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The pros and cons of short vs. long-term leases

By Greg Bell

When you own a commercial property and rent it out to another business, you have a lot of things to consider when it comes to leasing. Perhaps chief among them should be the length of that agreement: Some might prefer month-to-month leases, while others opt for multi-year deals. There's no right answer for you to rely on, but you should absolutely know the ins and outs of what either option might provide.

Read on to learn more:

Pro for short leases: You will be able to charge more

First and foremost, you need to understand that short-term leases come with increased risk, but you can make up for that by charging more per month than if you went long-term, RealEstate.com.au said. The difference between these two figures could be substantial. But you'll need to be highly considerate of striking the right balance between these options, and price it just right for both you and your new tenant.

Pro for long leases: Increased stability (with the right tenant)

On the other hand, if you agree to a long-term lease, you probably will be able to rely on receiving monthly rental income for years down the road, The Morris Group explained. As long as the tenant is trustworthy and you are able to work together effectively for many months to come, this can be an ideal situation.

Con for short leases: More vacancy risk

If you're going month-to-month or even with a one-year lease, the odds that the tenant leaves at the end of the agreement (or on relatively short notice) increase dramatically. As such, you could face months or more without finding a new tenant, meaning you miss out on the rental income you might have otherwise enjoyed.

Con for long leases: Less flexibility (with the wrong tenant)

If you sign a long-term leasing deal with a tenant that ends up being unreliable or otherwise just highly difficult to deal with, you might rue the decision. As such, due diligence before you sign anything should be as stringent as possible.

Whether you are looking to buy your first commercial property or your 10th, it's vital to work with an experienced real estate agent who can set you up for success in the long run. At Ray White Surfers Paradise, we've helped countless commercial buyers close deals to grow their portfolio and continue to thrive for many years, and would love to be able to do the same for you. Get in touch with us today to learn more about how we can help.

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