Which is better? Short-Term or Long-Term Leasing?

Any investor who owns a rental property has two choices when it comes to leasing: short-term or long-term. To be on the safe side, some investors tend toward long terms rental, and why not? Tenants are bound by a contract – usually yearly – which allows the investor to know precisely what the cash flow is coming in and, barring any unforeseen significant repairs to the property, going out.

But is this the best strategy for an investor? These days, many disagree. Read on as we discuss the advantages and disadvantages of each to help you better decide which rental strategy best fits your investment objectives.

Long-term Rentals

Predictable income and lower operating expenses are among the top reasons some investors opt for long-term rentals, especially in Dubai’s expat market. Tenants generally take care of basic operating expenses such as cleaning and utility costs, and these combined makes accurately forecasting the return on investment an effortless endeavour. Assuming a tenant with a 12-month lease pays rent.

One of the most significant disadvantages of a long-term rental is that the potential cash flow from the property is limited by the rental price agreed upon in the long-term lease agreement. Rental rates cannot be increased until the lease term has ended.

Another disadvantage of long-term rentals is the ease of property maintenance. Suppose the investor cannot schedule regular, on-site property inspections in a timely manner during the lease term. Minor issues that could have been discovered and repaired easily might become more extensive and expensive to repair later.

Short-term Rentals

By their very nature, short-term rentals are a more flexible option for investors and are the trend among investors in Dubai today.

An investor can easily adjust the rental price of a short-term rental to stay within the current market rental rates. Depending on the neighbourhood and time of year, purposefully managing a short-term rental property may generate 3 to 4 times the monthly rental income compared to a long-term rental.

With tenants renting for a limited time, a short-term rental property is much easier to maintain. Properties can be thoroughly cleaned and sanitised between tenants, and more thorough inspections can be completed. If a maintenance issue or repair is spotted, it can be remedied before the next tenant arrives.

Although higher rents can be commanded with short-term rental properties, there is the chance that the property might sit vacant for an extended period, meaning, consistent income is not guaranteed. Initial costs are higher since potential tenants expect all the inside amenities of a respectable hotel chain suite. Items such as furnishings, white goods, household items, cooking supplies, linens, utilities, cable, and internet services are all required and are the investor’s responsibility. And unlike long-term rentals, local laws may limit or prohibit short-term rentals. It’s best to do your homework to ensure the neighbourhood you wish to invest in permits short-term rentals.

Although there are benefits to both, the choice comes down to the individual investor. Those who want to be more hands-on with their investment might find investing in a short-term rental the way to go. By contrast, if a property that’s easier to manage and allows an investor to safely predict their return-on-investment monthly appeals, a long-term rental might be the best choice.