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Property is one of the most unique asset classes for investors because of the flexibility it can provide, especially in terms of location and property type. Even if we discount property type, location and your own holding patterns, investors can opt to target different demographics such as short-term letting or assured shorthold tenancies.
The short-term lettings market has always been present in some capacity, but since the rise of Airbnb and the apparent ‘drop’ in popularity for traditional buy-to-let, it’s become a viable alternative for investors. Now, after several lockdowns initially blocking both domestic and international travel, the easing of restrictions has catalysed a rise in short-term letting, which is seemingly here to stay.
SevenCapital, a leading UK property development company, discusses the rise of short-term letting and how this avenue compares to more traditional shorthold tenancies:
The Rise of Staycations
Although the UK is currently free from Covid-19 restrictions, uncertainty surrounding international travel remains. With red, green and amber lists to consider, along with multiple Covid-19 tests and potential quarantine, it’s no surprise that more people are now holidaying within the UK.
While coastal towns welcomed the most tourists over the past year, many suburban spots across the UK are growing in popularity. This trend is expected to continue for the remainder of 2021 at least, with a report by YouGov finding that just 12% of 1700 respondents planned to travel internationally this year, as opposed to the 29% who are planning a staycation.
With the increasing permanency of this trend, landlords turning to short-stay strategies are becoming more widespread throughout the market. Even if we consider other strategies outside of buy-to-let, such as holiday lets, we’re seeing an incredible rise in demand. According to Moneyfacts, mortgage options for those considering purchasing a holiday let have risen by 45% over the past six months, driven by the increasing demand from investors.
Short-Term Lets vs. Assured Shorthold Tenancies
More traditional tenancies – also known as assured shorthold tenancies – have long been the most common option amongst Buy-to-Let investors, but naturally, the short-term lettings market comes with its own benefits.
Short-term lets are typically priced per night, meaning there are often more opportunities for landlords to achieve higher yields. According to SevenLiving, the average occupancy rate in the year to June for a central Birmingham development surpassed 80%, with the standard rate ranging between £75 and £200. So, if a property was yielding £144 a night, this would equate to over £1000 for a single week.
While this has the potential to equate to more rent than a property with a shorthold tenancy, this is reliant on consistent demand and little-to-no void periods. With a short-stay property, you won’t have the guarantee of long-term tenants, whereas assured short-hold tenancies typically require six-month contracts as a minimum, offering the reassurance of a consistent passive income.
By hosting multiple tenants throughout the month, short-stay properties also typically need more maintenance, which in turn, could reduce your profits. Depending on how long visitors book the property for, you could be facing cleaning charges multiple times a week, which is an added expense that only comes every so often with shorthold tenancies.
Should You Consider Short-Term Lets?
With any investment, it’s important to know your options to be able to make decisions that best fit your financial goals. If you’re investing in property for quick returns, short-term letting may be a better fit for your financial plan, as it typically offers higher yields on a short-term basis.
However, property is usually more lucrative in the long-term, with the opportunity to benefit from both a passive income and capital appreciation. While more traditional shorthold tenancies typically provide lower rents per month, properties tend to increase in value over time, as we have seen in the last 18 months.
The rise of staycations, combined with the overall performance of the property market was always going to stimulate a rise in the short-term lettings market, making this avenue a key consideration for investors. However, it’s crucial to remember that void periods are more common with short-term letting, so your financial goals should always be at the centre of your investments.
