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Could a longer term tenancy add up for you?
With some lenders now extending the maximum tenancy term to three years now may be the time to start considering letting out your property for longer periods and letting on a longer term tenancy.
Tenants are increasingly starting to see renting a home as a long term solution and they therefore attach a value to the stability that longer terms can provide. For this reason longer term tenancy lets do not have to mean lower rents. In fact they can contribute to cutting costs and increasing profitability for many landlords. Take a look at this guide to when a longer term tenancy may add up for you:
Decide whether stability is worth more than flexibility
If you decide to offer longer term over shorter term tenancies then you are trading flexibility for stability. The question of which is worth more will depend upon not only your attitude to risk, but also on the situation of your rental property and its appeal to tenants. Landlords may be giving up some lucrative short term opportunities, for example amongst young mobile professionals looking for short term lets, but in exchange they get stability of rental income for up to three years, reduce the risk of void periods and get some protection from any downturn in rents. If tenants are knocking down the door to rent a property, then shorter terms may still be the way to go, but if demand is less consistent a longer term could offer better value.
Calculate the cost reductions
Longer term lets deliver savings to landlords both in reduced letting agent fees (because they don’t need to find new tenants every 6 or 12 months) and cutting down on refurbishment costs between tenancies. Landlords should bear in mind these savings when considering the potential profitability of shorter v longer term lets.
Match tenancy length to target market
Families that view renting as a long term option want the security to call a property home for a longer period. If this is a logical target market for a rental property then offering longer term lets could be a key selling point that works for both landlord and tenant. However, it’s not just families for whom longer term tenancies add up. Young professionals who choose to live close to city centres but cannot afford the house price premiums that go with it could equally value a home they can call their own for longer.
The landlord’s plans for the property!
Landlords will have to balance the length of a tenancy with their own plans for the property. If they are looking to sell the rental property in the next few years then a short term let may be the best option, as a longer term could restrict their options. Likewise, improvements are difficult with a tenant in place and so if work is required to the property this could restrict the length of tenancy they can offer.
Make longer terms work for the landlord
Longer term lets are proving increasingly attractive to particular types of tenant but landlords should not have to compromise on their rental yields in order to secure them. Longer term lets should provide security of rental income for landlords, not undermine it. If landlords are forced to discount rent significantly in order to secure tenants for longer, then it may be that shorter terms are more appropriate for their property.
Sign a clear tenancy agreement
The principles for a longer term tenancy should be the same as an Assured Shorthold Tenancy (AST), including provision for notice periods and rent reviews. Signing a clear tenancy agreement is even more important when tenants will be renting a property for several years. Landlords need to set clear guidelines for maintenance, upkeep, inventories and inspection that provide tenants with freedom to enjoy the property but ensure their own interests are protected.
Post courtesy of The Mortgage Works