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What is Assured Shorthold Tenancy?
An Assured Shorthold Tenancy (AST) is the typical and most common form of buy-to-let. It is an agreement between a tenant and a private landlord or letting agency to rent a property. An Assured Shorthold Tenancy is contracted over a fixed period, from as few as 6 months and as commonly as 12 months.
While an AST has a minimum fixed contract length of 6 months, there is no maximum duration of stay. A contract may be for 12 months or as a simple rolling weekly or monthly agreement. An average duration, however, can last for up to 3 years.
An Assured Shorthold Tenancy is an investor’s most common – almost the ‘default’ – buy-to-let in their property portfolio. They are popular for a reason. ASTs are seen as a more stable and reliable way to generate passive income, with the potential for greater profits in areas with high employment rates and a youthful population, where rental demand is rife.
What is a Short-Term Let?
While an Assured Shorthold Tenancy can be for as short as 6 months, a Short-Term Let (STL) covers tenancy for anything under 6 months. STLs can range from a whole house or apartment to a single room in a property shared by the landlord or other short-term tenants.
Short-term rentals are more commonly seen as furnished holiday homes, seen in the likes of Airbnb. Since the pandemic and the rise of ‘staycations’, these became the more popular mode of holidaying. Due to the increase in short-term lets, they have become some of the best types of property investments. Still, today in tourist hotspots, holiday-goers or those travelling for certain events prefer a short-term let to a hotel room. 47% of families who have experienced a staycation holiday within the past 3 years are interested in renting a cottage or room for future trips over a hotel.
In terms of a holiday let, tenants of a short-term rental are guests rather than residents. The property is fully furnished and equipped with all living essentials, apart from food. Utility bills and council tax are paid by the homeowner, rather than the tenants. For this reason, alongside cleaning, the costs to maintain a short-term rental can make up 43% of the rental income compared to the 31% of an Assured Shorthold Tenancy. However, even with higher costs, the holiday let industry has generated greater income than traditional buy-to-lets.
An Assured Shorthold Tenancy, like traditional buy-to-let properties, can offer a more stable and reliable income due to longer periods of stay. Short-Term Lets, however, can offer higher rewards despite occasional higher costs for upkeep. They can be seen as riskier investments due to potential void periods in between visitors. Such concerns can easily be avoided, however, if aspiring landlords are prepared before their investment.
Despite its rise in demand and generated income, only 1.5% of landlords have joined the world of short-term lets. Many buyers are put off by such investments, believing they are limited to tourist locations and seasons. But this is not the case. Areas near hospitals and sports stadiums are perfect examples of short-term lets. Here, demand is always there and not limited to a certain time of year.
Investing in a BMV property or off-plan development often guarantees higher returns for both tenancy types, due to lower buying prices. An Assured Shorthold Tenancy is the most common and popular investment for a reason. It is a reliable source of passive income, often built on a rolling contract. However, with Short-Term Lets’ 7% growth from pre-pandemic figures in 2019 only growing further, perhaps investors should break from the norm and benefit from the ever-rising demand and benefits of the holiday let industry.
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