Most people would agree that standard buy to let's have, and are, becoming a more difficult environment to operate in. So the challenge is very much on to find other ways of making a living in property. One such opportunity is short term lets. Here we’ll look at the opportunity that short term lets might present to investors, landlords, agents and others.
Firstly, what exactly is a short term let? There’s no exact definition of what a short term let is. Insurance companies will usually say that a short term let is regarded as any let under six months. However, a short term let is often thought of as letting property by the night or the week. Very often there won’t be an assured shorthold tenancy involved. Often a short term let is providing accommodation ‘hotel style’ not letting property as such.
Advantages of short term lets
The main advantage of short term lets is that the rent, or room rate, will be much higher than a long term let. For example, a short term let may be as much per week in rent as a long term let per month. This can produce a much higher yield.
There may be some tax advantages with short term lets in that the business is a property business and not letting property as such. That may also make it possible to claim mortgage interest tax relief too. (Professional advice is needed on these aspects.)
Short term lets can avoid problems with tenancies and evictions. Some short term lets might be to corporate tenants.
Disadvantages of short term lets
With a short term let, income may be irregular and erratic depending on occupancy levels.
Short term lets are not a let-it-and-leave-it type opportunity. A short term let will need both day-to-day servicing and closer hands-on management.
Running a short term let will involve higher costs and more wear and tear on a property too. Bills and Council Tax are normally paid for by the owner.
Local authorities in some areas with a lot of short term lets have and are trying to restrict them. In London, short term lets are already supposed to be restricted to no more than 90 nights in a year.
Types of short term let
There are several different types of short term let opportunity:
Serviced accommodation. Where an operator provides a fully furnished room with perhaps daily or at least regular servicing on a hotel-style basis.
Holiday lets. Similar to serviced accommodation but in areas that are popular with tourists/visitors. These may be an entire property not just a room.
HMOs. Houses in multiple occupation are not always short term lets but they can be in some cases, eg. rooms in a house let to contract workers and temporary workers for a few weeks.
Co-living schemes. These are a fairly new arrival which can be operated as short term lets.
Opportunities for landlords and investors in short term lets
Short term lets offer a number of different opportunities for landlords and investors.
The simplest entry into short term letting is to buy a ready-made short term let property.
The next level of opportunity is to set up a new short term let property from scratch. Then there are options to either run it, or perhaps sell it on to another investor as a turn key type investment based on the income it generates.
Short term lets also offer operators the potential to operate on a rent to rent basis, ie. rent a property and then let it out .... with the owner’s agreement of course. So it can be a kind of property investment business that doesn’t require a property investment.
Landlords and investors need to consider what type of demand for short term lets there might be in their area, and what short term lets might work best. It will also depend on what restrictions there might be, eg. planning permission or licensing.
Letting a short term let
One limitation on entering the short term let business in the past has been the difficulty of marketing a short term let. Today however there are plenty of options for letting a short term let online. Airbnb is the obvious option but hotel-orientated sites like Booking.com can also be used for short term lettings. Holiday lettings have their own dedicated sites.
Although these sites offer a relatively easy option they can be expensive in terms of commission. So short term letting operators might also consider other options such as own website, local advertising and, for example, direct approach to companies who may need short term accommodation for their employees or contractors.
Opportunities for agents
It’s probably not unfair to say that many lettings agents have completely overlooked the opportunity to become involved in short term lettings in the past. But, depending on area, there might be an opportunity to use an existing and established brand to become involved in short term lettings alongside long term lettings.
Bearing in mind that short term lettings require more management, agents might consider the opportunities for providing a short term let management service in their area. This could include lower level involvement such as key holding and routine maintenance services right up to marketing, offering a check in-check out service, concierge services and handling daily servicing.
Whatever your involvement in the property business short term lets seem to be a growing area that it could become impossible to ignore in future. A report last year by Arla Propertymark and Capital Economics says that the number of active UK listings on Airbnb alone rose by a third to 223,000 in 2018. It says in London active listings rose four fold to 77,000 in 2019. They suggest that 4.5 million properties or 19% of the UK’s housing stock have been used for short term lets at some point over the last two years.