Annual Rental Versus Short-term Rental
In running a property business, you will need to decide whether to lease the property on an annual basis or go for a short term rental (STR). There are many variables at play, and there are pros and cons to consider.
If youre still weighing your options, here are some of the benefits and drawbacks to annual rental vs short term rental
Annual Rental
Advantages
Income is more stable The landlord enjoys greater stability. He knows that the tenant cannot terminate the lease for the next 12 months. Since the lease term is long, income is more consistent than STR.
No re-rent after a month Given the length of the lease, you will interact with only one tenant during the year. Yearly tenant turnovers mean that you have more time to spend for other real estate investment prospects.
Usually comes with a penalty called Liquidated Damages If the rentee needs to terminate the lease early, they will have to pay you the equivalent amount of 2 months of rent.
Screen prospective tenants There will be times when a rentee will talk to you about renting your property at a future time when the current lease has expired. This can give you enough time to screen prospective rentees. You can conduct interviews with them, and check their credit status and their employment status.
Disadvantages
Cant get rid of current occupants If you have issues with your current tenants, you cannot remove them while the lease is still in effect.
Raising rent is unlawful You will receive the same payment every month as stated by law.
Less control over the property You cannot check the property often. Tenants do not welcome frequent checks by the landlord, and they value their space and their privacy.
Property is rented only once per year If you are allowed to rent your property only once per year and the tenants need to vacate the house, the property will remain vacant until the lease terminates.
Short-Term Rental
Advantages
Earnings potential Guests look for a comfortable home with many more amenities compared to a hotel. They will compare prices and if there is not much difference, they will opt to stay at a house which is bigger than a hotel room.
Less wear and tear Usually, guests will stay for a few days or weeks, because they are there in your property just to spend a short time on a vacation away from home.
Tax benefits You can deduct related expenses if you rent the property at a minimum of 14 days during the year.
Disadvantages
Gaps in income You cant be sure that there is always someone to get your property. It can be vacant in some months.
More time for management There will be lots of check-ins and check-outs throughout, so that will consume a lot of your time. You will clean the place frequently, correspond with incoming occupants often, and arrange details for a different set of requirements every time there is a new tenant.