The best part about Dubai’s real estate market is its diversity, as shown by the provision of a range of options for both short-term and long-term rentals. These options help to cater to the needs and preferences of renters, as well as investors looking to build a heterogenous real estate portfolio. If you are considering investing in rental properties, you’ve come to the right place!
In this article, we will explore the fundamental differences between the two rental formats in the Dubai market, while also breaking down their benefits and potential drawbacks.
🔍 Short-term Rentals
While long-term leases are attractive given the predictable income over a prolonged lease period, short-term rentals are also quite lucrative to novice and experienced property investors. For one, it involves renting out units on a more transient basis (usually in the form of nightly stays) via booking platforms like Airbnb, thus there is more potential to earn a higher ROI. It’s always said that while short-term presents slightly higher risks, they offer a higher reward in return, we’ll explain why!
Some of the benefits investors can expect from a short-term rental property include
- Higher rental rates than long-term rentals, which can lead to higher returns on investment
- Increased occupancy due to a higher turnover of tenants, and results in more rental income flowing to investors as the unit is occupied for a greater portion of the year
- Ability to take advantage of peak seasons when demand for rental properties is high
- Increased rental income and reduced occupancy rates in peak seasons that would even out any dips during the low season – and still generating potentially higher income than long-term rentals
- Potential for a diverse tenant base including tourists, business travelers, and those looking for temporary accommodation – all of who will be asked to leave reviews of the property and thus boost the rental performance
On the other hand, there are some drawbacks that investors and property managers should consider like:
- Short-term rentals are more subject to dips in occupancy rates during low seasons, which could impact the flow of rental income to investors
- Property management fees and channel booking fees are deducted as a percentage of the rental income and tend to be much higher than fees from long-term leasing
- A higher turnover of tenants could translate into an accumulation of costs associated with marketing, cleaning, maintenance fees, and preparing the property for new occupants – this is usually taken care of by a Holiday Home Management company that uses scale to keep the costs to investors down
- Even potential tenants may not undergo screening or background checks which can lead to problems with untrustworthy or unreliable renters
What is the difference between a holiday home and a short-term rental at Stake? The “holiday home” has become more of an umbrella term at Stake as it encompasses situations where tourists opt to stay in the space we’re renting out instead of a hotel room, but it has also grown to include business travelers with short stays.
Stake has three different scenarios for short-term rentals:
- The first is the standard ready furnished unit, ready to receive its first guests,
- The second is an unfurnished unit which sometimes needs some TLC and typically involves hiring a designer to furnish the space and make it into a beautiful home, adding value and making it attractive for visitors,
- And, the third is when a property is acquired through a property management company, is already managed as a Holiday Home, and thus is ready to go live ASAP.
We partner with two kinds of short-term property managers to look after carefully selected units that are expected to perform well with this leasing strategy. One type of PM is the well-established service provider that looks after a large portfolio on the market, has deep ties with booking channels, prioritizes landlord and guest relationships, and is able to keep the fees/costs down. Another type of PM is the more niche provider, which looks at less typical ways to book guests by partnering with travel agencies, multinational firms, or events. Either way, sourcing the owners’ better rental income and fewer occupancy rates, and thus a nicer looking bottom line.
Testimonial from Short-Term Property Manager, “Guestready”
“We developed a great mutual partnership with Stake, and their dedication to bringing out the most from Short-Term Rental is evident in all aspects. We appreciate their attention to detail and creative approach to driving growth mutually.”
So which one should I select as a novice investor?
Ultimately understanding what works best depends on individual circumstances, tastes, and risk appetites hence, it’s essential to assess all factors involved including cost analysis, income, and occupancy projections, property location and leasability, future developments, and desired return thresholds. For those looking for more stability, a long-term rental may be the best option. And for those searching for flexibility and convenience, a short-term rental may be the ideal choice.
TL;DR | Making informed decisions is key when investing in any asset, especially real estate. And one of the many considerations to account for is the property’s lease type or format – is it a short-term or long-term property listing? We’ve compiled the differences between the two in a table to save you some reading time so that you can focus on making your next investment!
Take a look👇
- Minimum one year long lease agreements
- Offers stability and security as rent is guaranteed over a longer period of time
- Popular among expatriates
- May (or may not) include a rental lease renewal option
- Rental rates are usually negotiable
Renters typically required to pay a security deposit and advance rent for a whole year
- Furnishing conditions may vary per property
- Location varies
- Stays vary between 2 nights to 1 month
- Offers more flexibility in terms of length of stays on property
- Popular among tourists and business travelers
- Renters can move out at any time without incurring penalties
- Renters may have to incur higher rent rates depending on the season and demand
- Renters to pay the full charge for their stay in advance through a booking platform
- Usually fully furnished units
- Location oriented and tourist-friendly