The Mid-Term Rental Strategy and Why It Might Be Right For You
By Sarah Weaver
There’s a reason everyone is talking about the medium-term rental strategy. That’s because investors everywhere can use this 30+ day stay model to enjoy increased cash flow and avoid crackdowns on short-term rental regulations.
You might be asking yourself, “What’s the difference between a medium-term rental and a short-term rental?” Great question! A medium-term rental has a minimum stay of 30 days. Because of this, MTRs (medium-term rentals) are not subject to many of the ordinances that often restrict STRs (short-term rentals). Most medium-term tenants occupy a furnished rental for two or three months. Another part of the allure of MTRs is that they boast higher returns than long-term rentals.
Like any investor, you’re probably wondering what type of returns to expect with this strategy and how it stacks up against LTRs (long-term rentals) and STRs. The answer is complex, but there are some general trends you can follow.
Disclaimer: Rates of return vary, and there is no one-size-fits-all model for target cash-on-cash (CoC) returns by strategy. Short-term rentals can produce similar returns, or they could tank. It all depends on the deal, how much capital you’ve invested, how the deal was structured, and how much rent you can earn. Oh yeah, and it also depends on a little thing we call interest rates. This is why most investors will shy away from publicly announcing their deal criteria—because it is so variable and unique.
That being said, there are some very basic, generalized rates of return that you can use to start narrowing down what strategy to choose:
Long-term rentals: Most investors want to “beat the stock market.” If the average rate of return for the stock market is between 7-9%, long-term buy-and-hold investors look for a CoC return greater than 8%. Otherwise, some investors choose to invest in the stock market rather than deal with tenants, repairs, and expenses.
Medium-term rentals: One of the draws to medium-term rentals is that you can charge a higher premium for this type of housing. Investors typically enjoy greater than 15% CoC returns, but this can go as high as 40% or 50%. I once paired house hacking and the MTR strategy for 73% CoC returns. Receiving these types of returns with less turnover and less tenant interaction than short-term rentals can have investors running, not walking, to this strategy.
Short-term rentals: Typically, short-term rentals give you the most “bang for your buck” when it comes to cash flow. It is not uncommon for investors to seek greater than 15% CoC returns with this strategy. Again, this can vary depending on the performance of the property.
If the idea of increased returns with less turnover has you hooked, you are not alone. If that’s you, read on to learn more about the medium-term rental strategy:
What is the avatar for potential tenants?
The majority of the tenant pool is travel nurses who travel the country taking contracts at different hospitals. However, do not overlook the other populations who contribute to demand, like utility workers, traveling corporate professionals, displaced families (think fires, floods, etc.), or folks who are relocating to the area and need a furnished rental before they buy a home. The list goes on.
Sounds incredible? Where to look for deals?
Medium-term rental markets are everywhere! No, seriously, they are everywhere. Unlike destination hotspots for short-term rentals or the consistent growth required for a solid long-term market, medium-term markets simply require a few amenities to draw tenants to the area. Look for things like a concentration of hospitals, corporate headquarters of large companies, utility project sites, universities, and other businesses or structures that would draw potential medium-term tenants to the area.
Like any investment, make sure you do your homework on the market you choose and the property you are purchasing. Analyzing a medium-term rental deal is slightly different than a long-term rental, so make sure you are running your numbers with confidence. For example, don’t forget to add the cost of furnishing the unit to your initial investment. Even an additional $10,000 invested can turn a decent deal into a poor deal, especially in this market.
About the author:
Sarah Weaver is an author, speaker, coach, real estate investor, and business owner. Sarah runs three businesses that serve both real estate investors and real estate agents.
Sarah is the co-author of 30-Day Stay: A Real Estate Investor’s Guide to Mastering the Medium-Term Rental (use code SARAH for 10% off). She owns and self-manages nine furnished rentals and ten long-term rentals from afar while traveling the world. The medium-term rental strategy has helped her achieve massive returns, and she loves helping other investors achieve the same.
You can learn more at www.sarahdweaver.com or email firstname.lastname@example.org.
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