Finding the optimal method of portfolio diversification can be challenging due to the wide variety of available investment vehicles. Some investors favor Airbnb-style short-term rentals, while others prefer a more traditional long-term approach. Nonetheless, there is another option that has been less popular in the past but is quickly expanding as investors realize a new and lucrative opportunity: short- to medium-term rentals. This emerging market has a lot of potentials because it combines the best features of short-term rentals and housing for long-term tenants. What follows are the keys to long-term success in investing in rental property.
Rental properties are classified into three types: short-term, mid-term, and long-term rental property investments.
Short-term rentals, also known as vacation rentals, are any rentals that are used for thirty days or less. These rentals are most common among tenants who are visiting a specific location, doing business travel or short-term job placements, or who require temporary housing in a new location.
Mid-term rentals are those that can be occupied for a longer period of time, typically between one month and one year. Mid-term rentals are very versatile since, unlike long-term rentals, they typically arrive fully equipped and ready for tenants. The majority of tenants stay for three to nine months, making them ideal for travelers who need a short-term residence but will be in town for more than a few weeks.
In general, people who intend to remain in one place for at least a year should look at long-term leases. Many real estate investors can only afford to buy apartments with standard 12-month leases, but those who are willing to be more flexible stand to make a lot of money.
Mid-term rentals are typical in countries where people move around frequently or take long trips of several months' duration, but the concept is still relatively unfamiliar in the United States. Short-term leases of more than a few weeks or months are generally disregarded by both tenants and investors. Nevertheless, this neglect masks a rich opportunity: the short-term rental market is rapidly expanding, and those who get in at the ground level may reap substantial financial rewards. It's no secret that property owners get several rewards.
For starters, given the novelty of the idea, there is potential for ambitious financiers to expand. Mid-term rentals are still growing, especially in densely populated places like New York, which is where services like Airbnb have reached saturation. Less competition equals more opportunities to advertise to in-need tenants.
Rental prices for short-term rentals tend to be higher than those for longer stays, which is great news for investors who are sick of the constant churn that comes with holiday rentals but who don't want to commit to having someone live in their property full-time for several years. Mid-term rentals can charge up to $1,200 per month in a city where the average monthly cost of a one-bedroom apartment is $1,000 on the long-term rental market and $1,500 on the short-term rental market. This is because they are not subject to the ebb and flow of the short-term rental market, which relies on a steady stream of tenants.
Investors may find short-term-rental-like returns in regions where the market for longer-term leases is only getting started. When the supply of suitable short- to medium-term rental options is low, even a somewhat high asking price may be enough to attract interested parties.
The appeal of mid-term housing, particularly for enterprising investors, is widespread. While many residents will continue to seek traditional long-term rentals, mid-term rentals can appeal to a wide range of people, including those who aren't fans of the exorbitant rates that short-term rentals can command. The mid-term rental market is ideal for the following purposes:
There are a variety of lease structures available to landlords who wish to enter the mid-term rental property investment market. There are many, but the most common are:
Some who have been attached to the concept of short-term rentals may find it difficult or even risky to consider alternatives. For many, though, the inverse will be the case when it comes to real estate investments. Mid-term leases, on the other hand, can be a key to greater financial success and a more promising future. Because of this, switching to properties with a mid-term lease could be a good option for you.
Many of the benefits of short-term rentals are also present in mid-term rentals, but the high turnover rate typical with holiday rentals is absent. Considering the various advantages and cheap costs associated with renting for longer periods (some of which are stated below), it may be worthwhile to consider doing so.
Tenants who aren't planning to stay for more than two weeks due to a vacation are a better bet. Mid-term rentals can have many of the same protections as long-term properties, but in short-term rental situations, there is usually less background screening because no one wants to perform a credit check only to go to the beach. This may involve things like a confirmation of employment or income, a credit check, a background check, or a certified check.
Many different options are available for short-term rentals. A string of successful months can suddenly become a string of empty weeks. Since renters of a mid-term rental are more likely to be settled in for an extended period of time, the risk involved in collecting rent up front, as well as the security deposit and first month's rent, is lower.
There is a substantial reduction in management duties when there is no need for frequent deep cleaning between guests. Constant cleaning and maintenance for vacation rentals can eat into earnings.
Have second thoughts about forgoing premium pricing just because it's the holiday season? You don't have to. Many investors use a short-term business model during peak seasons and a mid-term leasing strategy during off-peak times. This will ensure steady income throughout the year without the hassle of accommodating transient guests during slow seasons.
Mid-term rentals are a viable option for investors of all types, however, some regions and rental approaches are more likely to yield returns than others. Here are some of them:
If you're prepared to invest in the mid-term rental market, the appropriate strategy is essential. Follow these guidelines and you'll be off to a flying start.
If you're trying to rent out a room, owning a room alone might not be enough to compete in a rising mid-term market. Make sure your rental building has all the features that tenants are looking for, such as a video doorman in high-traffic areas where safety may be an issue. You should always strive to exceed expectations.
Nobody settles into a vacation rental like it's a new home, but with mid-term rental property investments, that mindset shifts. With tenants staying for up to a year, you'll want to do everything you can to make them feel safe and at ease. This can include comprehensive furnishings, quality mattresses, quality linens, and appropriate decor - in short, everything you would expect to find in your own home.
While managing a mid-term rental is typically less of a hassle for a landlord than a short-term one, there are still factors to take into account. In long-term rentals, the costs associated with things like cleaning between tenants, conducting credit checks less frequently, and advertising the property more frequently when it is vacant build up less dramatically. On top of that, think about:
Don't just publish photographs of the property online and hope you have tenants; show them that you care about their requirements and will do what it takes to accommodate them. Things to keep in mind include the availability of basic necessities like groceries and healthcare, as well as conveniences like public transit and job prospects.
Landlord responsibilities are highly influenced by local law, as they are with any property investment. Before renting out an investment property, make sure you understand the necessary steps and consult a real estate attorney if you have any questions.
You should also make sure that you can be found on more niche websites like Zillow, which cater only to people looking to buy or rent a house for an extended period of time. You can reach tenants looking for rental properties like yours by posting ads on websites like Sublet.com (which goes beyond true subletting), Leasebreak (which advertises mid-term sublets for those who don't want to break a lease), and Short Term Housing (don't let the name fool you—the offerings are largely mid-term).
Whether mid-term rentals are a new and intimidating market for you, or you've been looking for a promising alternative to short-term vacation rentals, entering this exciting market can be viable - and profitable! - real estate investment strategy.
Looking at obtaining a rental property for this purpose? Our team here at Nvestor Funding can help. Feel free to submit the details of your loan through our online intake form by clicking Apply Now.