BTL VS STR Property Strategies!

Buy-to-Let vs. Short-Term Rentals: Which Offers the Best Rental Yield?

When it comes to property investment, choosing the right rental strategy can make a significant impact on your profits. Investors typically consider two main approaches: Buy-to-Let (BTL) and Short-Term Rentals (STRs), such as those listed on Airbnb. But which option offers the best rental yield? In this blog, we break down the numbers and factors that influence your returns.

Understanding Rental Yield

Rental yield is a key metric in property investment, representing the return on investment (ROI) generated by rental income. It is calculated using the following formula:

Gross Rental Yield = (Annual Rental Income / Property Value) x 100

Net rental yield takes into account expenses such as maintenance, management fees, and taxes, providing a clearer picture of profitability.

Buy-to-Let (BTL) Rental Yield

What is Buy-to-Let?

Buy-to-Let refers to purchasing a property specifically to rent it out on a long-term basis, typically with an Assured Shorthold Tenancy (AST) in the UK.

Average Rental Yield for BTL

• Typically 4-6% annually in the UK, but varies by location.

• Northern cities like Liverpool, Manchester, and Newcastle tend to offer higher yields (5-8%).

• London and the South East often have lower yields (2-4%) due to high property prices.

Pros of Buy-to-Let

✔ Steady, predictable income – Monthly rent provides consistent cash flow.
✔ Lower management overheads – Tenants typically stay for 6+ months.
✔ Lower maintenance & running costs – Tenants cover utilities.
✔ Fewer regulatory concerns – STRs often have stricter local regulations.

Cons of Buy-to-Let

❌ Lower profit potential – Rental income is fixed and may not grow quickly.
❌ Void periods – If the property remains vacant, income stops.
❌ Limited flexibility – Tenancies often last 6-12 months, making adjustments difficult.

Short-Term Rental (STR) Yield

What is a Short-Term Rental?

STRs are properties rented out on a nightly or weekly basis, often through platforms like Airbnb and Booking.com.

Average Rental Yield for STRs

• Typically 8-15%+ annually, significantly outperforming BTL in high-demand areas.

• Prime tourist/business locations see even higher yields (e.g., London, Edinburgh, Birmingham, and coastal towns).

Pros of Short-Term Rentals

✔ Higher income potential – Nightly rates are often 2-3x higher than long-term rents.
✔ Flexibility in pricing – Prices can be adjusted based on seasonality and demand.
✔ Personal use – Owners can block dates for personal stays if needed.
✔ Tax benefits – STRs can qualify for business rates instead of council tax, with potential tax deductions.

Cons of Short-Term Rentals

❌ Higher operational costs – Cleaning, utilities, and furnishing costs are ongoing.
❌ Active management required – Guest turnover and maintenance require time or a management company (15-25% of revenue).
❌ Regulatory risks – Some cities impose restrictions on STRs to control housing shortages.

Case Study: Buy-to-Let vs. Short-Term Rental in Manchester

Let’s compare a real-world example to illustrate the difference in yields.

Example Property: 2-Bedroom Apartment, Purchase Price: £200,000

Rental Monthly Income

BTL - £1,000

STR - £2,500

Annual Income

BTL - £12,000

STR - £30,000

Annual Costs (Mortgage, Maintenance, Management, etc.)

BTL - £4,000

STR - £10,000

Net Annual Income

BTL - £8,000

STR - £20,000

Net Rental Yield

BTL - 4%

STR - 10%

In this example, the STR generates more than double the net rental yield compared to the BTL model. However, it requires more active management and has higher running costs.

Final Thoughts: Which Strategy Is Best?

• For passive investors who prefer steady income with minimal involvement, Buy-to-Let is a safer option.

• For hands-on investors willing to manage operations or outsource to a property manager, Short-Term Rentals offer significantly higher returns.

• Hybrid approach: Some investors use both strategies—renting long-term during off-peak seasons and switching to short-term rentals during high seasons to maximize returns.

Conclusion

While STRs can generate higher yields, they require more effort and come with regulatory risks. BTL remains a solid, low-maintenance option with consistent returns. The best strategy depends on your financial goals, risk tolerance, and level of involvement.

If you’re looking to maximize returns from your property investment, Using a professional and experienced management company like us will be the best option for you! Our clients consistently see returns of 15-25% per year, an ROI not to be ignored!

Want to learn how to optimize your short-term rental strategy and maximize bookings? Get in touch with us at Optimal for expert guidance!