Short-term vs. Long-term rental: which one is better?
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For several years, short (or weekly) rentals have undergone a significant growth in the markets, especially in the tourists ones like Lake Como, that has always been a magnet for foreign citizens from all over the world.
So a question can be interesting for the owners of real estates: what’s more advantageous, a short-term or long-term rental?
Let’s see in details both types of contracts and what they entail.
What defines a short-term rental?
A short-term rental, or vacation rental, is the renting of a furnished property for a short-term stay (daily or weekly basis); it’s regulated by a temporary contract that must be renewed periodically in order to maintain its validity.
Many holiday home owners rent their property during the so called "high season" or when they know they won’t use it themselves.
Tourist rentals relate to stays of up to 30 days and do not require registration of the contract with the Income Revenue Agency.
Over the past few decades, vacation rentals have become a popular alternative to hotels, as they’re generally far cheaper. They have found particular success thanks to internet portals (Airbnb, HomeAway, etc) which manage supply/demand quickly and easily.
What are long-term rentals?
Long-term rentals, unlike short-term ones, are rentals lasting at least 30 days; they can therefore be monthly or yearly.
In this type of contracts, the tenants pay the owners a monthly fee and a security deposit. In addition, they pay the bills for all the utilities (gas, electricity, water and rubbish).
The contract must be drawn up and registered with the Income Revenue Authority.
Long term contracts: pros and cons
5 Pros
Certainty of the income for a long period of time.
Expenses charged to the tenant: the tenant who lives permanently in the house will have to pay the related condominium expenses, where applicable, as well as the tax on rubbish and water, plus the costs of electricity, and gas. All these are paid on top of the rental fee.
Stability. A long-term rent implies less worries related to the administration of the property (paperwork, cleaning, key delivery, bookings, marketing, etc.). Once the tenant signs the rental contract, the length of his stay is known.
No need to furnish/equip. Tenants often have their own furniture to move into the new home. With long-term rent, not only will the owner get a guaranteed monthly payment, but he won't have to buy new furniture for the property. The owner doesn’t have to provide all the services that are essential for short-term rentals, like internet connection, sheets and towels, cutlery, etc.
Deposit. The owner doesn’t have to be concerned about payments or damages to the property: a substantial deposit is required for long-term rentals (usually equal to 2/3 monthly fees), which will be returned to the tenant at the end of the rental period, unless damage has been caused to the property or overdue payments are outstanding.
5 Cons
Reduced flexibility. Unfortunately, with long-term rentals, it’s not possible for the owner to use the property during the summer months or for Christmas holidays. It goes without saying that tenants can’t be asked to leave the house for a weekend or for a week every now and then.
Less control over the status of the property. By renting on a short-term basis, the owner is able to inspect the property between the entrance of one guest and the other; for long-term rentals, this is a bit more complicated, as the an advanced notice must be given before being able to enter the property.
Lower prices. The daily price applied for stays of several months is lower than a short tourist stay. It can be around 45/50% lower, or even less.
Difficulty in finding the right tenant. When someone has to stay in our home for a long time, it takes time to assess whether they’re the right person. The owners need to have some time to screen candidates and check any references before drafting the contract; conversely, for short-term rentals, the process is usually much simpler, as the booking is often immediate.
Default risk. It may happen that over a long period of time the tenants go through periods of difficulty or lose their job; those who enter into a long-term contract and move their fiscal residency may want (or need) to stay even without being able to pay the monthly fee for a while.
Short-term contracts: pros and cons
5 Pros
Minimum risk of arrears. Payment is usually made in advance and arrears should be almost always avoided.
Greater flexibility. A few days contract means that if the homeowner needs the property for personal reasons, he/she doesn’t have to respect the notice period to enter the house.
Earnings. With short-term contracts, it’s possible to achieve a gain that - on average - exceeds the rent required on the long-term contract market by 10/15% (depending on high/low season).
Carefree. Considering having the rent managed by professionals (real estate agencies), the owner could enjoy the income without even knowing the tenants and their requests, nor dealing directly with the payment of the commission, agreeing a lump sum that will come directly withheld from the fees received.
Tax concessions and deductions. Often, short-term rental property means you are entitled to tax breaks or deductions on property-related expenses. On this point, be sure to check the local regulations.
5 Cons
More maintenance and adjustments. A property put on the short-term rental market must be in excellent condition, otherwise the risk of receiving negative reviews that could compromise future bookings is very high. It’s necessary to provide regular cleaning and general maintenance, but not only: the latest generation services and technologies must be provided.
Uncertain income. Seasonality affects the income trend: in the high season the landlords are often full, but during the low season the bookings could be significantly reduced; this can result in a loss of money.
Competition from surrounding properties. For holiday homes, the offer far exceeds the demand. This could be seen as a disadvantage for some owners, especially if competition for vacation rentals is particularly widespread in a given area.
A full time job. Short-term renting can become a full-time job. There are several activities to take care of before and during the guests' stay: bookings, check-in / check-out, cleaning, maintenance, extra services and h24 availability.
Damages to the property: they can be more frequent in case of people who use the property only a few days, unlike long-term contracts where the tenants live on the property for years and may have a higher regard for what they can consider their home.
Takeaway
To answer the original question - what is best between the 2 types of rents - there is no correct answer, it depends on the objectives of each owner, based on the economic situation and, why not, also the emotional situation that binds him/her to his/her home.
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