If you possess a rental property, converting it into a holiday home provides greater freedom and a significantly better rental yield. Short-term rentals have become popular in recent years, and landlords benefit from a range of advantages.

The rise of the transportation industry has expanded global travel. Most individuals travel at least once a year, for work or pleasure, and as a result, the short-term rental market has grown dramatically over the last decade, particularly with the rise of Airbnb and other similar websites.

Holiday homes, according to industry executives, are becoming increasingly popular among investors and private developers. Primarily due to the fact that these properties provide higher returns in comparison to other rental properties in Dubai. 

What are Short-term Rentals?

Before we can discuss the benefits of the short-term rental market, we must first define what a short-term rental is. The name pretty much says it all; it is a short-term lease. But how long is the short-term? Typically, industry guidelines define a short-term let as a rental property that is on the market for between 2 and 12 weeks.

These properties are typically appealing to those who are in the process of purchasing a home or have short-term professional commitments, and landlords benefit from the ability to stay in their property whenever they want.

The market has however been dominated by the tourism industry and since the Pandemic, there has been a greater push for the demand of holiday homes. For those traveling for more than two weeks, it is financially advantageous to stay in a short-term lease, compared to a hotel. Moreover, it offers additional comfort and privacy for you and your family or friends.

With many opting to relocate temporarily or since the concept of ‘work from home’ has been promoted following Covid-19 limitations, the convenience of remaining in a short-let property is extremely enticing and has proven to be a lucrative outlet for homeowners.

Most would say the short-let market is a ‘win-win’, as it offers benefits for both guests and landlords.

Benefits of Renting a Short-term Rental Property

To give a brief overview, the proposed benefits to guests are: 

– Whether it is business or leisure, guests can take advantage of a low-cost alternative by staying in short-term property, if the stay is more than a fortnight compared to hotels.

 – Holiday homes are well maintained by either the Host or a management company and provide additional amenities that give the feel of a ‘home away from home’ to those occupying the property. They typically are booked to be fully furnished and equipped to accommodate guests (kitchens, living spaces, Wi-Fi, TV, toiletries, and more).

 – They offer a greater degree of flexibility when traveling for a number of weeks or when moving to a new destination with the intention of permanent relocation. Short-term rental homes give potential guests more freedom in this regard because they can stay and fully immersive themselves in a new location without making a long-term commitment.

 Additionally, they are a promising market for landlords:

 –   Offers flexibility when putting the property on the market for sale, the time it takes for the selling process is unpredictable; therefore, short-term letting is a much better lucrative opportunity, as opposed to leaving a property vacant.

 –  It provides landlords with the opportunity to manage their financial position in the constantly shifting economic climate and can sell their property when they want, without a long-term tenant to consider during the decision-making process.

 –  With such a high demand for short-term lets in prime cities such as Dubai, landlords do not have to worry about dealing with difficult tenants and can be selective with who they lease. Most property management companies carry out a thorough vetting process to choose high-quality guests and will monitor and maintain the property throughout the process.

 –  Allows landlords, especially those living overseas, to use their own property when they want by simply blocking out certain dates.

 – With smart pricing technology and by using a well-experienced real estate agency to manage your property, prices are set in accordance with market and seasonal demand. As a result, you can increase your price to maximize your earning potential.

The market for holiday homes is definitely prime territory for investment, with rising prices and an increase in the number of tourists preferring short-term rentals, short lets produce high yields and offer landlords greater flexibility.

Over the years, holiday homes have become a preferred choice amongst tourists, due to the many benefits listed above. For guests looking for holiday homes, prime areas such as Downtown Dubai, Palm Jumeirah and Dubai Marina remain popular choices.

Short-term rentals are rising rapidly, all of these factors have contributed to the growth of the UAE holiday homes market, enabling landlords to reap the rewards on their investments.

Pros and Cons of Short-term Rental

Property owners have two main alternatives for renting out their properties: short-term rentals, such as those posted on Airbnb or Vrbo, and long-term rentals. Several individuals wonder, “Between a short-term rental vs. long-term rental, what’s more, profitable from a business standpoint?” Profit is vital, but other criteria, such as return on investment, should also be addressed. Both choices have significant advantages and disadvantages, and they cater to different investment objectives, preferences, and risk tolerances.

Read Also: Rental Agreement 101: Understanding Your Lease

We will dive into the pros and cons of each rental type, and help you make an informed decision about how to rent your property based on your specific circumstances and priorities. Will be diving into the pros and cons of a short-term rental vs. long-term rental, so you can make an informed decision about how to rent your property. 

Pros

• Flexibility

One of the most popular advantages of short-term or vacation rentals is the flexibility they offer to property owners. You can visit the property when it’s vacant, which gives you an opportunity to inspect the premises regularly. This allows for more frequent maintenance checks, which can be scheduled without disturbing a guest. For example, seasonal maintenance tasks like air conditioning tune-ups or appliance replacements can be carried out efficiently during vacant periods.

• Higher Cash Flow

Short-term rentals, like Airbnb, can provide substantially higher cash flow compared to long-term renting, especially when managed personally by the property owner. Even after accounting for additional expenses and the seasonal nature of the market, diligent management can lead to increased revenue. However, if hiring a property manager, the cash flow may not differ significantly from that of a long-term rental.

• Decreased likelihood for Legal Disputes

Since short-term rental guests come and go quickly, the likelihood of experiencing prolonged legal disputes with tenants is relatively rare. Unlike long-term rentals, where prolonged tenant-landlord relationships can lead to disagreements and legal action, short-term rentals allow for a fresh start with each new guest.

Even though guest turnover can decrease the chances of prolonged legal disputes or tenant problems, it’s important to keep in mind that the same tenant laws that apply to long-term rentals also apply to short-term rentals. Therefore, if a tenant refuses to move out, you must go through the standard eviction process.

Cons

• Long Vacancies are Risky

Short-term rentals, especially in seasonal markets, can face extended periods of vacancy, particularly during off-peak seasons. In areas where vacation rentals are popular, you are constantly competing with your neighbors to get Airbnb or Vrbo guests. 

Despite loss of income, long vacancies in short-term rentals pose another significant risk. Without guests frequenting the property, there may be no one present to promptly detect and report potential issues like leaks, plumbing problems, or other damages that could silently worsen in the background. Consequently, these undetected issues might escalate into significant repair or maintenance problems if left unattended for an extended period.

• Wear and Tear

If you choose to rent your property as a short-term or vacation rental, you’ll constantly have new guests arriving and departing. With this regular foot traffic, the furnishings, walls, and flooring are subjected to more significant usage than in a long-term rental scenario. For example, guests might accidentally bump into walls with luggage or move furniture around to accommodate their needs, unintentionally causing minor scuffs and scratches that accumulate over time.

Additionally, the constant flow of guests leads to a higher risk of accidental spills and stains on carpets and upholstery, which may lead to more frequent cleaning or replacement. This wear and tear not only affects the aesthetic appeal of the property but also increases the need for regular maintenance and refurbishment, leading to additional operational costs for the property owner. 

Linens, towels, and pillows, which are essential amenities in short-term rentals, also bear the brunt of frequent use and washing. The more guests the property accommodates, the more frequently these items need replacement to maintain the level of comfort and satisfaction expected by guests. Furthermore, with the growing emphasis on Airbnb and Vrbo standards and guest expectations, property owners must invest in quality linens and furnishings, adding to the overall expenses.

• Neighbor Complaints

Short-term rentals, such as those listed on platforms like Airbnb or Vrbo, may lead to more neighbor complaints than long-term renting situations. Common neighbor complaints related to short-term rentals include excessive noise, parking congestion, and trash pile-ups. Over time, these complaints can potentially lead to conflicts with neighbors. Short-term guests’ transient nature and lack of familiarity with the neighborhood’s norms contribute to these challenges.

• High Involvement

The management of short-term or vacation rentals is generally not considered passive income because it requires a considerable amount of time. You have to be available to communicate between bookings, answer guest questions, and help with check-in and check-out processes. From the moment a guest confirms a reservation to the day of their departure, you must be actively engaged in facilitating a seamless guest experience. This includes ensuring that guests have all the necessary information to smoothly access the property and amenities. Additionally, you must respond promptly to guest inquiries, ranging from booking inquiries to on-site concerns, to maintain guest satisfaction and address any potential issues promptly.

Furthermore, the fast turnover of short-term guests necessitates quick coordination with cleaning and maintenance services. You must ensure that the property is thoroughly cleaned and prepared for incoming guests within a short timeframe. This can be particularly challenging during peak seasons when back-to-back bookings are common.

If you want to rent your property as an Airbnb, but do not want to be involved in the day-to-day operations, you have the option to hire an Airbnb management company. 

• Urgent Maintenance

Unlike long-term rentals where non-urgent maintenance tasks can be scheduled and budgeted efficiently, short-term rentals require immediate attention to ensure guest satisfaction and uphold the property’s reputation. This urgency can lead property owners to opt for expedited services, which may come at a higher cost. For instance, emergency repairs may require hiring contractors outside of regular business hours, resulting in higher service fees. Additionally, the need to keep the property in pristine condition at all times may require more frequent maintenance checks and replacements of wear-and-tear items, further increasing operational expenses.

Immediate attention to maintenance needs in any short-term rental is essential, as any delays in addressing urgent repair or service requirements can negatively impact guest experiences and lead to bad reviews.

• Market and Legal Risks

The short-term rental market is known for its unpredictable shifts in demand and supply. Factors such as seasonal variations, changes in travel trends, and fluctuations in tourist activity can all influence the feasibility and profitability of short-term rentals. Therefore, if you want to rely solely on the short-term rental model, then you should be aware of these inherent risks and develop contingency plans to navigate market fluctuations successfully.

Another consideration is that local laws and regulations governing short-term rentals can change unexpectedly and present challenges for property owners. Many cities and counties have implemented specific rules and restrictions on Vrbo and Airbnb rentals to address concerns related to housing affordability, neighborhood disruptions, and tax compliance. These legal changes may include restrictions on the number of allowable vacation rentals, the duration of guest stays, or even outright bans on short-term rentals in certain areas.

Also, external factors, such as economic downturns or unexpected events like the 2020 pandemic, can have an immediate and severe impact on Airbnb rental revenue. During economic crises or global emergencies, travel demand can plummet, leading to mass cancellations and a lack of new bookings.

• Limited Tenant Screening

Unlike traditional long-term renting, where property owners have more extensive control over the tenant screening process, short-term rental platforms like Airbnb and Vrbo typically offer only basic verification measures. These measures usually include nothing more than verifying a guest’s email address, phone number, and, in some cases, government identification. While these steps help ensure that guests are real individuals, they do not delve deeper into their background, rental history, or financial stability.

As a result, you may find it challenging to thoroughly vet guests before accepting their reservations. Without a comprehensive screening process, hosts may unknowingly welcome problematic guests into their properties. These guests could potentially cause damages to the property, engage in disruptive behavior, or violate house rules.

One of the most significant risks of limited tenant screening is the possibility of property damage. Unlike long-term tenants who typically have a lease agreement and a more significant stake in maintaining the property’s condition, short-term rental guests may not feel as accountable for the property’s well-being. Accidental damages can occur due to their unfamiliarity with the property or lack of understanding of its specific rules and functionalities.

Additionally, limited tenant screening can lead to potential legal complications. If a problematic guest refuses to vacate the property at the agreed-upon checkout time, the property owner may need to resort to the eviction process, which can be time-consuming and costly. Furthermore, in cases of significant damages or breaches of contract, pursuing legal recourse may become more challenging when limited information about the guest was collected during the booking process.

Bottom Line

Choosing between short-term and long-term leases needs careful consideration of a number of criteria, including financial objectives, time constraints, market dynamics, and risk tolerance. Short-term rentals (such as Airbnb or Vrbo) provide larger income flow and more regular property inspections, but they require significant involvement and have higher hazards. Long-term rentals, on the other hand, provide a consistent income stream with shorter vacant periods, but they require less commitment from the property owner and may be susceptible to legal difficulties.

Finally, property owners must consider their interests and priorities before selecting the best leasing choice. Short-term and long-term leases can be profitable if managed properly and adapted to your specific needs. Whatever choice you choose, you must stay current on local laws and regulations in order to assure compliance and maximize the value of your investment.