Evaluating Financial Return Between Short And Long Term Rental

Evaluating financial return between short and long term rental

Have you recently just bought a property for investment purpose? Are you planning to rent out your property? With so many houses available for rent nowadays, such as houses for rent in Melaka, it can get competitive in the property industry. Hence, short term rental are now a popular option among the property owners. Online platform such as Airbnb is an online marketplace and hospitality service that allows people to lease or rent short term lodging. Property owners are evaluating the financial return between short term and long term rental as both rental have their own sets of pros and cons. This article will list down the differences between short term and long term rental.

First of all, it is essential to understand what a long term lease is and what a short term rental is. A long term lease is usually a lease between 6 months to 12 months whereas a short term rental is usually 30 days maximum. The table below will list down the pros and cons of long term lease and short term rental respectively.

Long term lease   Short term rental
Stable source of income

High occupancy rate

Less hassle when looking for tenants

Tenants bear utility costs

Pros

High rental yield

Rental rate is flexible

Second home opportunity

Terms and conditions are flexible

Lesser chance for increased profit

Smaller market with fewer tenants

Inflexible terms and conditions

Possible problematic tenants

Cons

Unstable sources of income

Higher risk of vacant unit

High maintenance cost

More competitions

Both long term lease and short term rental have their own sets of advantages and disadvantages. Most landlords, however would prefer a long term lease as the tenants will be signing on a fixed period lease, usually from 6 months to 12 months, which gives the landlord more security. In addition, with a long term lease, the landlord do not need to worry on vacant units therefore, do not need to spend time looking for potential tenants. With longer lease, it also means a steady flow of income for the landlord to pay for mortgage repayment.

Do however note that having a fixed period lease will naturally mean there are lesser opportunities to make more profit for the landlord. Let us say the rental rates for properties in the same area have gone up, the landlord are not allowed to increase the tenant’s rental to match the market rate until the lease with their tenant expires.

As for short term rental, the property owners will face with high tenant turnover rate thus higher vacancy rates due to most tenants are not willing to be tied onto a long lease. A short term rental however is great way to earn more money from vacationer as it costs much lesser than staying in a hotel. For example, staying 3 nights in Sunway Hotel Georgetown will cost approximately RM1,700 whereas staying in a 3 bedrooms apartment in the same location will cost only approximately RM630 on Airbnb.

Although property owners who offer long term lease will have harder time looking for a tenant, property owners that offer short term rental do not have it any easier as they are facing competition as well. One of the pros of having short term rental is that the owners will be able to charge extra to make up for the security while arranging for the rental. It will also be a win win situation for the tenants as they do not have to pay for maintenance fees and are able to leave as soon as the rental ends. That being said, property owners will have to make sure that the rental collected will be enough to cover the utility bills such as electricity bill, water bill and Internet. As soon as the tenant moves out, the owner will then have to start advertising the unit and prepare the for the next potential tenant by fixing wears and tears, painting, cleaning, replacing fixtures and so on, which will cost additional fees.

In addition, do take note that platform such as Airbnb charges the host a 3% host service fee when a booking is done through their platform. A 3% service may not look like it is a lot, but it can sum up to quite a bit of amount if you engage in their service regularly.

In conclusion, both short term rentals and long term lease have their own sets of pros and cons. There is no hard rule as to whether to lease your property on a short term rental or long term lease will provide more financial return. Do know your target groups, such as students, young working adults, expatriates, tourists or corporate tenants before deciding on which type of rental. As long as your property is located in the right area and managed well, your investment will definitely provide you a rewarding financial return.

About Encik Mus

Nama saya Encik Mus sebagai penulis blog ini. Penulisan dalam blog ini adalah pandangan peribadi saya dan tidak dibenarkan menerbitkan semula kandungan blog ini di media yang lain tanpa kebenaran saya. Sebarang pertanyaan boleh anda buat melalui halaman "Hubungi Saya". Terima kasih.

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