Short term lets - the pros and cons

Covid travel restrictions prompted a big rise in staycations. While many have returned to the Mediterranean sunshine, short term lets remain popular.  Are they worth it for property owners?

Short term lets, dominated by Airbnb, are properties available for between 1 and 31 nights and can provide strong returns for investors when compared to traditional lets.

According to research by specialist mortgage firm Revolution Brokers, the average gross monthly income from a short term let is £1,137 compared with a normal rent of £947. That's a healthy premium of 21%. There are other benefits, but there are also downsides.

The pros

The income can be higher for the right property in a popular location.

In some areas the short term premium can be very significant. In Cornwall and Devon, for example, it averages 35%.

Short term lets are classed as a business. As such, they attract full tax relief on mortgage interest.

Any problems with renters are short lived and there are no issues with rent arrears.

The cons

The owner is responsible for all utility bills, reducing the income premium.

The income may be further eroded by higher mortgage interest rates on short term lets.

The income stream is less predictable.

Properties must be prepared for each new visitor, making them very labour intensive.

Maintenance costs may be higher due to the additional wear and tear caused by hosting a succession of short term visitors.

The rulebook

Investors need to be very aware of the regulatory conditions under which they will be operating. The two most basic requirements are that the property must be available for at least 270 days each year and that visitors may not stay for more than 31 days.

Mortgage lenders will need to be notified of the change of use and may change the terms of the loan.

Investors need to pay special attention to local regulations. Many local authorities are very active in monitoring short term lets. Some require special licensing, others even require planning permission. In a few cases, such as Brighton, concern at reduced rental availability for local residents has prompted the proposed banning of new short term lets altogether.

Are they worth it?

For some, they undoubtably are, particularly where the property is in a prime location such as a city centre or a popular holiday spot, and where the owner is prepared to take on the extra work involved.

For others, the additional costs of utilities, higher interest rates and extra maintenance could more than offset the income premium.

Ultimately, perhaps, the decision should be based upon which type of tenure is most likely to meet the original investment objectives.