The Pros and Cons of Managing Short-Term Leases

Diane Henry

Realtor, West USA Realty

In the rental market, the majority of leases lock in the landlord-tenant relationship for one or more years. Whether it’s a single-family home, condo, townhome or apartment, the one-year lease option offers stability for both the owner of the property and the renter. In some cases, however, landlords may offer a short-term lease option that can be beneficial for both parties, depending on the owner’s overall goals for utilizing the property to its full potential. Before deciding to move forward with plans to implement a short-term lease plan for an investment property, take a look at the benefits and downfalls of doing so.

PROS 

Overall Higher Rent – It’s generally accepted that short-term leases are more expensive monthly than long-term leases. Tenants may not be bothered paying more for space than they would with a one-year deal because it’s understood they are paying extra for the flexibility. Many of them may be in town on business, looking for a new home, or visiting family – whatever the reason, they require flexibility in their stay and don’t mind paying for it.

Keep up with Market Prices – A smart investor wants to make the most out of every investment, charging higher rent for properties with a prime location or high-quality amenities. Short-term leases offer the investor the ability to charge higher or lower rent based on market changes or improvements to the property. Whether it’s a busy time of year because of corporate office visits or summer vacation, or just a natural lull in demand, short-term leases mean more opportunities to take advantage of the current market.

Flexible Use – Depending on the use or overall goal for the property, an investor might find a short-term lease useful and profitable. Short-term leases can be beneficial for an investor who plans to flip and sell a property. If it’s not currently a strong seller’s market, short-term rentals provide the investor income while waiting until the market changes. Or, if the property is a vacation home (fully furnished seasonal rental), it offers an out-of-state investor the opportunity to capture significantly higher rent in the high season/winter months and still be able to use the property when not occupied. With seasonal rentals, income can also be secured in non-winter months, albeit at a lower rate than in winter, to tenants needing short term interim housing when here on a work assignment, looking to buy or build, etc.

CONS 

Good Tenants Can be Hard to Find – Long-term lease options mean landlords spend less time looking for good tenants. Depending on the market, it can be difficult to find strong candidates who have a need for a short-term lease. A short-term option may work better in some markets vs. others. Research and ask around to see what the market looks like for current short-term lessors in your area.

Maintenance and Turnover – The saying “good tenants can be hard to find” applies here, as well. Landlords count on background checks, credit checks and gut feelings to determine if a potential renter will be a good fit, but there are no guarantees on the other end what the property will look like after they’ve vacated. Short-term leases mean more turnover between tenants and can ultimately mean higher repair and maintenance costs.

CONCLUSION 

As the investor, you have the control to decide whether a long-term or short-term lease will be more beneficial for your situation. Review the current market to see what the majority of lease options look like and where your property would be a good fit. Talk to other investors and listen to their advice and experiences to determine your best next steps.