In an increasingly connected and globalized world, housing needs are shifting. While 12 months is generally the standard lease term between renters and landlords, the number of short-term rentals is on the rise. Whether it’s a student looking for temporary accommodation, a traveler in the area for an extended period of time, or someone testing out a new neighborhood, everyone’s housing needs are unique. If you haven’t considered it until now, it may be worthwhile for you to offer short-term leases to widen your reach. But how does a short-term lease differ from a long-term lease, and what advantages and disadvantages should you be aware of?
Short-Term vs. Long-Term Leases
A short-term lease is any lease that lasts six months or less. You’ll see this most often as month-to-month leases, where a lease is renewed monthly until either the resident or landlord gives a move-out notice. Short-term leases are often used to extend existing leases, but that doesn’t mean you can’t offer them from the get-go if you deem the benefits advantageous.
Long-term leases, on the other hand, are any leases that last 12 months or longer. This is traditionally the standard lease term in most markets and what you’ll deal with most as a property manager.
Both lease types have their benefits and drawbacks, but we bet you’ve defaulted to the long-term route without considering how a short-term lease could help your business. So what are the advantages and disadvantages to consider?
Advantages of Short-Term Leases
Opportunity to Charge Higher Prices
The reality is, short-term leases are more expensive for both the renter and the property manager, so rental prices will reflect that. Although a short-term lease will cost you more upfront, you also have the opportunity to charge higher rent prices, increasing your gains in the long run. Plus, with a shorter term, you’ll have the opportunity to increase the rent amount on your units with every new signing.
Lower Commitment Requirement
Have a nightmare resident? With a short-term lease, your commitment to keeping them around is much smaller. An eviction is an expensive, complicated, and lengthy process – a process you can avoid. If you’re dealing with a short-term lease, all it takes is proper notice that the lease of a bad resident won’t be renewed after the term expires.
More Flexibility in Lease Updates
Similar to your ability to increase rent more often, you’ll also be able to update other elements of the lease quicker than you would be able to otherwise. From policies around security deposits to property rules around pets and smoking, you may find the initial terms you agreed to need modification. With a short-term lease, you can update these policies more often, offering you greater flexibility than its long-term counterpart.
Disadvantages of Short-Term Leases
Less Stable Cash Flow
With a long-term lease, you can count on a fixed income for a longer period of time – point blank. Agreeing to short-term leases with your residents creates more frequent uncertainty around whether you’ll have a filled unit generating income or a vacancy hurting your bottom line.
Cost of Resident Turnover
Getting a unit ready for a new resident is a costly process, averaging around $4,000 per turnover. From advertising and marketing to repairs and maintenance; the more often you’re replacing residents, the more often you’ll face these costs. As we mentioned earlier, this is a big reason short-term rentals are more expensive, so it’s up to you as a property manager to understand if it’s worth it from a financial standpoint.
What It Comes Down To
At the end of the day, the question is whether that flexibility and potential for higher earnings are worth the uncertainty and higher costs associated with frequent turnovers. If it is, you’ll be dealing with much more paperwork, so be sure to stay on top of it to optimize your operations.
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