Short Term Lets Tutorial

What are Short Term Lets?

Short term lets can include any type of property let for less than the six month term that would be covered by an Assured Shorthold Tenancy Agreement (AST). It encompasses holiday lets as well as corporate or other short stay lets, and may sometimes be referred to as serviced accommodation.

The short term let (STL) industry has been revolutionised by Airbnb and similar platforms that allow people to easily offer and book short stays online or via an app, either in people’s homes or privately-owned serviced accommodation.

The pressures exerted by government on the private rented sector have left many investors in urgent need of increasing returns, which is at least partly responsible for the phenomenal success of serviced accommodation and Airbnb in recent years.

Comparing Short Term Let Income with Buy‑to‑Lets and HMOs

The income from short term lets is even more enhanced than the income from houses in multiple occupation (HMOs) when compared to that of vanilla buy-to-let (BTL). You could say they are like the three billy goats gruff; each bigger than the last!

Figure 1 shows a typical example where the monthly rent for a single let is £1,000, for an HMO £2,000 and for a short term let £3,000. The work involved in the management grows more intensive from BTL to HMO to STL. The success of the strategy you choose will depend upon the location.

A graph showing how the typical monthly income (rent) from Buy-to-Lets compares with the income from Houses in Multiple Occupation (HMOs) and Short Term Lets
Figure 1: Comparing examples of typical monthly income (rent) from buy-to-let, HMOs and short term lets

Short Term Let Income Reliability

While you can expect gross rents from short term lets to be up to three times higher than buy-to-let, in practice there are bound to be void periods between bookings. Demand will be affected not only by location, but the effectiveness of your marketing, as well as the ratings and reviews that the property receives.

Demand for short term lets can come from various groups including tourists and holidaymakers, business visitors and corporate guests, contract workers, labourers, and homeowners looking for temporary accommodation while in the process of relocating.

It is good to get an idea of the type of visitors the location is likely to attract, so you can tailor your marketing efforts towards that group. The target market may also affect where you buy, how you set the place up, and where you advertise.

Property in a pleasant coastal location

Short term lets allow for flexibility in pricing. You can adjust prices to meet higher levels of demand in peak season, or around the time of significant local events. For example, if your property is in a pleasant coastal location, demand may be high in summer allowing the property to command significantly higher rent than in the winter months. By adjusting your prices appropriately, you can achieve a higher potential income over the course of the year.

The business of short term lets is more akin to the leisure and hotel industry than simple buy-to-let; and it is advisable to tread carefully when you first enter this potentially lucrative yet challenging market. The strategy can be combined with other strategies, for example some operators take on rent-to-rent properties to offer as short term lets. Others develop whole blocks of serviced apartments, sometimes complete with reception areas. Or you may decide to turn your buy-to-let or HMO into an Airbnb or holiday let.

Airbnb and Other Platforms

Airbnb and other similar websites have become widely known and popular platforms to advertise or book your serviced apartments, rooms or holiday lets. Millions of people have stayed in an Airbnb since it launched in 2008. It took six years for the room-rental startup to reach 1 million guest arrivals, but just over two years to hit 4 million.

In the summer of 2010, around 47,000 people worldwide stayed at properties advertised on Airbnb; by the summer of 2015 the number had rocketed to almost 17 million.

Airbnb allows property owners to list their properties for free, only charging commission when bookings are made.

Airbnb is not the only site offering such a service and many property owners list their properties on several similar sites (fees vary) including:

Some high street agents also deal with short term lets, particularly in areas where demand is high.

Channel Managers help you with updating your bookings calendar across the various booking sites and more. Take a look at:

Short Term Lets Versus Hotels

There are a variety of reasons why guests might enjoy a stay at your short-let property instead of choosing to stay at a hotel.

For travellers who choose to stay as a guest in someone’s home, reasons may include:

  • Cheaper than a hotel;
  • Want an experience of local life;
  • The property may be ideally located;
  • The host may be on hand to share local knowledge;
  • They may feel safer or cosier in somebody’s home.

Serviced apartments often offer:

  • More space than a hotel room;
  • Better value for money than a hotel;
  • Cooking and washing facilities;
  • Greater privacy and security.

Managing Short Term Let Properties

Setting-up and running your serviced accommodation business will take time, money and effort. Standards need to be comparable to a hotel. Always consider health and safety in everything. Here is a list of some key considerations for your serviced accommodation:

  • Well-decorated
  • A guest manual
  • Fully furnished
  • Photographs for marketing
  • Kitchen appliances
  • Means of taking payments
  • Keys and access arrangements
  • Clean linen and towels
  • Check-out procedures
  • A reliable cleaner
  • Methods for managing your bookings
  • A manual for the cleaner

Short Term Let Mortgages and Insurance Policies

You will require a suitable mortgage that allows the property to be used for short term lets (STLs). You may wish to ask your current lender, but not all lenders will be happy to grant permission for STLs.

You must also arrange for the property to be adequately insured. An ordinary buy-to-let policy is unlikely to provide sufficient cover for the additional risks.

Short term lets are treated differently for tax purposes by HMRC as Furnished Holiday Lets. In particular, such income is exempt from the removal of mortgage interest relief that buy-to-let has suffered in certain circumstances.

If your total income from short lets is over the threshold for VAT (subject to change) you will need to register for VAT.