season rates can make a short-term rental profitable in a few days. These large advance payments often mean you can pay the bond, save for quieter seasons, and have spending money for your peak season adventures.
Limited Risk in Non-Payment
Guests pay for their entire stay upfront. You can offer discounts for extended stays and attract travelling freelancers or frequent visitors who could pay for a months-long stay at premium prices beforehand. These upfront payments limit the risk of non-payment.
Drawbacks of Short-Term Rentals
Although the benefits surround making money, the drawbacks do as well.
Cancellations
If you have someone booking your beachfront apartment months in advance for the festive break, you can benefit from that cash flow well in advance.
But it's not a guarantee. That guest can cancel their trip within days of their expected arrival, leaving you with open slots that may not be easy to fill closer to the dates.
Inability to Assess Tenant Quality
For most short-term stays, there is very little or no tenant screening.
Tenant screening is especially important to assess the calibre of a tenant. If a tenant is staying for more than three months.
Turnover
Rentals are like a business. Every time you get a new tenant, that's a cost in time and money. You'll have to inspect and clean before another guest arrives. This could be a multiple-time-a-week occurrence, forcing you to spend time and money upkeeping the unit for the enjoyment of the next short-term stay.
You have recourse if someone breaks a glass and you can recoup your cleaning fees, but what if they break an appliance or cause extensive damage? This costs time and money.
Long Term Rentals: Benefits and Drawbacks
A long-term rental is anything above six months, but most owners and agents prefer a 12-month rental term to mitigate lost revenue during the months a unit is empty, awaiting new occupants.
Benefits of Long-Term Rentals
Long-term rental benefits are well-documented and easy to access.
Cost
Typically, for long-term rentals, you'll rent the apartment or home unfurnished. Besides a coat of paint and some crack filler, before another tenant moves in, there won't be much expense.
If you notice damage caused by the tenant, you can deduct the cost from the damage deposit.
Tenants
You have greater control over who gets your apartment or home. Often, your letting agent will present options to you after vetting prospective tenants.
Renting to long-term tenants, you have access to references, including the previous landlord, credit and background checks are performed on the primary tenant and any adult residing on the property.
Strict rules can be enforced to maintain the value of the property and your reputation as an owner/investor among other unit owners.
Drawbacks of Long-Term Rentals
Long-term rentals only have one drawback, the most prevalent and the most obvious:
Non-Payment
The worst that can happen to most owners is non-payment. A tenant who refuses to pay either due to hardship or opportunism can cost you more than a few months of lost revenue.
Legal fees, unpaid rent, and repairs often go unrecouped in a scenario where an advantageous outcome is a quick and pain-free eviction.
Can You Have the Best of Both Worlds?
Some owners have tried to embrace a strategy that enables them to benefit from peak season pricing while ensuring a unit has occupants throughout the quieter months. Typically, an unconventional nine-month lease agreement will be offered on a furnished unit.
In these instances, owners often lose.
Some of the best tenants will want a 12-month term, with plans to stay for two, three, four, or five years.
Author: Coastal Property Group
