Is Airbnb Short-Term Rental Better than Long-Term Rental in Dubai?
When it comes to buying properties for rent out as Airbnb in Dubai, investors are always looking for the best strategy to get the highest return on investment (ROI). Some investors find short-term rentals to be more profitable, while others may prefer long-term rentals for their consistency.
Ultimately, it’s a personal choice, so take a moment to compare the pros and cons. Think about what’s important to you when it comes to income predictability and managing tenants.
Airbnb & Short-Term Rentals Pros ✅
1. Potential to Maximize Income
Owners can generate more income with Airbnb and short-term rentals thanks to higher variables nightly rates and guests turnover. So how much more ROI? Property management companies in Dubai often promote revenue increases of 20%-30%, some even say up to 40%, for short-term rentals compared to long-term leases. Yes, short-term rental tends to yield a higher return, but it also depends on a number of factors, i.e. location, property type, occupancy, and pricing. Companies like Airdna.co and local property management companies have analytic tools that can help make better and more calculated predictions.
2. More Pricing Flexibility
Hosts have the flexibility to adjust their pricing to suit the current market condition. For example, prices can vary based on high and low seasons, weekends and public holidays, and during major events like Expo 2020 or World Cup. Discounts can also be offered for longer bookings or midweek stays.
With long-term rentals in Dubai, rent increases must follow the RERA (Real Estate Regulatory Agency) Rental Index when it comes to renewals. It’s often recommended to use RERA’s calculator to determine if landlords can increase their rents, so there are restrictions.
3. No Annual Commitment
Unlike long-term rentals in Dubai, short-term rentals do not have a 1-year lease agreement. A 12-month notice period is also not required if they decide to sell the property or use it for personal reasons. More importantly, you can have access to your own property or keep it available for family or relatives visiting.
To help protect hosts, Airbnb and property management companies have their set of rules and vacation rental agreements. This means that if a guest breaks the rules, you can contact Airbnb and the property management companies instead of having a long-drawn-out legal matter.
Airbnb & Short-Term Rentals Cons ❎
Of course, there will be a higher chance for damages than traditional renting. With short-term rentals, you’re getting the place ready after each guest leaves and replacing items that may be damaged. Long-term tenants see your property as their home, which means less wear and tear as they’ll put time and care into it.
While most bookings do not result in damages, some guests specifically book via Airbnb to plan their party venue for special occasions like bridal showers or bachelor nights.
Contrarily, one may argue that guests typically don’t spend so much time in the property. As tourists, they may be out a lot more exploring the city and have less time inside to wear out the property.
2. Higher Expenses & Upfront Cost
While owners may have the potential to bring in more cash, there is also higher cash outflow.
As a start, the owner will need a holiday home license from DTCM (Department of Economy and Tourism). The registration fee is AED 1,520, and the annual permit ranges from AED 370 to AED 1,270 depending on property size. There will also be an upfront cost to furnish the place, and if you want to maximize income and occupancy, good furnishing and professional photos play an important role. In other words, the place needs to look great.
Secondly, with vacation homes, it’s the host who provides and restocks amenities, necessities such as toilet paper and detergents, arranges cleaning and laundry, and pays for the utility bills. What’s more, you will need contents insurance for your own protection, which means overall more expenses.
3. Irregular Income
Typically, the income will be seasonal. It is very common to be completely booked out during the holiday seasons in Dubai, but have less bookings in the summer. Additionally, if you receive poor reviews on Airbnb as a newbie, it can decrease your booking potential drastically as guests may think you are unable to meet expectations. Hotel apartments and resorts in Dubai also tend to have very attractive low rates during the summer as your competition. The biggest advantage of long-term rentals is consistency which offers you protection from market and seasonal fluctuations. You’ll consistently get paid, and have a reliable income, which makes budgeting easier.
Things to Consider:
1. Is customer service your strength? Short-term rental works more like a hotel than a traditional lease. If you’re not interested in hospitality per se, managing short-term rentals may not be for you. It’s probably best to pay a property management company to handle it all.
2. Try it out. Do it for a year to test both approaches. See which one is makes more sense for you operationally and financially. If Airbnb doesn’t work out, you can always pivot to long-term rental.
3. Long-term rental is a better option if you are not in the country. You will still need an agent but it will be less work than managing short-term rentals. Airbnb is a good option if you live in Dubai and want to manage your own property directly.
4. When it comes to investing, a good Airbnb property will be different from a long-term lease property. As tourists, guests may look to be in the middle of the action or near Burj Khalifa, whereas someone looking for a long-term lease may want a place they can consider their home.
To analyze your ROI, here is our Rental Properties Cash Flow Calculator (Free Template) for you to download and customize.