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By Ondřej Dufek

Co-Founder, Flatio

TODAY'S OTHER NEWS

Investors: safeguard income with short, mid and long-term rentals

The ongoing second wave of the Covid-19 pandemic is affecting the lives of people and businesses around the world, including property investors and landlords – and it isn't going to end anytime soon.

So how can property owners protect themselves and secure regular income during this time? One solution could be to rent out properties for, not only long-term but short and mid-term as well. This applies whether you have a spare room in your home, one apartment or several properties.

Long-term rentals

Let's explore the current rental models. The oldest, and the one used by a large percentage of property owners and landlords in the UK, is long-term rentals. This is a way for property owners to receive regular income and tenants to make a house their home.

The standard is to rent these properties unfurnished for at least one year with a lease agreement signed by both parties. Tenants usually pay energy fees in addition to their monthly rent and prices are often lower than short and mid-terms.

Although long-term leases may seem stress-free for landlords, today's unpredictable environment means people are wary of committing to longer term stays. And property owners who focus solely on long-term tenants run the risk of tenants who are struggling asking for early termination of a lease (and it should be their right according to the lease agreement), which forces landlords to switch from the ‘no worries’ mode to the ‘I need a tenant ASAP’ in a relatively short time.

This could, in turn, incur extra costs in the form of last-minute advertising and time - due to regular communication with potential tenants: like answering all their questions, arranging in-person visits and sending contracts.

Short-term rentals

Another rental model, often the most discussed, is short-term rentals, like those on Airbnb – a platform that has made many headlines worldwide. Although short-term rentals existed long before Airbnb, it was this platform which brought this type of rental to the attention of ordinary people for whom hotel accommodation was unimaginable and financially unattainable.

Short-term rentals often target holidaymakers and are especially suitable for travellers who want to experience a place through a local’s eyes.

For landlords, income from short-term rentals can make the most considerable revenue. However, it's worth noting that stays are often no longer than a week and the higher rental price (which is set at prices per night) is offset by frequent tenant rotation.

Short-term rentals also come with other problems like upset neighbours (caused by rowdy holidaymakers), higher cleaning costs (housing is needed to be adequately cleaned before each new tenant), increased wear and tear and a higher probability of unoccupied housing – something much higher than usual in the current situation when tourism has all but stopped, and it's not clear when it will start again.

Medium-term rentals

Medium-term rentals are the newest rental model and make a lot of sense in today's world. These rentals, as the name suggests, are for the ‘medium’ period, i.e. for a few months at a time.

The most common types of tenants include young professionals, remote workers and digital nomads, university students for whom housing for a semester is an ideal choice, as well as employees or entrepreneurs travelling to another city/country for work. Or simply people who are renovating/acquiring their own house and need temporary accommodation.

The main advantage of these target groups is that they don't usually act like tourists. They want to become part of the local community, even temporarily and have the same daily routines as locals in their area. They work or study during the day and relax, eat out or explore in the evening.

A mid-term rental landlord must first invest in essential housing equipment but is assured of a more stable income than short-term rentals and can make up to 25% more than they would on long-term rentals.

If any unexpected situations arise, a lease agreement covers both the tenant and landlord. As with short-term rentals, it's also possible to transfer everything online – from initial questions to virtual tours, automation of rent payments or messaging system and contract signing. Although I recommend you always be there personally to hand over the keys wherever possible.

However, in this current situation, to ensure a regular revenue stream, the best solution is to combine all of the types of rental models. You can do that by merging short-term and mid-term rentals during the year: where you will offer short-term mainly in the high season and medium-term in the rest of the year. Or combine mid and long-term rentals: where you can test out whether the tenants will be respectful of your property in the mid-term rental, and then finalise a long-term rental with them.

If you have a larger number of apartments, you could also use half of the apartments for long-term rentals, and divide the remaining half between short-term and mid-term according to your preferences.

Whatever you decide, always keep the coronavirus situation at the front of mind. It is affecting the decision-making process of tenants everywhere who are taking into consideration the possibility of quarantine, closing borders and more frequent work from home.

This changing environment, though difficult, can also be an opportunity for forward-thinking property owners willing to embrace change. Those early adopters of this three-pronged rental model are most likely to survive and even thrive during the pandemic. And despite the challenges the industry has faced, one thing is for sure – people will always need a roof over their heads, whether it's for one night, one month or one year.

*Ondřej Dufek is co-founder of Flatio

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