Long Term vs. Short Term Lease Agreements: What Investors To Know


17 Jan Long Term vs. Short Term Lease Agreements: What Investors To Know

Investing in a rental property can be a great choice for your real estate business. With millions of rental units occupied by U.S. renters and housing demand on the rise, it makes sense that many real estate investors choose these kinds of investment properties.

However, rental properties aren’t just for long-term tenants. Short-term rentals have also become incredibly popular in recent years and are poised for more growth. With websites like Airbnb making it easier to market a short-term rental and find consistent bookings, investors can benefit from these investment opportunities.

Whether you intend to focus on long-term rental properties or want to prioritize short-term rentals, it’s essential to protect your investment. One of the best ways to do that is by creating a solid residential lease agreement for you and your renters or guests.

Understanding different lease terms and determining which type of lease is right for your investment can maximize your success while providing tenants or vacation renters with valuable peace of mind. Below, we’ll examine the basics of any short-term or long-term rental lease agreement so you can feel comfortable and confident moving forward as a real estate investor.

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What Is a Short Term Rental Lease Agreement?

A short-term residential lease agreement, like any other lease, is a contract between the property owner and someone who will be occupying that property for a given period. Short-term leases are often used for limited occupancies, such as vacation rentals. This type of lease is also an excellent idea when offering student housing or short-term properties in an area that caters to business travelers. 

Even if you’re renting out a property for a short period using a platform like Airbnb, you can specify that tenants sign a rental agreement before you agree to book their stay. Of course, you’ll also want to establish some sort of agreement if you’re booking these stays on your own or when using a property management company to manage these investments.

Short-term leases can also be used if a tenant isn’t a good fit for a year-long lease. For example, you might switch a tenant to a month-to-month lease agreement if they’ve expressed an interest in buying a home after their occupancy period ends or if they’ll be in the area for only six months for work. This can also be a good option for homeowners who are renovating and need a place to stay during that process and for overseas travelers or long-term visitors.

In most cases, short-term lease agreements last three to six months at a time. However, shorter lease terms could be a better fit for a monthly arrangement. For instance, a tenant’s annual lease might change to a month-to-month lease agreement after one year has passed or if one of the parties is hesitant to make an ongoing commitment. 

What Are the Benefits of Short-Term Leases?

A benefit of short-term leases is that you may find this arrangement more profitable. Some property owners will charge a premium for short-term or month-to-month agreements in exchange for greater flexibility. You may even be able to require upfront payment for a short-term residential lease agreement. However, you won’t have the option to charge a tenant for breaking a lease early with this agreement.

Short-term lease agreements can also be the right choice if you plan to sell your property shortly. With a long-term lease, you’ll often be locked into an agreement (and rental price) for a prolonged period. On the other hand, short-term leases can allow you to make up a financial shortfall and prepare your property to sell without risking legal action for attempting to break a fixed-term lease with a tenant before it ends. 

Owner-occupied property investors may also find a month-to-month rental agreement more attractive. If you purchased a property for your use but will be away for several months, securing a short-term tenant can be a great way to supplement your financial obligations without overcommitting yourself.

What Is a Long Term Residential Lease Agreement?

A long-term residential lease agreement is probably the more recognizable arrangement for renters and real estate investors. These leases are generally drawn up to cover one year, but they can last from six months to around 18 months or longer, depending on the circumstances. After that period has passed, a new lease (whether it’s a long-term lease renewal or a monthly agreement) will need to be drawn up if renters decide to stay.

Rental property owners usually prefer long-term leases as they provide a guaranteed income stream for a specific period. While this period can vary quite a bit, it’s customary for most renters to expect to sign a long-term lease.

What Are the Benefits of Long-Term Rental Agreements?

Long-term rental lease agreements provide less flexibility for both owner and renter. However, they offer more stability and security for all parties involved. There are always ways to break a lease, of course, but this commitment can benefit renters and investors.

Having a long-term rental agreement can often provide more peace of mind than short-term agreements. As a property owner, you can feel secure that your tenant will provide you consistent monthly rental payments during the lease term, whether it’s for one year or longer. You also won’t have to worry about finding new tenants every few months, which can help you save time and money. 

It’s worth noting that long-term occupancies can come with concerns, like unchecked property wear and tear. It can be tempting to trust that tenants are taking care of the property while collecting steady rental checks every month during a long-term tenancy. However, many property investors resolve this issue by conducting routine property inspections and maintenance for rental units or hiring a property management company to handle this for the properties. 

Ultimately, long-term residential lease agreements can provide a more predictable income stream and lessen your burden when it comes to marketing available properties. 

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Should I Focus on Long Term or Short Term Leases?

The type of residential lease agreement you choose depends on the type of property you’re investing in, as well as your business goals. Plus, there’s nothing that says you can’t re-evaluate your lease agreements later on if you decide one option isn’t meeting your goals and real estate investing strategies. For example, you might have intended for a property to become a long-term rental. However, if it turns out that it’s more appropriate for Airbnb vacation rentals and the numbers are in your favor, you can adjust the way you handle agreements with tenants. 

Build Your Real Estate Portfolio With the Best Properties!

The leases you use should align with your ambitions as an investor, the property itself, and the occupants who will stay there to generate monthly rental income. When reviewing your options and putting lease agreements in place, a real estate investor should work with experienced legal professionals to ensure all leases comply with local ordinances for the markets in which you invest.

However, before setting up leaves for rental properties, you need excellent real estate investments! Privy helps property investors find ideal homes for rental property investments in their preferred markets throughout the country. With the Privy Advantage, you receive routine property selections delivered to your inbox, along with investor insights to help you make smart offers and build your portfolio with the best properties to reach your goals. Reach out soon to learn more about how Privy works!

Get more insights into leases with our free resource, “The Ultimate Guide to Lease Agreements!"


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