Is it better to have a longer term lease on your property or to rent for a shorter term, and I’m going to give you the pros and cons of each.
So what’s best for you, a long-term lease or short-term lease? There are a couple of benefits to a long-term lease, and if you’ve watched any of my videos or talked to me before, you understand I’m big on getting a tenant in and keeping them there for a long time. That’s how you really become profitable in owning rental property, but because it’s expensive, anytime somebody moves out and moves back in.
So generally speaking, I’m a big fan of longer-term leases. I’m a big fan of getting a tenant in and staying for a long time. The cons are that you find a tenant that wants to sign a five-year lease, and you think great, they’re going to be here for five years. The downside of that, is if we move them in today, what’s going to be the market rent in five years? If it’s a few hundred dollars higher, then you may have cost yourself by going with a long term lease. By moving that tenant in, they’ve got the benefit of having the same rent all the way through for five years.
Whereas if we were reevaluating that each year, you might be making two or $300 more per month, if the rent’s raised that much. And maybe they do, maybe they don’t, but that’s just something to consider if you’re thinking about an extremely long-term lease. Again, we feel like it’s best to do one or two years and if you wanted to do something longer, or you could even build in some rent increases at each anniversary date. So that’s one way you can handle that.
On the flip side, we’re seeing more and more people doing short-term leases, and as I evaluate and look at that it can also be very profitable if you do it the right way. And so what are the pros of having a short-term lease? Obviously, the con would be that you’re constantly having turnover, people moving in and out, you’re constantly having vacancy and you’re having to touch up this, clean that, whatever that case may be, and it’s just a lot more oversight, a lot more to maintain. So that would be the negative to the shorter term, but what’s the positive? Well, according to this Long Beach property management company the positive is that you can charge a lot more, and so if you’re able to charge a lot more on a monthly basis, then that may offset some of that time that there’s vacancy or offset some of that turnover time.
So again, there’s no right answer, it’s something you have to evaluate for yourself, but to give you an extreme example on the short-term rental side, just look at Airbnb. Now obviously, those places are leased, but somebody may come in on something that might rent for $1,500 bucks a month. You may be able to charge $200 a night if it’s an Airbnb, but you’ve got some expense of furnishing it, you’ve got some expense of utilities, but if you do $200 a night and you keep it full for a month, that’s $6,000 in a month instead of $1,500 in a month. Now obviously, it’s not likely to stay occupied that whole time. There’s going to be some vacancy. But again, if you say well, it was rented half the time, well then you’re bringing in $3,000 instead of $1,500 with some additional expenses that you wouldn’t have on the long-term lease.
So again, there’s no right answer for everybody, there’s pros and cons to both, but those are some things for you to think about if you’re trying to consider short-term versus long-term on rental. Again, personally, I like the long-term, get them in, set it and forget it, let that money pour in each month with as little maintenance as possible. But again, that’s not right for everyone.