Investing in real estate has long been considered a reliable investment strategy because property is a tangible asset which offers unique advantages that can accelerate wealth accumulation over time.
This is according to Claude McKirby, co-principal for Lew Geffen Sotheby’s International Realty.
Real estate market fluctuations are generally not as extreme, and property tends to appreciate steadily over time, making it a reliable long-term investment.
“Property ownership, therefore, tends to offer better long-term financial security and, on another level, being a physical asset with intrinsic value it invokes a sense of security and stability,” McKirby said.
According to McKirby, one of the most critical decisions investors face when acquiring a property to enter the rental market is choosing between a long-term lease or short-term rentals.
Here’s a look at the pros and cons of long-term leasing and short-term leasing:
Long-Term leasing
The traditional appeal of long-term leasing is because of its predictability and simplicity.
“Investors are generally attracted to the steady, predictable income stream, reduced turnover costs, and lower operational demands,” McKirby said.
Pros
– Stable income: Long-term leases provide a consistent and predictable income over the contract period, generally 6-12 months or more.
– Lower operational costs: Fewer tenant turnovers means lower costs associated with cleaning, repairs, and marketing for new tenants.
– Less time-intensive: With a reliable tenant, the day-to-day management of the property is significantly less demanding than with short-term rentals.
Cons
– Lower flexibility: Owners can face challenges in adjusting rental prices in response to market changes due to the fixed nature of lease agreements.
– Potential for long-term headaches: Dealing with difficult tenants or ensuring rent is paid on time can become an ongoing problem.
– Limited access: Owners won’t have immediate access to their property, making it difficult to use personally or sell during the lease period without issues.
Short-term rentals
The rise of the sharing economy has propelled platforms like Airbnb, appealing to investors due to potentially higher returns and flexibility.
Pros
– Higher potential income: Short-term rentals can command significantly higher nightly rates compared to the monthly rate of long-term leases, especially in high-demand or tourist-centric locations.
– Flexibility: Owners can adjust pricing dynamically in response to market demand, seasonality, and special events. There's also the flexibility to block out periods for personal use.
– Market responsiveness: Investors can quickly adapt to real estate market changes, adjusting their rental strategy as needed.
Cons
– Increased management and operational demands: Short-term rentals require more hands-on involvement such as managing bookings, communicating with guests, as well as the handling of cleaning and maintenance.
– Income variability: Earnings can be significantly higher during peak seasons but may decrease during off-peak times, leading to less predictability in cash flow.
– Potentially more volatile property values: While some coastal regions are thriving due to semi-gration, property value in holiday locations are traditionally more volatile, booming in the good times and crashing when the markets are down.
– Regulatory challenges: Strict regulations have been introduced in some regions around short-term rentals. These regulations include licensing requirements, limits on the number of days a property can be rented out, and additional taxes.
IOL Property