Medium-term rentals are more profitable than long-term rentals and less stressful than their short-term counterparts. While they used to be mainly for traveling nurses and business professionals, they’ve become more popular than ever due to the rise in digital nomadism and the stricter regulations enforced on short-term rentals.
In this post, we’ll explore how to invest in medium-term rentals so you can decide if they’re right for you.
What Are Medium-Term Rentals?
Medium-term rentals are furnished properties that tenants live in for more than 30 days but less than a year. They’re also ideal for seasoned and first-time investors, especially in a post-pandemic world.
5 Steps to Invest in Medium-Term Rentals
Investing in medium-term rentals requires you to understand the needs of your tenants. Here are a few things to consider before getting started:
1. Find an investor-friendly real estate agent
Investor-friendly agents have invaluable experience and know what to look for in a rental property. They’re keen on the rental market’s current trends and can identify undervalued areas. If they’re rental property owners themselves, they can also provide first-hand insight so you can try to replicate their successes and avoid their mistakes.
2. Choose the right market for your future tenants
Not every property will make an ideal medium-term rental. Your tenants will likely be students, traveling nurses, business professionals, and people new to the city. With that in mind, the following markets tend to be more favorable for medium-term tenants:
- Educational hubs: Towns and cities with colleges and universities are ideal for medium-term properties. Many properties that are within walking or short driving distances will likely be occupied by students, visiting parents, and professors who need housing for a summer or semester.
- Business centers: Areas with a rich business community attract a lot of business travelers and project-based professionals. They’ll need accommodations for a few weeks or months, depending on the projects they’re working on.
- Tourist destinations: Cities and vacation destinations that get a lot of tourism are also great for medium-term rentals. Sometimes, visitors want to spend an entire season there, such as a ski resort or a beach town.
- Medical facilities: Traveling nurses will need to be in proximity to the hospitals and clinics they’re working at, and will be looking for properties they can rent out for months at a time.
- Government facilities and military bases: Government workers, personnel, and contractors often require temporary housing near these properties. Typically, medium-term rentals are ideal for people in these professions.
3. Calculate the potential rental income based on average rates
Once you find a few prospective properties, it’s time to run the numbers. You will have to estimate expenses like utilities, maintenance costs, insurance, and property taxes, and you’ll also need to think about income. What potential rental income can you make based on the average pricing and occupancy rates?
We recommend analyzing for cash-on-cash return or your internal rate of return (IRR). Once you’re up and running, you should also use pricing software.
4. Purchase the property you’ll be leasing out
This step is pretty straightforward. Once you find an ideal property and the numbers look good, make an offer and negotiate the purchase price. Your investor-friendly real estate agent will be crucial for this step as well.
5. Fully furnish your property with everything your tenants need
Your tenants will call your medium-term rental “home,” but to them it’s temporary. They’ll pack more with them than they would when staying at a short-term rental, but not much more. It won’t make sense for them to buy furniture, serveware, or their own appliances. They’re likely just bringing their clothes, a few personal items, and toiletries. You’ve got to supply the rest.
Use Software to Streamline Your Processes
Once you’re up and running, make your life easier with software that’ll automate your processes.
Leasing software for all your paperwork
Medium-term renters stay longer than 30 days, meaning they are tenants and have rights that short-term guests lack. To protect yourself, you need a lease agreement. Your medium-term lease should include the same elements you’d have in a long-term lease, including:
- Rent amount, including late fees and the rent payment grace period
- Security deposit to cover any losses and necessary repairs
- Length of tenancy, including move-in and move-out dates (unless renewed)
- House/building amenities, such as a parking spot, pool, or gym
- Furnishings so that your renter knows what’s included
- Tenant responsibilities and expectations, including where and how to pay rent and where to submit maintenance requests
- Local ordinances, such as zoning regulations, noise, and pet restrictions
When drafting your need, ensure it abides by local laws and includes the specific address and unit number.
Pricing software helps you stay competitive
Hotel and Airbnb rates fluctuate all the time for an abundance of reasons, including season, availability, and special events. Pricing software analyzes what hotels and rentals charge per night to determine what you should charge.
When renting by the month, you’re probably not as concerned with the daily rates that short-term rentals live and die by. However, you should still use pricing software and change your rates based on the seasons. If your medium-term rental is a beachfront property, you’ll want to charge more during summer than in November. If your property is next to the ski slopes, your rates should be higher during the winter months.
Don’t treat your mid-term rental like a long-term rental. Pricing software looks at what short-term rentals charge per night and calculates a monthly total. Experiment with your pricing to see what you can get. It will likely be more than if you charged the same rate all year-round.
Auto-messaging software answers your FAQs
When a potential tenant sends you a message, you must respond quickly. On Airbnb, your response time should be within an hour. Unglue yourself from your inbox by setting up auto-responders.
Guest experience messaging software like Hospitable lets you set up automated responses to many FAQs you usually get from aspiring tenants, like what amenities are included and if pets are okay. You can also set up key messages that guide your tenants through their leasing experience.
According to 30-Day Stay co-author Zeona McIntyre, here are five messages you should include:
- Confirmation message: This should be sent almost immediately after a booking
- House manual: Your house manual should be sent after the confirmation message. It includes everything the tenant needs to know about the property. It can also have restaurant recommendations and popular things to do in the neighborhood.
- During your stay message: 24 hours after a tenant checks in, this message should include more detailed information about the property, such as where the garbage is.
- Check-out message: Send this message 24 hours before a tenant checks out. It should include the check-out time and what they should do before the cleaners arrive.
- Thank you message: Your “thank you” message should be sent on check-out day, thanking them for choosing to stay in your rental. It should also ask your tenant to leave a review. Reviews are great for search engine optimization (SEO), making it easier for future tenants to find you.
Build Your Power Team
As with other investment properties, you don’t have to purchase a rental in the same area you live in. Investing elsewhere is often recommended because there are likely better cash-flowing markets than where you live, and you’ll be less inclined to drive over to your properties every time you need to replace a key or fix a broken appliance.
Optimize your investment by building a team of professionals to do much of the heavy lifting for you. Here are three team members you should consider, according to McIntyre:
1. Investor-friendly real estate agents to help you find and lease properties
McIntyre recommends that you “Look for an investor-friendly agent that has short or medium-term rental properties [that they’re] either Airbnbing themselves or are co-hosting or managing for other people.”
Investor-friendly agents have invaluable experience and know what to look for in a rental property. They’re keen on the rental market’s current trends and can identify undervalued areas. If they’re rental property owners themselves, they can also provide first-hand insight so you can try to replicate their successes and avoid their mistakes. Also, investor-friendly agents have a vast network of other people you’ll want on your team.
2. Property cleaners to keep your rental looking spotless
Professional cleaners make for invaluable members of any rental property team. High-quality cleaners ensure that your space is wiped, scrubbed, dusted, polished, sanitized, and disinfected to look like new when your next tenants arrive. Professional cleaners make for invaluable members of any rental property team. As a result, you’re more likely to receive more 5-star ratings and glowing testimonials, allowing you to charge more and make bookings easier.
Professional cleaners can also provide you with updates anytime something needs to be fixed that’s outside their expertise, which brings us to your next team member:
3. Handypersons to keep your rental in great condition
A handyperson (a.k.a. handyworker, handyman, maintenance worker, repair worker, etc.) takes care of minor repairs, upkeep, and general maintenance. Typically, a handyperson handles a myriad of emergency and non-emergency repairs, including but not limited to:
- Heating or cooling issues
- No hot water
- Clogged toilets and drains
- Garbage disposals
- Painting and minor wall repairs
- Repair and replacement of typical household items (i.e., outlet covers)
- Repair and replacement of sinks, faucets, and kitchen appliances
- Lockouts (during work hours)
- Changing locks
You’ll want to work with a handyperson with multi-unit experience and living near your rental property. Again, ask your investor-friendly agent if they have any recommendations.
Other Potential Roles On Your Power Team
Investor-friendly real estate agents, cleaners, and handypersons are all excellent additions to your power team. Here are a few more team members to consider:
- Real estate attorney
- Accountant/tax professional
Benefits of Investing in Medium-Term Rentals
Here are a few reasons why you should consider investing in medium-term rentals.
They’re a good return on investment (ROI)
Short-term rentals typically offer the highest ROI but have increased risk and a larger time commitment. Meanwhile, long-term rentals are less risky and usually require less work on your part, but they also have the lowest ROI of the three rental types.
Medium-term rentals are right in that sweet spot. They’re less risky and labor-intensive than short-term rentals and deliver higher returns than their long-term counterparts because their renters are willing to pay a premium for your space. If they convert to long-term renters, they’ll likely continue paying the same amount, or at least more than if they initially became long-term renters.
You attract responsible tenants
Even though many medium-term renters are just passing through, they will stay awhile. Your property is their new home, and they’re likely to treat it respectfully. Many of them also have responsible professions and are in their late 20s or older.
They have fewer restrictions than short-term rentals
Given their recent surge in popularity and the occasional horror story, more and more homeowners associations and municipalities are cracking down on short-term rentals. Short-term rental property owners have to stay in the know about the many local and state laws they’re required to follow. Medium-term rentals lack many of these limitations, making them a great alternative.
Medium-term rentals don’t require a lot of time commitment
Medium-term rentals require furnishings and for you to build a list or multiple listings, but beyond that, their obligations are comparable to that of a long-term rental. You don’t have to worry about new bookings every week, organize frequent cleaning schedules, or maintain constant communication with your guests. Once your tenant has moved in, your required contact with them is pretty limited.
Now that you know the benefits of getting into the mid-term rental market, here’s how to automate your processes and make the most of your investment:
How to Invest in Medium-Term Rentals with BiggerPockets
BiggerPockets is dedicated to bringing together real estate experts, newbies, and everyone in between to gain the knowledge needed to reach their full potential. Are you ready to become a medium-term rental investor? Check out some of our other posts, including 30-Day Stay and Why Medium-Term Rentals Are Good First-Time Investments.
Master the Medium Term Rental
The first-ever book on medium-term rentals, this guide will help you find the right markets, properties, furniture, and tenants to make you a successful medium-term rental host with maximum cash flow and minimum worries.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.