The Pros and Cons of Short-Term and Long-Term Leases

Property owners and managers have to decide if they want a long-term or short-term lease agreement. Deciding which one to choose for your property isn’t as straightforward as you might think.

Each option has its own set of advantages and disadvantages which can make or break your property business.

Choosing a long-term or short-term lease boils down to preferences and what you can do as the property owner and manager. 

What Is a Short-Term Lease Agreement?

Generally, any lease agreement that is six months or less is classified as a short-term lease. However, many types of short-term leases are used by property managers today.

For example, some properties can be leased weekly. There are also month-to-month property leases. Any lease with a duration shorter than six months is classified as short-term.

A short-term lease agreement is perfect for vacation properties and units that have seasonal value. Here are some pros and cons of a short-term lease agreement:

Pros

Flexible Pricing

One of the most significant advantages of a short-term lease agreement is flexible pricing. This is the reason why there’s greater earning potential for short-term leases.

But how can you take advantage of your property’s flexibility?

You may be near a popular vacation spot, and people will likely find a nice place to stay. You can charge them a premium for staying on your property for several days. Furthermore, if your property is near a stadium or event venue for concerts or significant sporting events, you can earn more money from guests willing to pay more for your property for one or two nights.

Another massive advantage of short-term lease agreements is changing property rates based on demand.

Regular Maintenance

Short-term leases also allow you to regularly check your property for any repairs and maintenance needed. Because people will move out regularly, you can quickly stop by your property and see if it needs a quick fix before another tenant occupies it.

Meeting New People

Short-term rentals are also a great way to meet interesting people with unique stories. You may be managing a vacation property that many people will use. You can use this as an opportunity to enrich yourself with new experiences.

Cons

More Demand for Availability

Despite seasonal demand, you must watch your property for new visitors. Also, you need to be on standby 24/7 to meet the needs of your guests. Short-term leases are typically listed on platforms like Airbnb. This means you’ll receive emails, messages, and other notifications that you have to stay up-to-date with.

To help, check out our tips on resolving housing complaints and disputes with your tenants.

High Turnover Means Larger Marketing Spend

Your property must be advertised to new people each time a short-term lease agreement expires. You’ll most likely have to spend money on ads to ensure the property is visible to your target market. Marketing is a critical factor for the success of short-term lease properties, so you’ll need to spend more on this aspect of your business.

However, there are things that you can do to minimize your marketing costs.

High Maintenance Costs

The frequent turnover of guests is helpful because you can regularly check on your property but it also means that you’ll have to either regularly clean the property or pay a cleaning service. Short-term lease properties require you to clean, vacuum, polish, and replace your linens every week or at regular intervals.

This means you’ll have to spend more on maintaining your property to keep it looking nice and appealing for your next guests.

What Is a Long-Term Lease Agreement?

But how about long-term leases? What’s the difference?

A long-term lease agreement is the exact opposite of a short-term lease. It’s an agreement, typically supported by a contract, that lasts more than six months. Some long-term lease agreements can last as long as 10 years under exceptional circumstances.

Here are the pros and cons of long-term leases:

Pros

Consistent Revenue Generation

Unlike short-term rentals, long-term leases generate consistent revenue for property managers and owners. You don’t have to rely on the season to create rental income for your property. Your property won’t be vacant for long periods because you have a guaranteed tenant occupying the space.

Even if the prices aren’t adjustable, you’ll have a steady stream of income for your business for the foreseeable future.

Less Advertising Costs

You can rest easy, knowing your tenants won’t move out of your property. This means you don’t have to compete on property advertisement platforms like Airbnb and Booking.com to get your next tenant. 

We also wrote about the best rental listing sites here.

You’ll have more freedom to reinvest your money into improving your property’s security, aesthetics, and value in the long term. Unlike short-term leases, property owners with long-term lease agreements don’t have to be on immediate standby to attend to their guest’s needs. They’ll most likely contact you from time to time for maintenance concerns, but you won’t be getting notifications during the middle of the night or about things you need to respond to immediately. 

Minimal Upkeep Costs

Long-term tenants have more responsibility to take care of your property. After all, they will be the ones living there for a long time. Any damage they make will ultimately inconvenience them more than you.

Property upkeep tasks like cleaning, pest control, and replacing things like light bulbs will fall on their shoulders. You can save on certain costs when you have long-term tenants living on your property.

You Can Hire a Property Manager

You can either hire a team of professional property managers or develop a property management system yourself. Either way, you’ll prevent headaches and stress since there’s a consistent set of tasks that you can craft a standard operating procedure.

Your managers can handle tenant screening, placement, and ensuring that your property complies with state regulations.

Cons

Of course, there are some areas that long-term lease agreements excel in, but there are also things you need to watch out for.

More Risk of Property Damage

While it’s true that you won’t be maintaining your property as often, the state of your property is in the hands of your tenants. You’ll bear a greater risk of property damage, especially if you end up with careless tenants.

You’ll have to deal with wear-and-tear on your floorings, walls, and even appliances if your tenants don’t keep them up well.

Less Flexibility

Another risk you’ll have to bear is that your tenant is in it in the long haul. Unless they qualify for eviction, you can’t remove a tenant from your property even if you want to. The eviction process is painfully long and can be stressful for both the tenant and property manager. These cases are unlikely but are something to keep in mind as a possibility. 

You Lose Control of the Property

With long-term leases, you lose control of the property in some ways. When there are maintenance issues, you’ll just have to be respectful of your tenants and make sure you can work on their property according to their schedule.

Screening your tenants before entering into a long-term lease agreement is a good way to ensure that you won’t have any issues. We wrote about nightmare tenants and how you can avoid them in this article. Feel free to check it out!

Manage Your Properties With ExactEstate

Whether you’re managing properties with short-term or long-term leases, you need to have effective software in the process.

ExactEstate is the leading property management solution for many owners and managers. 

With ExactEstate, you can:

• Effectively screen your tenants
• Provide support and security
• Generate detailed reports
• Streamline applications
• Facilitate online payments

Interested? Schedule a free demo with our team to see our property management software in action.