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In the U.S., most leases last 12 months, but some tenants may prefer to sign a lease for two years or more. If you own or manage rental properties, you might wonder whether offering long-term leases is a good strategy.
If you own multiple rental properties, you may be weighing the pros and cons of long-term versus short-term leasing. The right choice depends on several factors, including your investment goals and the level of management effort you’re willing to commit to.
What Are Long-Term Leases?
Long-term leases are rental agreements that last for a year or more. Short-term leases, by contrast, typically span less than a year and often refer to agreements lasting six months or less, including month-to-month agreements. While 12-month leases are common, some properties now offer longer lease terms, such as 13, 15, or 24 months. Extended lease terms benefit both landlords and tenants by providing stability—tenants can secure housing for a longer period, while landlords enjoy a steady income and reduced turnover costs.
Pros of Long-Term Leases
Offering long-term lease agreements provides several advantages for landlords and property managers in Virginia:
1. Stability
Long-term leases offer price stability since landlords generally cannot increase rent during the lease term, except under specific legal conditions. Short-term leases, while flexible, can result in inconsistent income for property owners.
A long-term lease provides a reliable income stream and reduces the financial uncertainty associated with frequent tenant turnover. This stability allows property owners to predict and plan their return on investment (ROI) more effectively.
2. Simplified Property Management
Finding and screening new tenants requires time and resources. With long-term leases, tenant turnover is reduced, minimizing the need for frequent advertising, background checks, and lease negotiations.
Additionally, tenants in long-term rentals are more likely to handle minor maintenance issues themselves. In contrast, short-term tenants may expect the landlord to handle every small repair, which can add up in terms of both cost and time.
3. Utility and Maintenance Costs Passed to Tenants
In many long-term rental agreements, tenants are responsible for paying their utilities, such as water, electricity, and gas, based on meter readings. Depending on the property, tenants may also cover additional expenses like security, maintenance, and cleaning fees.
4. Cost Efficiency
Long-term rentals generally require less maintenance, have fewer turnovers, and demand less advertising than short-term rentals. As a result, they can be more cost-effective for landlords who want to maximize their rental income with minimal ongoing expenses.
5. Lower Vacancy Risk
Signing long-term leases significantly reduces vacancy risk. For instance, a tenant who commits to a two-year lease may decide to stay even longer. In contrast, short-term tenants are more likely to leave at the end of their lease, creating a vacancy that requires time and effort to fill. Longer leases ensure consistent occupancy and minimize financial losses due to turnover.
Cons of Long-Term Leases
While long-term leases offer many advantages, they also have some drawbacks:
1. Fixed Rental Rate
A long-term lease locks in a rental rate, limiting the landlord’s ability to adjust rent based on market fluctuations. If rental prices increase significantly, landlords may miss out on potential higher earnings. Conducting thorough market research before setting a long-term lease rate is crucial to mitigating this risk.
2. Risk of Difficult Tenants
A long-term lease can be a drawback if a tenant turns out to be problematic. Issues may include:
- Failing to comply with lease terms
- Frequently paying rent late
- Disrupting other tenants
Because long-term leases create a longer commitment, landlords should conduct comprehensive tenant screenings, including background checks and rental references, before finalizing an agreement.
3. Limited Flexibility
Once a property is rented under a long-term lease, landlords have limited flexibility to repurpose the unit or make significant renovations. Planning ahead is essential to avoid conflicts between lease agreements and property improvement plans.
Conclusion
Deciding between short-term and long-term rental agreements depends on your location, investment strategy, and level of involvement in property management. If your property is in a high-demand, transient area, short-term rentals might be profitable. However, in residential neighborhoods, long-term leases can provide stability and financial security.
For guidance on rental agreements and Virginia rental laws, contact PMI of Fairfax for expert property management services.
