Short-Term Vs Long-Term Rental Investing

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Many tend to assume that real estate investment is a long-term game – and yes, it is when it comes to your investment horizons. However, many investors today still believe that rental contracts must also be on a long-term basis i.e. bringing in tenants on a year or multi-year long lease and generate rental income from that single tenant. Ten or twenty years ago, that would have been your only option as an investor but today, prop-tech firms like Airbnb and property managers like AirDXB have opened the door to short-term rental leasing

What is short-term rental leasing?

Previously, the hotel industry dominated short-term leasing, with brands like Marriott International dominating the space. Today, anyone who owns a property can enter the hospitality industry through platforms like Airbnb, which enable investors to convert and list their properties as vacation rental homes or so-called holiday homes – whether it’s a studio, a three-bedroom apartment, or even a luxury mansion! You may be wondering why not simply rely on a single-tenant instead of constantly changing tenants. Actually, relying on a single tenant has its set of risks: a tenant may cancel his/her lease early, be an unreliable rent payer, or can even default on rent payments. On the other hand, with short-term rental leasing through a vacation rental home, you can easily generate consistent income through a revolving door of short-term renters like tourists, business travelers, or spring-breakers.

Why is it becoming more popular?

Today, when people visit a country or city, they want to be immersed in the culture and lifestyle. Living in a hotel is like living in an island and can break the immersion. Moreover, vacation rental homes tend to be homier, cheaper and let people live and breathe in the city – even if it’s for a short time. While hotel luxuries like room service and daily housekeeping aren’t usually available in a vacation home, more and more younger people are willing to give up these luxuries for an authentic experience and affordable price point.  

Advantages of short-term leasing

Higher income potential: Short-term rental leasing has a higher income potential, especially in a popular vacation area. A property that generates $2,000 per month from a long-term tenant can make more than double as a vacation rental as you have a higher turnover of renters and have a greater control over the price. 

Price Flexibility: See that your bookings are skyrocketing during peak season? You can increase your prices during that time and take advantage of the increased demand. That’s not possible with a long-term lease as a fixed price has already been agreed with the tenant and existing housing laws usually prevent it. While management expenses are higher as you will be responsible for utilities fees and property management fees, the higher income generated can offset these costs. 

Better property maintenance: When you’re with a long-term renter, you’re usually hoping that they don’t break a wall or glass as you’ll end up bearing the cost. With a short-term rental, all homes have to be cleaned by the tenant and any costs can be passed onto the renter. Moreover, as they’re cleaned frequently, it’s easier to identify maintenance issues before they can cause major issues. 

Management is easier: Previously, if you had a vacation rental, it was like a second job. There was a whole Mom-n-Pop bed and breakfast industry devoted to it but not anymore. Platforms like VRBO and Airbnb have made it easier and more affordable for property owners to list and advertise their properties, property managers like Air DXB are devoted to managing these vacation homes and technological advances like smart locks and security cameras make it easier to manage these homes if you live far away. It’s still more of a hassle than managing a long-term rental but it’s a lot easier than it used to be. 

Advantages of long-term leasing

Consistent income: Since a single tenant occupies the property for a longer period, long-term rentals produce relatively consistent rental income, whether it be monthly or quarterly. There’s also no need to worry about peak or off-seasons as the tenant is already living in the property. 

Easier to manage: Long-term properties require less of your time to manage, whether it’s by yourself or through a property manager. Advertising and maintenance costs aren’t as frequent as you’ll only need to when your tenant leaves his or her lease, which could be in a year or more. Moreover, turnover isn’t as high so handling new renters and making sure the property is ready to rent won’t be as much of a hassle. 

Tenant paid utilities: Tenants pay the utility bills so that’s another cost gone. They also don’t tend to worry about their water, electricity and internet bills but as a short-term rental owner, you will have to pay up the fees. 

Why is Dubai one of the best markets for short-term rentals?

short term rental - smartcrowd

You can go to London or New York and you won’t find the level of quality and value for money for vacation rentals as you would in Dubai. The city is full of international landmarks, leisure hubs, and commercial hubs geared towards tourists and business travelers. Skyscrapers with sea-facing balconies, gyms, restaurants, spas and swimming pools are everywhere and can be rented out at an affordable price.

If you’re a tourist and want all of these amenities in New York or Paris? Good luck, the price of a night’s stay will probably be more than the plane ticket! Not in Dubai though, and that’s what makes it the perfect place to have a short-term rental home. Areas like Downtown Dubai, Dubai Marina and JLT are in some of the most happening areas in the city, with canal-ways, restaurants, malls and other attractions a brisk walk away – along with public transport facilities like the Dubai Metro and Dubai Tram readily accessible. 

Moreover, with much of the world going back into lockdown, Dubai is the ultimate destination for holiday and business travelers looking for an escape. The UAE has effectively responded and handled the pandemic with a successful vaccination drive and precaution measures early on in the pandemic, so Dubai has been able to maintain itself as a leading tourism, leisure, and commercial hub of the world. 

How does SmartCrowd take advantage of short-term rental listing opportunities?

At SmartCrowd, we offer a mix of short-term and long-term renting opportunities. At the end of the day, if you invested in the property, you own it. Areas like Dubai Marina may not be great long-term listing areas, as there’s a plentiful supply and the prices are still recovering from the 2014 crash, but thanks to rising tourism rates, its central location and unique amenity lifestyle, it is the perfect area for short-term rental listing. Many of these areas are recovering and once it reaches a point that long-term listing is more profitable, it can easily be converted. That’s the beauty of having a flexible rental listing option, you can adapt to the market and still generate great returns. 

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