Choosing between a long-term tenant and a revolving door of holidaymakers can be a tough call for property owners. Each option offers its own unique set of advantages and disadvantages, and the best choice for you will depend on your individual priorities and circumstances. Here's a detailed breakdown of the pros and cons to help you decide:
Long-Term Let:
Pros:
Stable income: Predictable monthly rental payments provide consistent cash flow for budgeting and financial planning.
Less work: Once the tenancy agreement is signed, management involves collecting rent and handling occasional maintenance.
Straightforward agreemnts: Assured Shorthold Tenancies (ASTs) are the standard format, requiring fewer legal complexities than short-term lets.
Tenant screening: Thorough checks mitigate the risk of bad tenants through credit references and guarantors.
Reduced wear and tear: Long-term tenants generally treat the property as their own, leading to potentially lower maintenance costs.
Tax benefits: Depending on circumstances, mortgage interest tax relief (MIRT) and wear and tear allowance can offer some tax advantages.
Cons:
Lower potential income: Long-term rents typically lag behind peak rates achievable with short-term lets.
Vacancy risk: Finding a good tenant takes time, leaving the property potentially empty and generating no income.
Long-term commitments: ASTs usually run for 6 months or 12 months, limiting flexibility if you need to reclaim the property.
Tenant issues: Dealing with difficult tenants can be time-consuming and stressful, involving potential evictions and legal processes.
Management responsibility: You're responsible for repairs and maintenance, unless specified in the agreement.
More legal and regulatory hurdles: Long-term tenancies are subject to more complex regulations and legalities compared to short-term lets. Further changes are propsed in the forthcoming Rent Reform Bill due in spring 2024.
Limited rent increases: New procedures for increasing rent in the Rent Reform Bill will enable tenants to challenge rent increases
Short-Term Holiday Let:
Pros:
Greater income potential: Peak season rates can significantly exceed long-term rents, particularly in popular destinations.
Flexibility: Adjust rates based on demand, reclaim the property for personal use, and experiment with unique rental offerings.
Tax advantages: Furnished Holiday Let (FHL) status offers potential tax reliefs on mortgage interest, business rates, and capital gains.
Potentially lower maintenance costs: Guests are often responsible for minor damages and cleaning and as the property is inspected regularly at each changeover, potential problems can be quickly identified and fixed
Cons:
Unpredictable income: Fluctuating occupancy can lead to inconsistent income and potentially gaps between bookings.
Much more work: Frequent cleaning, linen changes, guest communication, booking management, and marketing require significant effort.
Increased wear and tear: High turnover can lead to more frequent maintenance and replacements.
Complex regulations: Short-term lets may potentially face stricter regulations in the future, such as licensing requirements, and potential planning restrictions in some areas.
Security concerns: Potential risks of property damage, theft, and noise complaints from neighbours, particularly in party regions.
Additional factors to consider:
Location: Demand and potential earnings vary significantly depending on the area, tourist hotspots, and proximity to amenities.
Property type: Studios, apartments, and smaller units often fare better for short-term lets, while houses appeal to families for longer stays.
Mortgage terms: Some mortgages may restrict short-term lets, so check with your lender.
Seasonality: Income can be seasonal in some areas, with peak periods concentrated in summer months.
Online platforms: Utilizing platforms like Airbnb and Booking.com can increase marketing reach but come with significant fees and management requirements.
Ultimately, the best choice depends on your individual needs and goals. Consider your desired income level, workload tolerance, risk aversion, and long-term plans for the property. Carefully weigh the pros and cons of each option within the UK context to make an informed decision that suits your specific circumstances.
Whatever option you decide to take, you can always call Cambridge Homehost for impartial advice and help. We can work with you to assess the market in Cambridge, discuss your precise needs and run the numbers.
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