Short-term rental (STR) nowadays is considered to be a decent way to gain profit faster. Proved by how Airbnb properties have been mushrooming everywhere in the world, making it the main alternative to hotels. The affordability of a cost, cultural mix and the opportunity of bonding relations with the local make travellers stick to peer-to-peer accommodations.
If you are still questioning whether or not you should start to invest, PropSocial has broken down the benefits – beyond financial matter, that outweigh the obstacles galore.
What is the difference?
A short-term rental is basically described as a rental period under one month, or in most cases range from one night to several weeks. The Airbnb revolution has opened up an easier way to gain a lucrative opportunity. Since then, short-term rental has become a common choice for travellers, especially on festivities, when a nice-but-small hotel room costs a pretty penny.
Surging in popularity everywhere in the recent years, there are three main reasons of why people tend to choose short lets - economy, authenticity, and convenience.
Unlike vacation rental, a long-term accommodation typically refers to the way you lease out a room or a unit of an apartment for a period of four months and longer, which usually makes you have lesser control over your own property.
1. Earning Potential
This is of utmost importance in any kind of investment. STRs can be extremely profitable, up to 30% higher rates and yields than long-term lets, or 2 to 5 times more gross profit compared to traditional rent. Besides that, you will be able to raise the price depending on the demands. If there is a special event or during holiday seasons, you can always double or triple nightly price as you wish.
This strategy, nonetheless, also relies on the location of the property, its proximity to the city centre and public transport available in the area. Refer to our previous article which explained just how profitable Airbnb is.
Long-term rental says: You may get a constant cash flow every month for a long time period, although it is generally discounted by up to 40% compared to STR. It is also likely impossible to charge higher around seasonal peaks.
2. Flexibility
You will be able to get more flexibility by being a host or homeowner. Firstly is to create tighter house rules (no smoking, no parties, no pets, etc.) to avoid dealing with unwanted hassles. As an owner, you can also block certain dates for personal use – whenever you want, without inconveniencing anyone. This is perfect for those who want an opportunity to use their property as a vacation home.
Long-term rental says: Although you will have less turnover, you will not be able to use it as often as you might like. No more quick spontaneous trips because as a landlord you have to choose the dates well in advance. You also have less control and restrictions over your home because you are not staying there and you cannot check it regularly.
3. Maintenance
As reviews are the bread-and-butter of the rental industry, in terms of short lets, you have to keep up with issues such as bugs, cleaning, leaks and furniture maintenance. The more the guests staying in your property, the higher potential there will be for wear and tear. Of course, you cannot let that happen, because as a host you have to ensure your guests’ comfort in order to receive five stars reviews.
However, unlike long-term rental, as a host of STR, you are able to inspect the property for each guest’ booking. This is necessary to check if everything is in working order and that nothing is broken or damaged. Although it can be challenging and may require high time commitment, you might take it as a preservation of your own property.
Long-term rental says: A good side is that your tenant will be responsible for taking care of maintenance and pay for the bills (electricity, internet, water, etc.). However, how if someone is forgetting to replace an air filter, putting holes in the walls with paintings, redecorating, letting the lawn get out of control, or causing other problems? We all know that no one treats your home better than you – and you can’t inspect it frequently.
4. Red Tape
In Kuala Lumpur, the government stated peer-to-peer (P2P) lodging such as Airbnb is legal. The nature of travellers drawn to cheap prices and comfort makes Airbnb a popular option in Malaysia. Although The Urban Wellbeing, Housing and Local Government Ministry has no plan yet to set out a new legislation about this, as long as it used for residential purposes and has no foul play then they have no authority to stop it from operating.
However, the regulations in every city are different. Some local municipalities are cracking down on STR by insisting on a three-month minimum, and others cap the number of days a dwelling can be rented. Before you decide where to invest, you have to understand how the laws work in your choice of location. While Airbnb only provides a guideline for the hosts in the United States, you can read other 10 cities’ regulations here.
Long-term rental says: The regulations of traditional rental are not as complicated as the vacation rental. There are two types of tenancy agreements in Malaysia; tenancy for no more than three years, or lease when it exceeds three years. However, the number of tenants looking for a long-term rent is much lower than the number of guests looking for a short-term rent. The cons are, it is difficult to find right tenant and the risk of having the property vacant for long periods of time is rather high.
5. Community Rewards
Not only does it contribute to the sharing economy, STRs also present community rewards. In the globalisation era, many people believe in the modern way of living and thinking, and STR has been giving a positive impact – by promoting tourism in a local community. The Airbnb for example, where most of the hosts not only publicise the features of the property, but also the unique events and attractions which usually only the locals know.
Airbnb travellers tend to stay longer and spend more in diverse neighbourhoods throughout the city, as compared to other typical visitors. Moreover, 42% of guest spending is in the neighborhoods where they stayed. All in all, short lets benefit local economies across the world by supporting residents, local enterprises, as well as encouraging cultural exchange.
Long-term rental says: If you rent out your property on a long-term basis, you don’t get those privileges mentioned above. Nevertheless, you surely will earn profit through appreciation – your property value increases time by time, and your rental price does as well. Those who want a stable income and not-so-ready for challenges will more likely choose to invest in a long-term rental.
Conclusion
Running an STR is not just an empty room, a vacation home or an apartment that you rent out. It’s beyond the benefit of earning some extra cash as long as you plan everything to handle the barriers. It’s just as same as you take a challenge for a new adventure.
Now that you have the information, where to start? Well, pick a city that you want to have your first vacation home. Take a look at these best locations to invest in Airbnb to give you some insights.
Let us know what kind of property you’re looking for by dropping an inquiry here. PropSocial will help you in making the best decision for your property by giving real and honest neighbourhood reviews.
(Written by: Dara Puspita, 7th June 2018)
