Corporate Rentals - Any downsides?

Question

Let me preface this post by saying this is going to be my first property purchase. With that, I want to do everything in my power to ensure that this deal will be a positive experience.

I have recently found a 2bed/2bath condo in Arcadia, Phoenix, AZ. Arcadia is an upscale/highly desired section of Phoenix. The condo itself is nice, has great views, appears to be in good shape. However, rental rates in that area are barely enough to cover my mortgage costs. I would most likely live in it for about a year, then be ready to move on to another property.

I heard about corporate rentals and how companies house their employees for a few months at a time. The benefit is that the corporate rentals typically demand higher rents and your tenants are fully employed. The only downsides I can see are potentially higher vacancies and minor complications/additional forms when writing the lease. Overall, it seems like corporate rentals are the way to go in this situation. Does anyone have experience or any information about corporate rentals? Am I missing anything here?

Thank you!

Neal Collins · Answer

@Cole Martin If you're going to pay for advertising, I'd go for VRBO instead of CHBO and then list it on VRBO and Airbnb.

As for the year-long rentals---yes, that is exactly what I'm saying. Otherwise you run the risk of too much vacancy. On top you need to command a premium because it is a lot more work in terms of coordination.

Our definitions of "investment-grade" furnishings are probably different. If you buy cheap furniture expect it to break more often. A lot of people will argue on price, but start to do the math on how much beds, frames, sofas, tables, chairs, TVs, rugs, art, kitchen supplies, and all the other nick nacks cost and it is not cheap.

Cole Martin · Answer

@Neal Collins - Thank you for your input!  My biggest concern was the mismatch of tenancy dates. I contacted CHBO.com for a rental rate estimate and they came back with $2,300 - $2,700/mo (PITI = ~$1,300). Let's assume for a moment that these rates are accurate. Are you suggesting contacting companies in the area and offering my property as a year long rental for their needs at a reduced rental rate, say $2,000? I want to make sure I understand your recommendation.

Also, what type of furnishings did you provide? Were your properties completely furnished and if so, approximately how much would it cost to fully furnish a property with "investment-grade" furnishings?

Cole Martin · Answer

Here is a snippet from CHBO (granted they are also trying to sell their services, but I believe the sentiment still holds) -

"The Valley of the Sun, one of the fastest growing and largest metropolitan areas in the country draws those needing corporate housing year round due to its dynamic economy. Phoenix proper and the surrounding cities of Scottsdale, Tempe, Mesa, Gilbert, Glendale, and Goodyear are home to an expanding population along with companies that generate the need for furnished housing that offers a residence complete with all the comforts of home. Fortune 500 Hundred companies based in the area such as Avnet, Freeport McMoRan, Petsmart and Republic Services as well as firms with a significant corporate presence in the Valley like Honeywell Aerospace, Intel and American Express all contribute to the demand for longer term turn-key accommodations..."

Additionally, this is located fairly close to the center of Phoenix, which can easily access other parts of the metro area. I believe there is a market for it, but also to your point, is the market large enough to purchase this property to use as its only income source? I'm not sure and that's something I will look into.

I am not trying to convince you (or myself) of this property; I am mainly looking for any investors that have done corporate rentals and what their experience was. I do appreciate you looking out and making sure I don't burn myself from the beginning. Just trying to find where I fit in.

Andrew B. · Answer

Your exact wording was, "I heard about corporate rentals and how companies house their employees for a few months at a time. The benefit is that the corporate rentals typically demand higher rents and your tenants are fully employed."

This is different than someone determining that AirBNB (which is clearly not a niche) is a good investment, after analyzing other nearby STR market rates. Do you have reason to believe that Corporate rentals have a large market in your area? Do you have any solid backing that they are willing to pay more than market rent? Do you expect corporate rentals to be in higher demand in the near future?

I'm not saying you're stupid for asking the question, but you would be stupid to invest in a condo without some solid evidence that corporate rentals make sense AND have a large enough local market to substantiate the existence of your rental.

Just to play devil's advocate to myself, it is entirely possible that your local market for corporate rentals is huge, and this may be a lucrative niche and you may capture a huge market share. You never know until you try.

Cole Martin · Answer

@Andrew Boettcher Understood, however the same could then be said about AirBnB properties, yet that is the sole focus of some investors and it works well if done properly. I would consider this less risky than AirBnB, as the lease term can be substantially longer, but to your point, still less than a standard 1 year lease.

Andrew B. · Answer

Its not a good idea to focus on a niche market as the only way for your business to survive unless you are sure that that niche has a large enough market to support your business. If market rents are not high enough to make that condo a good investment property, then it isn't an investment property. Don't try to talk yourself into buying it based on a bunch of "what if" scenarios.

Corporate Rentals - Any downsides?

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