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Case Study: Short-Term Rentals vs Buy to Let Earning Potential


In the United Kingdom, the choice between short-term rentals and buy-to-let investments can have a significant impact on your potential earnings as a property owner. To illustrate the difference, let’s consider a case study comparing the potential earnings in Wales, a popular destination for both short-term and long-term rentals.

Scenario 1: Short-Term Rentals

Property: A two-bedroom apartment located in Cardiff, Wales, in a prime tourist area near the city centre.

Earnings Breakdown for Short-Term Rentals:

  • Nightly Rate: £100 per night (varies based on season and local demand).
  • Occupancy Rate: 70% (typical for popular tourist destinations).
  • Annual Earnings: £100 (nightly rate) x 365 (days in a year) x 70% (occupancy rate) = £25,550 per year.
  • Additional Expenses: Let’s assume annual expenses, including cleaning fees, maintenance, and platform fees, total £5,000.
  • Net Earnings: £25,550 (annual earnings) – £5,000 (expenses) = £20,550 per year.

Scenario 2: Buy-to-Let Investment

Property: A two-bedroom apartment located in the same area of Cardiff.

Earnings Breakdown for Buy-to-Let Investment:

  • Monthly Rent: £800 (typical for a two-bedroom apartment in this area).
  • Occupancy Rate: Assuming full occupancy (which is not always guaranteed).
  • Annual Earnings: £800 (monthly rent) x 12 months = £9,600 per year.
  • Additional Expenses: Annual expenses, including property management, maintenance, and property tax, total £2,000.
  • Net Earnings: £9,600 (annual earnings) – £2,000 (expenses) = £7,600 per year.

Comparison

Now, let’s compare the earnings from the two scenarios:

  • Short-Term Rentals: £20,550 per year
  • Buy-to-Let Investment: £7,600 per year

Conclusion

In this case study, short-term rentals in Wales, specifically in Cardiff’s prime tourist areas, have the potential to generate significantly higher annual earnings compared to a traditional buy-to-let investment in the same location. Short-term rentals benefit from higher nightly rates and the ability to adjust prices based on demand, resulting in a substantial income boost.

However, it’s important to note that short-term rentals also come with greater operational involvement, including cleaning, guest communication, and maintenance. Additionally, the occupancy rate for short-term rentals can fluctuate based on seasonality and market conditions. This is where a management company can really help to provide a hands off service and will be able to increase occupancy all year long.

Ultimately, the decision between short-term rentals and buy-to-let investments should be based on your financial goals, risk tolerance, and willingness to actively manage your property. While short-term rentals can offer higher earnings, they require more hands-on attention, while buy-to-let investments provide a more stable income stream with fewer operational demands. It’s essential to carefully consider your investment strategy and circumstances before choosing the right path for you in the Welsh property market.

This article cannot and does not contain legal or financial advice. The information is provided for general informational and educational purposes only and is not a substitute for professional advice.