The choice between short-term and long-term rentals depends on the investor’s goals, available time for property management, and the location of the property.
Real estate has long been a favored investment for those seeking steady, passive income. The appeal of rental income is undeniable—once a tenant is secured and the lease agreement is in place, homeowners can enjoy regular monthly payments with minimal ongoing effort. However, the rise of short-term rentals has introduced a new dynamic into the market, challenging the traditional model of long-term renting. This shift has prompted many investors to reconsider their approach and evaluate the potential returns of short-term versus long-term rental properties. So, which of these options offers a better return on investment (ROI)? Let’s take a closer look.
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Short-Term Rentals: High Returns, High Effort
Short-term rentals, typically defined as leases of less than six months, have become increasingly popular, especially in prime tourist destinations, urban hotspots, and vacation spots. One of the primary reasons for their popularity is the higher potential income they can generate compared to long-term rentals. In high-demand locations, such as Mumbai’s Bandra or Goa’s Candolim, short-term rentals can earn two to three times more per month than traditional long-term leases, especially during peak seasons.
Short-term rentals also offer significant flexibility for property owners. In tourist destinations like Shimla, Udaipur, or Goa, property owners can use the property for personal use during periods of low occupancy, which is a clear advantage over long-term rentals. Moreover, short-term rentals attract a diverse guest base, ranging from business travelers to vacationers. This diversity reduces the dependency on a single market segment, making it more resilient to fluctuations in demand.
Another advantage of short-term rentals is the ability to adjust prices dynamically based on demand. For instance, during high-demand periods like festivals, cultural events, or peak tourist seasons, owners can raise prices significantly. This adaptability can lead to substantial profits in a short time, providing a level of control over income that long-term rentals simply cannot match.
However, with these potential rewards come challenges. One of the biggest drawbacks of short-term rentals is the higher operational costs. Frequent cleaning, maintenance, and guest management can add up, especially in cities with high standards like Bengaluru, where corporate short-term stays require immaculate upkeep. The cost of hiring a property manager or cleaning services can be significant, further reducing the net income.
Additionally, short-term rentals are subject to seasonal fluctuations. Cities like Shimla or Manali may see high occupancy during winter but experience low demand in the off-season, leading to inconsistent income. Regulatory uncertainty is also a concern in many cities. In some regions, authorities are still working on defining regulations and licensing requirements for short-term rentals, which could impact property owners’ ability to rent out their spaces.
Furthermore, short-term rentals require active, hands-on management. Property owners or managers must deal with guest communications, check-ins, cleaning, and maintenance frequently. In cities like Chennai, where both business and leisure travelers are common, managing the different needs of various guest types can become time-consuming and labor-intensive.
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Long-Term Rentals: Stability and Steady Income
Long-term rentals, usually leases lasting six months or more, are the traditional form of renting in real estate. The key advantage of long-term rentals is the steady, predictable income they provide. In major cities like Mumbai and Delhi, where housing demand remains high, long-term rentals can yield a consistent income with less fluctuation compared to short-term rentals. For example, a two-bedroom apartment in a prime location in Mumbai could generate a steady monthly rent of ₹60,000 to ₹70,000 or more, depending on the area.
Long-term rentals also tend to have lower maintenance costs. Since tenants usually stay for longer periods, there is less wear and tear on the property. This is especially beneficial for older properties in high-demand areas, such as Kolkata’s Park Street or Delhi’s Connaught Place. The stability provided by long-term tenants means fewer frequent repairs or replacements, which can help lower the overall cost of maintaining the property.
Another key advantage is that long-term rentals require less day-to-day management. Once a tenant is in place, the property owner typically only needs to deal with annual maintenance or any issues that arise during the tenancy. This is less time-consuming compared to short-term rentals, which require ongoing guest management and regular turnovers. For example, a property in Bengaluru’s Indiranagar might only need attention when a tenant changes or for yearly maintenance, making it a less hands-on investment for the owner.
Moreover, long-term rentals allow investors to focus on property appreciation. In emerging markets, properties in developing areas can see substantial increases in value over time. For instance, investing in an area that is undergoing urban development or infrastructure improvements can yield significant capital gains, in addition to the steady rental income.
However, long-term rentals also come with certain limitations. One of the main drawbacks is the relatively low rental yield. In most cities across India, rental yields for residential properties typically range between one to three percent annually, which is lower than some other investment options. While commercial properties may offer higher yields of four to six percent, residential rental income remains modest in comparison.
Another risk associated with long-term rentals is the possibility of problematic tenants. Issues such as non-payment of rent or property damage can become significant concerns for property owners. Moreover, the eviction process can be legally complex and time-consuming, especially if the tenant refuses to vacate the premises.
In conclusion, both short-term and long-term rentals offer distinct advantages and drawbacks. Short-term rentals can yield higher returns but require more active management, higher operational costs, and are subject to seasonal fluctuations. On the other hand, long-term rentals provide a steady income with less day-to-day involvement, but the potential for high returns is more limited, and the rental yields are generally lower.
Ultimately, the choice between short-term and long-term rentals depends on the investor’s goals, available time for property management, and the location of the property. For those seeking higher returns and willing to put in the effort, short-term rentals may be the right choice. However, for those looking for stability and less hassle, long-term rentals remain a reliable and low-maintenance investment option.
Investors are often big on real estate because of its potential to generate handsome rental income. This passive income is often preferred, due to the straightforward process involved. Once the tenant is finalised and the paperwork is completed, the homeowner typically doesn’t need to interfere with the tenant, and, it is guaranteed that a set amount will be credited to their account monthly. However, with the emergence of short-term rentals, the concept of renting has turned on its head. Homeowners now need to be more hands-on, but does this also increase the ROI? “Long-term stays usually refer to renting for six months or more—sometimes even stretching into years. Short-term stays involve renting for shorter durations, typically less than six months,” explains Akash Pharande, managing director of a real estate firm.
“Short-term rentals can generate higher income via every stay than long-term rentals. However, occupancy rates can fluctuate seasonally, impacting overall income. Long-term rentals offer predictable, consistent income, but the potential for higher returns is limited,” mentions Prashant Thakur, regional director and head of research, at Anarock Group.
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Also Read: Luxury On Demand: The Rise Of The Luxury Short-term Rental Market
Short-Term vs. Long-Term Rentals: Which Offers Higher Returns?
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Short-Term Stays: Higher Returns, Higher Effort
- Higher returns with higher effort
- Higher potential income: A well-located apartment in Mumbai’s Bandra or Goa’s Candolim can earn two to three times more through short-term rentals compared to long-term leases, especially during peak seasons.
- Flexibility: Owners can use the property themselves when needed. This is particularly advantageous in vacation destinations like Udaipur, Goa, Shimla or Puducherry.
- Diverse guest base: Short-term rentals attract a mix of tourists and business travellers, reducing dependency on a single market segment.
- Price adaptability: Rates can be adjusted based on demand. During special events that hold cultural significance to that area or the country, short-term rental prices can skyrocket.
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However, short-term rentals come with their own set of challenges:
- Higher operational costs: Frequent cleaning, maintenance, and guest management increases cost. In cities like Bengaluru, where the IT sector drives short-term corporate stays, maintaining high standards is crucial but expensive.
- Seasonal fluctuations: Cities like Shimla or Manali see high occupancy during peak seasons but might struggle during off-seasons.
- Regulatory uncertainties: Many Indian cities are still grappling with regulations for short-term rentals. In Goa, for instance, there have been ongoing discussions about licensing requirements for short-term rental properties.
- More hands-on management: Short-term rentals require active management. In a city like Chennai, where both business and leisure travellers are common, catering to diverse needs can be time-consuming.
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Also Read: How To Determine The Correct Market Value Of A Property
Long-Term Rentals: Stability and Steady Income
- Long-term rentals: Stability and steady income
- Steady income: In cities like Mumbai and Delhi, where housing demand remains high, long-term rentals provide a consistent monthly income. For instance, a two-BHK apartment in Mumbai’s prime location can yield a steady monthly rent of Rs 60,000-70,000 and sometimes even more than that depending on the location.
- Lower maintenance: With tenants typically staying for years, the property experiences less wear and tear. This is particularly beneficial in older properties in areas like Kolkata’s Park Street or Delhi’s Connaught Place.
- Easier management: Long-term rentals require less day-to-day involvement. An apartment in Bengaluru’s Indiranagar, for example, might only need attention during yearly maintenance or tenant changes.
- Appreciation focus: Investors can focus on long-term appreciation. Properties in developing areas have seen significant value increases over time, alongside steady rental income.
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However, long-term rentals also have drawbacks:
- Lower to moderate yields: Rental yields in most Indian cities hover around one to three per cent annually for residential properties, which is relatively low as compared to other investment options. Whilst commercial properties, offer yields of around four to six per cent.
- Tenant risks: Issues like non-payment or property damage can be significant. There is also a possibility of evicting problematic tenants becoming legally complex.
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