Best rental strategies for 2019: should property owners go short?

A Lisbon home designed by At Home with Hostmaker, the interior design studio of Hostmaker

As 2018 comes to an end, and with the uncertainty of Brexit looming, property owners in London are left scratching their heads as to what the best rental strategy is.

Is it a great time to buy new property, as prices seem to be going flat or down in some areas of the British capital? Is it better to go for long-term tenants as a stable income stream?

What about short-term lets – are they a good option in the current climate? These answers, and more, below. Or scroll down for the conclusion!

Rental strategies in 2019: long lets vs short lets

Hostmaker home with a living room giving on a balcony in Paris
Home with balcony in Paris – courtesy of Hostmaker

We’ve talked about the main differences between long and short-term lets before, to highlights their pros and cons for property owners. But there is more to it, if we want to go into the details. Here, we’ll review some of the main reasons to pick one or the other.

The main differences between short, mid and long term rentals or lets

Here’s a quick refresh of the main differents, and adding the further distinction of mid-term lets:

  • long-term lets (long lets): the traditional letting arrangement, with contracts from 6 months to 2 years,
  • mid-term lets (mid lets): a growing segments of lettings, from 1 month to 6 months, typically for professionals or students,
  • short-term lets (short lets): the fastest growing segment, from 1 day to 30 days, which originated in vacation rentals and is popularised by platforms such as Airbnb, HomeAway, TripAdvisor or Booking.com and traditionally earn property owners the most.

Each strategy has its benefits and risks, and adopting one or the other depends on:

  • the economic environment – short lets are best when tourism is doing well for instance,
  • the property – its location, type and availability,
  • flexibility requirements – do you prefer to be able to get the property back easily should you need to, or to organise viewings easily?
  • bandwidth – and how much time you want to spend doing things yourselves or through agencies,
  • revenue expectations and risk profile – how much money would you like to get out of the property, and how risky would you like it to be?

Comparison table with pros and cons for short lets, mid lets, and long lets

As a rule of thumb, here is how short, mid and long lets compare:

Flexible lettings explained: comparison of short, medium and long term lets
Flexible lettings explained: comparison of short, medium and long term lets

How to pick the best rental strategy for your property or properties in 2019

Now that the benefits and risks of each type of letting is clear, we can look at 2019 together, and determine what is your best. To do that, we’ll first evaluate the property market in London for next year, and then look at the tourism forecasts for the capital. As we saw in the comparison table, this will help you decide between short and long lets.

Rental strategies in 2019: the property market, tourism forecast, and overall environment

The property market in London in 2019: looming Brexit and other factors

Long-term rents likely to go down in 2019, with slight rebound in 2019, making long lets less attractive

ONS: average asking price for houses in London and the UK up to March 2018
ONS: average asking price for houses in London and the UK up to March 2018

There is no avoiding it: the specter of Brexit looms. And with it, the uncertainty has taken a hold of many buyers and sellers. Whether the U.K. leaves the E.U. with a deal or without, the 29 March 2019 cut-off date is months away and all bets are still off.

This has taken a toll on the property market: London houses prices overall are showing worrying signs of stagnation or even decrease in some areas. The general mood is best described as “wait and see”, as the November 2018 numbers show: listings for homes being sold on Rightmove in London declined by 24%.

This climate will also impact the attractiveness of London for new and existing residents. While it is unlikely to drive drops in rental incomes right away, there will be an effect for homeowners. The type of Brexit chosen has already limited foreign investments in the country, as well as delayed expansion plans for existing businesses. Most forecasts point at a modest growth overall in 2019 and 2020, up to 2.1%.

Statista - London rental prices from 2018 to 2022 growth forecast 2018-2022 UK Statistic
Statista – London rental prices from 2018 to 2022 growth forecast 2018-2022 UK Statistic

Finally, the Bank of England’s main interest rate has steadily increased in 2018, to now reach 0.75%. It’s making variables mortgages more expensive for 3.5 million U.K. homeowners, and is likely to rise again in December 2018 to fight off inflation. The pressure for homeowners to increase rental income will grow, and it is unsure whether it can be met in London with long term rentals alone.

Travel in the UK in 2019: even better than a record 2018?

Travel forecast strong for 2019 and 2020: the demand for short lets will increase

UK braced for record number of tourists in 2018 and 2019 - The Guardian
UK braced for record number of tourists in 2018 and 2019 – The Guardian via VisitBritain

On the other end, 2018 is already set to be the best year on record for tourism in the UK. VisitBritain forecasts 40.9 million visitors from overseas, spending a total of £26.3bn, up from 39.2 million and £24.5bn in 2017.

2019 could be even better, as many factors converge to give a boost to London in particular:

  • a weaker pound will make the U.K. more attractive to overseas tourists, increasing their spending power,
  • London, with 19.83m visitors in 2018 (up 3% on 2017), is #2 of Top Global Destinations charts
  • a strong economic growth forecast globally, especially in Europe and the U.S., will increase travel flows overall,
  • the share of disposable income spent on experiences, such as travel, continues to grow (especially with millenials now accounting for over 25% of the population in OECD countries),
  • London can easily take advantage of top 2019 travel trends such as a bigger focus on sustainability, and meaningful local activities.

This will fuel a strong demand for homestays in London in 2019, and ensure a good occupancy at a fair rate.

Conclusion: the best rental strategy in London in 2019 is… short, with a bit of mid

Short lets best bets to take advantage of growing tourism flows, especially with Brexit uncertainty looming

When all is said and done, the best strategy for 2019 is likely to be a mix of short and medium lets. As we’ve seen, the tourism forecast for London is very positive, guaranteeing a strong demand for short lets in 2019. On the other side, the growing demand for medium lets make them an attractive alternative from September to May. The risks are minimal – as the demand is strong – and the upside is big.

While the outlook for long term rentals isn’t completely negative, it is looking flat at best (after inflation). Thus, introducing short or medium lets to your mix makes sense. If the operational side is your main issue, there are a number of short let management services you can try. This commission-based model helps because you only pay them if they deliver revenue for you. And they will take care of the operations of listing, pricing, welcoming and cleaning – and often more.

In fact, specialised property management services, such as Hostmaker, can even manage your home on short, medium AND long term rentals. Their local experts will help you to pick the best option depending on your property, your profile and your goal.

Flexible lettings model mixing short lets, mid lets and long lets
Flexible lettings model mixing short lets, mid lets and long lets

Looking to sell your property? Short-let in the meantime and make up to 30% more from your assets

House Yellow Sky

The slump in the UK property market following the 2016 EU referendum has meant property owners and investors are struggling to sell their properties. It’s not just cautious buyers and a drop in properties on the market which is affecting the market uncertainty – house prices are also falling, with Nationwide reporting a 2.2pc fall in annual house price growth.

Brexit and recent tax changes are also making the already volatile market more difficult. Real estate agents are struggling to deliver sales for clients, as interest from both landlords/investors and homeowners drop. Waiting for the right buyer can take months or even years during a difficult time for the housing market – so what’s the solution for property owners who need to leave their home or asset vacant while waiting for a sale?

Some experts may suggest finding a long term tenant, so you can continue to make yields on the property or pay off the mortgage if necessary. However putting the house up for rent can introduce hefty tax penalties and you’ll have legal obligations to the tenants. You need to be ready to sell as soon as the right buyer comes along – and you’d have to give tenants at least 28 days notice to move out.

Alternatively, homeowners or portfolio investors should consider the short term let market, which has a range of advantages. You can keep your property on the market, looking presentable at all times, while earning up to 30% higher yields from short term let prices. You won’t have to worry about guests staying for longer than a week or two, so you’ll be able to hand over the keys to a serious buyer as soon as a sale is agreed.

Why estate agents should partner with Hostmaker

Repeatedly telling your clients that a ‘slow property market’ is to blame for your failure to sell isn’t going to cut it. You need to suggest solutions, and offering short term lets in the meantime while searching for the right buyer can keep clients happy. It makes sense – any vacant property in a prime location is the perfect candidate for a short term let property.

As a professional short term rental service, Hostmaker can take care of everything and deliver superior yields. The dedicated property management team handle all enquiries, home checks and profile management, and can even offer interior design services if the property needs a revamp to make it more appealing to guests. Data-driven pricing strategies automatically maximise rental income, and we’ll keep in constant communication to help you promote the sale of the property. For example, when viewings are booked in we can block the availability of the property, and can return the property at short notice when a sale is confirmed.

Contact us today to find out how we can help estate agents and portfolio owners increase profits during an ongoing property sale.