Head to Head - Short Term vs Long Term Rental

#short term rental, long term rental

Head to Head - Short term vs Long term rental

With the rise in tourism, earning income from Short Term Rental (STR) has become quite popular as of late and many choosing to follow this route have seen huge income returns. However some apartment owners are still skeptical of the ever-changing STR market. This article will walk you through the benefits and shortcomings of both methods in order for you to make an informed decision as to what will meet your needs.

Long Term Rental - the benefits

  • Steady income potential
    Certainly one of the main advantages of Long Term Rental (LTR) is having a steady stream of income. Even if the income is lower than it would be during high season, the predictability of the amount you will receive each month can give you peace of mind and allow you to focus on other activities.

  • Less turnover
    LTR often involves less paperwork, less cleaning and less hassle. In addition to this, you will not be constantly tied to your cell phone or laptop answering emails from possible upcoming tenants.

  • Ongoing maintenance
    Depending on how much you charge as your security deposit, most long term tenants will take more care of your property in comparison to short term tenants.

  • Less hassle with neighbours
    Neighbours may not like having tourists coming in an out of the building at all hours of the day, especially if they do not keep their noise levels down in the evening. This could lead to several issues with neighbours in apartment buildings.

  • High security deposit
    When it comes to LTR, you can often charge high security deposits which will be returned to the guest at the end of their tenancy unless any property damage has occurred.

Long Term Rental - the shortcomings

  • Lower income
    Though you will rest easy knowing that your property is fully occupied for a certain number of months, you will also rent it out for a lower amount thus your monthly revenue will be far less than you would typically earn for your property with STR.

  • Risk of delayed payment
    Some tenants can be difficult and may refuse to pay you their rent due to financial problems, for example. The risk of this occurring is reduced via the use of platforms such as Airbnb and Booking.com, which ensure that they guests pay for their stay without fail.

  • High tax on income
    The taxes paid by owners of LTR are far higher than those paid for STR.

  • Less flexibility
    It is impossible to plan spontaneous trips to your property if you have a tenant living in your home. This can be a turnoff for many owners who are renting their property out simply in order to gain a little extra income in the months that it is not being used. In addition to this, If a tenant stops paying you or does not want to leave then you must go through the very long and painful procedure of eviction.

  • Wear and tear
    It has been proven that LTR can cause more damage to the property in comparison to LTR. This is primarily because if you rent out your flat on STR, you benefit from being able to inspect the property between each guest's stay in order to ensure everything is in working order and replace the things that need replacing in order to receive good reviews. However, it is almost impossible to check up on your property if it is being rented out long term; it is likely you will have to give up to a weeks notice to your tenant before dropping by for maintenance and security checks, this is if the tenant agrees to let you do so without any hassle, which may not always be the case.

  • Difficult to sell
    Selling the apartment can become a long and tedious process for the owner due to pre-emption rights and the tenant not wanting to move out of the apartment until his contract expires.

  • Location restrictions
    Some areas are not suited for long term rentals due to their party atmosphere, such as Bairro Alto. In addition to this, there will be different laws, restrictions and licenses that need to be taken into account before renting your property out long term. This can often be stricter and more costly than simply renting the apartment out short term.

Short Term Rental - the benefits

  • Higher income potential
    You can comfortably charge more depending on your area ́s low and high seasons and also set the minimum stays to 2 days or more in order to ensure you receive maximum profits.

  • Tax incentives
    Many rental owners are entitled to certain tax breaks or deductible property expenses because the property is not being rented out long term. There are key tax incentives on doing STR with your personal tax will apply only to 35% of the revenue versus a fixed 28% on LTR. For non portuguese residence, the effective tax rates becomes 8.75%.

  • Flexibility for owner stays
    Fortunately, when it comes to STR you can decide to spontaneously stay at your apartment without having to ask a tenant to move out for a weekend. It gives you an opportunity to actually enjoy your property and its location with ease.

  • Sell your apartments in a reasonable timeline
    If your apartment is not rented out to a long term tenant, you can easily decide to sell the property if need be without having to cut a tenant ́s contract short and convincing them that they need to leave your apartment within a certain number of weeks.

  • Potential damage covered by the platform's insurance
    Platforms such as Airbnb, Booking.com and Tripadvisor protect your property and give you a lot of peace of mind by allowing you to charge the guests security deposits. They also assist in mediating between you and the guests when it comes to serious matters that cannot be resolved on your own.

Short Term Rental - the shortcomings

  • Maintenance
    Great reviews equals more bookings. To ensure you keep receiving great reviews, you will need to keep up with issues such as drain clogs, creaking hinges, bathroom leaks and deep cleaning. The more guests you host at your apartment, the more potential there will be for wear and tear on your property. This can end up being a full time job for you as the property owner.

  • Seasonality
    STR is often faced with high and low seasons; thus there will be times when your property will be sitting empty and you will not be receiving any income. You can lower your nightly rates to compensate for the low season, but bookings are still not guaranteed.

  • Competition
    The STR market in Lisbon has become quite saturated and competitive as of late so it is very likely for your property to not stand out from the crowd or get lost in the pages and pages of listings on Airbnb if you do not have photos or amenities that stand out from the rest of the crowd. Thus it is becoming even more difficult for property owners to receive as many bookings as they used to a couple of years ago. It is safe to say that the conditions may worsen as time goes by.

  • Too many things to manage
    Managing the check ins and check outs, responding to the reviews, ensuring that the property is fully functional and that it is impeccably clean for your upcoming guests can be quite difficult for one person to manage on their own.

Intrigued about how much better your investment would be on STR vs LTR, but not completely confident about handling it all on your own? We have got you covered. We as LovelyStay can help you with your STR by doing the following:

  • Intelligent pricing system: Daily adjustments of prices to match the supply and demand for a given date at a given location with the aim to maximise the revenues of the owners

  • Team of professionals to manage your property allowing greater service to guests such as concierge services, leading to better reviews and performance. Professional and regular maintenance preventing from flat deterioration.

  • Cutting-edge technology allowing owners to access 24/7 to get access to details on the activity of their flat

  • Powerful channel manager integrated with the leading platforms allowing more visibility, thus more bookings

Written by: Ismat Ara Khan

21 June 2019


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