Here’s Why Medium-Term Rentals Are Good First-Time Investments
About 50 percent of my client base is comprised of investors in all stages of investing. We have people that are brand new to investing and/or home ownership, people that own between three to five properties, and then people who have been doing this for a long time with many different properties in many different locations.
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I think we all aspire to be that last demographic, but it can be difficult to get yourself from zero investments to seasoned investor. And it can be particularly hard to go from zero investments to one investment. For this reason, I like medium-term rentals for first-time investors.
What Is a Medium-Term Rental?
Medium-term rentals are often thought of as subletting, and what they usually look like are furnished rentals for 31 or more days. Frequently, the demographic for these rentals are traveling nurses, corporate employees, people considering divorce, and new transplants to your city that aren’t ready to commit on a neighborhood yet. All of these subsets need somewhere to go, and you can give them a place.
Why You Should Invest in Medium-Term Rentals
1. The Money
While we find people get the best returns doing short-term rentals (aka Airbnb), there are often reasons not to do an Airbnb: local regulation, the amount of work, stranger danger, etc. And while long-term rentals are hypothetically the easiest investment, the money is not as good. That leaves us with medium-term rentals, which tend to return about 1.25-1.5 percent of what you would make with normal, long-term rentals.
2. The Work
Medium-term rentals require more work than a long-term rental, and less work than a short-term rental. With a long-term rental, there is no furnishing. You buy the place and then find a renter. For a short-term rental, you have to buy a place, furnish it, craft a listing (or many listings), and then maintain the guest experience for the rest of time. (This can can get tedious.) Whereas, medium-term rentals require you to 1.) purchase the place, 2.) furnish it, 3.) build a listing or listings, and 4.) have very limited to almost no client contact after the tenant has been installed.
3. The Commitment
Inexperienced investors often talk themselves out of investments because of the commitment. They are traumatized by others’ horror stories of long-term tenants flooding the basement or short-term tenants throwing parties and trashing the place. Let me take a second to debunk those both: I know a lot of investors, and I’ve asked around for horror stories and nobody really has any. Doing your due diligence up front helps a lot with this. Likewise, short-term renters can be given reviews and tend to like using Airbnb and want it to stick around—so they act accordingly.
If you’re still feeling weary about short-term rentals, then medium-term rents are the way to go. Your commitment to your tenant is usually fairly short—three to six months—so you aren’t stuck in a never-ending nightmare scenario. Alternately, this model minimizes the amount of vetting (or trust) you need to have in your tenants because the turn over is limited. I also love this option because if you do get your feet under you and decide to try short-term rentals, it’s an easy transition.
4. The Demographic
This demographic tends to be responsible. They are either part of a typically responsible set (traveling nurses, corporate employees, etc.) or they have a major life issue going on that usually precludes them from partying (pondering a divorce, being new to a city, having a dying loved one… none of these things usually support a rager in your place.)
5. The Laws
Again, short-term money tends to be the best money, but regulation continues to shift in different cities concerning Airbnb and other short-term platforms. But 30+ day rentals typically are the legal cutoff nationwide. That is to say, you get a renter in there for more than 30 days, you are usually in the clear.
I love this model so much, I do it myself for all the above listed reasons.
Do you have questions or want to learn more about medium-term rentals?
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