Investing in property can be a reliable investment strategy, but choosing between short-term rentals and long-term rentals can be difficult. Picture: Freepik
Investing in real estate has long been considered a reliable investment strategy because property is a tangible asset which offers unique advantages that can accelerate wealth accumulation over time.
This is according to Claude McKirby, co-principal for Lew Geffen Sotheby’s International Realty.
Real estate market fluctuations are generally not as extreme, and property tends to appreciate steadily over time, making it a reliable long-term investment.
“Property ownership, therefore, tends to offer better long-term financial security and, on another level, being a physical asset with intrinsic value it invokes a sense of security and stability,” McKirby said.
According to McKirby, one of the most critical decisions investors face when acquiring a property to enter the rental market is choosing between a long-term lease or short-term rentals.
Here’s a look at the pros and cons of long-term leasing and short-term leasing:
The traditional appeal of long-term leasing is because of its predictability and simplicity.
“Investors are generally attracted to the steady, predictable income stream, reduced turnover costs, and lower operational demands,” McKirby said.
Pros
– Stable income: Long-term leases provide a consistent and predictable income over the contract period, generally 6-12 months or more.
– Lower operational costs: Fewer tenant turnovers means lower costs associated with cleaning, repairs, and marketing for new tenants.
– Less time-intensive: With a reliable tenant, the day-to-day management of the property is significantly less demanding than with short-term rentals.
Cons
– Lower flexibility: Owners can face challenges in adjusting rental prices in response to market changes due to the fixed nature of lease agreements.
– Potential for long-term headaches: Dealing with difficult tenants or ensuring rent is paid on time can become an ongoing problem.
– Limited access: Owners won’t have immediate access to their property, making it difficult to use personally or sell during the lease period without issues.
The rise of the sharing economy has propelled platforms like Airbnb, appealing to investors due to potentially higher returns and flexibility.
Pros
– Higher potential income: Short-term rentals can command significantly higher nightly rates compared to the monthly rate of long-term leases, especially in high-demand or tourist-centric locations.
– Flexibility: Owners can adjust pricing dynamically in response to market demand, seasonality, and special events. There's also the flexibility to block out periods for personal use.
– Market responsiveness: Investors can quickly adapt to real estate market changes, adjusting their rental strategy as needed.
Cons
– Increased management and operational demands: Short-term rentals require more hands-on involvement such as managing bookings, communicating with guests, as well as the handling of cleaning and maintenance.
– Income variability: Earnings can be significantly higher during peak seasons but may decrease during off-peak times, leading to less predictability in cash flow.
– Potentially more volatile property values: While some coastal regions are thriving due to semi-gration, property value in holiday locations are traditionally more volatile, booming in the good times and crashing when the markets are down.
– Regulatory challenges: Strict regulations have been introduced in some regions around short-term rentals. These regulations include licensing requirements, limits on the number of days a property can be rented out, and additional taxes.
IOL Property
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