Short-Term vs. Long-Term Rentals

Commercial Real Estate

One of the most common questions that come up when leasing office space is whether it's better to sign a long-term or short-term lease. This is especially important for small businesses whose success, or failure, could be at least partially dictated by this decision. While there's no right answer as every company's needs are different. There are certain advantages to each that, when carefully analyzed can help steer businesses toward the best option. New businesses don’t always make it, and a new business signing a long term lease may be problematic. According to a recent statistic from Bloomberg, 8 out of 10 entrepreneurs who start a business will fail within the first 18 months.

While long term leases allow for stability, short term leases typically return higher yields. In the commercial real estate arena tenant improvements and concessions are often associated with longer term lease agreements. Tenants that sign long-term leases provide for predictability for both the property owner, property manager and tenant themselves.

More time vetting tenants, providing property maintenance and cleaning are typically associated with shorter lease terms. Worrying about vacant units is a primary concern of many property managers, with longer term leases more stability is provided. Some property managers prefer short term renters as they may not have to deal with late payers or troublemakers for as long.

Short term and long term leases in the residential property sector differ from that of the commercial. As a bulk of short term rentals are utilized as a vacation rental. Short term rentals also require more flexibility depending on the type of rental property. In the case of a vacation rental in a seasonal area then summer months may be booming while winter month rentals may be slow to non-existent. Shorter term renters allow for more flexibility and also are less hard on the property usually as they may not bring all of their furniture, picture frames and other accessories. Shorter term leases/ rentals also allow for more potential money to be made if the property is rented out on a consistent basis. When not utilized as a vacation rental a short-term lease can typically be defined as being on a month-to-month basis and with a period anywhere between 3 to 6 months.

If a short term lease is not advertised and a prospective tenant asks for one, it does bring up issues that may not be in the best interest of the property and property owner. A tenant may be unwilling to commit to a longer term lease because of financial issues or job insecurity. Even if you can secure a great tenant for a short term lease, no matter how careful they are they will probably at least leave a few signs of their occupancy behind and then the property manager is left to seek a new tenant for the property.

Vacancies can cost money no matter if they are for a short-term or long-term lease. Many long-term leases allow for an increased level of rent upon renewal so that can work out as a monetary advantage to the property owner. For the property owner any time a tenant leases a property they are gaining free equity typically as the tenant pays for the mortgage. Either way you go, both long-term and short-term rentals can be a great way to generate monthly income.


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