Have You Thought of Mid-Term Rentals? Here's What You Should Know.
With so many different investment strategies, finding the best way to diversify your portfolio is not always easy. Some investors prefer short-term properties – think Airbnb – while others favor a long-term rental approach. Still, there's an alternative that's historically been less popular but is now growing rapidly as investors catch on to a new and profitable opportunity: mid-term rentals. A perfect marriage between temporary rentals and providing a home to long-term tenants, this burgeoning market is full of potential. This is what you need to know about rental property investment success in the mid-term market.
The ins and outs of rental types
Rental properties come in a few different forms: short, mid, and long-term rental property investments.
Short-term rentals, sometimes referred to as vacation rentals, are any rentals used for thirty days or less. These rentals are most common among tenants who are taking a visit to a particular location, are doing business travel or short-term job placements, or need temporary housing in a new destination.
Mid-term rentals are intended to be used for anywhere from a month to a year. Unlike long-term rentals, they usually come furnished and ready for tenants, making mid-term rentals significantly more flexible. Most are in use for three to nine months, providing a perfect base for those who need a temporary place to call home but are going to be in town longer than a few weeks.
Long-term rentals are more standard living arrangements for those who plan to stay put for at least a year. Apartments with normal 12-month leases are common for real estate investors and are the only viable option for many, but those who can be flexible can win big by doing so.
The growing popularity of mid-term Rentals – and why
Mid-term rentals have long been popular in Europe and other overseas areas where temporary relocations or months-long vacations are more common, but the idea is still relatively unknown in the US. Tenants and investors alike often overlook the idea of a short-term stay that extends beyond a few weeks or months, but therein lies the opportunity – as a fast-growing market, getting in on the ground floor could be very lucrative. And it's no surprise there are plenty of benefits for landlords.
First, as a newer concept, there's room for enterprising investors to grow. Unlike concepts like Airbnb, which are saturated in popular cities, even busy cities like New York City are still expanding in the mid-term rental space. This means less competition and more chances to market to prospective tenants in need.
Investors can also expect higher rental rates than long-term rentals – a boon for those tired of the turnover vacation rentals require without the commitment of around-the-clock residents for years on end. In a city where average rental rates are around $1,000 for a one-bedroom long-term rental per month and short-term rentals that ask for $1,500, a mid-term rental may command $1,200, all without the volatility of short-term rentals that require constant residents to turn a profit.
In areas where the mid-term rental market is still in its infancy, investors may be able to revel in rates that are within reach of short-term rates. For those who need a mid-term rental, even a higher-than-average price can attract attention when options are limited.
Who Is mid-term housing for?
The beauty of mid-term housing, especially for enterprising investors, is the wide-spread appeal. While many residents will still be looking for a traditional long-term rental, mid-term rentals can appeal to plenty of people, including those who aren't fans of the sky-high rates short-term rentals can demand. The mid-term rental market is ideal for:
- Students: Many college students only stay near campus from August to May, choosing to return to their hometowns during the summer. As such, a long-term lease can be a waste of money. Mid-term rentals can be more appealing, even with a higher per-month rate. A nine-month rental at $1,100 a month will cost $9,900 in total versus $12,000 for a $1,000 per month annual-term lease.
- Tenants Moving to a New City: Those who are relocating need a temporary place to call home, while apartment-hunting are a great fit for mid-term rentals. This is especially true in areas where the rental market moves quickly, and it's almost impossible to find a long-term rental without boots on the ground, like New York City or the Bay Area. Mid-term rentals provide stability without the need to bounce from one short-term rental to the next and still offer wiggle room for those who find a place fast.
- Corporate Housing: Many companies move employees around short-term, like consultants, public accountants working on company audits, or temporary employees filling a seasonal role. Mid-term residences are perfect for meeting company needs – and relationships with local companies can mean regular business.
- Homeowners Between Buying and Selling: Depending on the real estate market, buying or selling may be easier than the alternative at any given time. When the market is hot, and homeowners want to sell quickly – or if the opposite is true – they may be in between houses for a period of time. With a mid-term rental, the door opens for an affordable place to stay while waiting to make a deal.
Potential lease terms and options
For landlords looking to break into the mid-term rental property investment market, there are a few different ways to structure leases. The most popular include:
- Term Leases: A term lease is a standard rental model, with tenants offered a lease agreement for a specified term. With mid-term rentals, these terms are usually three to nine months but can be customized or standardized to meet your unique investment goals. These leases are the most common across long-term rentals, so many tenants will be reassured by the option of a standard leasing agreement that they recognize and understand.
- Month-to-Month Leases: As the name implies, month-to-month leases are renewed monthly rather than after the term of a rental agreement. These agreements can be more flexible for tenants and come with an added perk for real estate investors – a reason to raise rental rates. Convenience can cost, and because tenants usually know this, they're willing to pay steeper prices for the ability to move on whenever necessary. This is particularly true for tenants actively searching for longer-term accommodations.
You may choose to stick with one form of a lease term or offer flexibility to tenants, depending on which option is best for your real estate investment strategy.
Pivoting from short-term rental to mid-term rental investments
If you've been married to the idea of short-term rentals, making a switch may seem overwhelming or potentially risky. However, for many real estate investors, the opposite will be true. Instead, mid-term rentals can open the door to higher profits and a brighter future. This is why you may want to consider making the leap to mid-term properties.
Same upsides, less turnover
Mid-term rentals have many of the upsides of short-term rentals but without the biggest downside of vacation properties – the turnover. With similar price points and benefits in many other areas, as listed below, renting for longer periods can mean regular income without time spent turning over your unit for a new tenant.
When renting to tenants who aren't staying for two weeks to vacation, you're more likely to have a quality pool of candidates. There's usually little background checking in short-term rental scenarios because no one wants to do a credit check just to go to the beach, but mid-term rentals can come with many of the same protections as long-term properties. This can mean certified checks, credit checks, background checks, and even things like employment verifications or income restrictions.
More consistent rent payments
Short-term rentals can mean lots of variabilities. A few months of back-to-back business can quickly turn into weeks on end without tenants. This is less of a risk with mid-term rentals, as tenants will be planning on a longer stay from the start, with the added benefit of requesting the first and last months' rent and a security deposit.
Less management and maintenance
When you're not constantly deep cleaning between guests, there are far fewer management responsibilities involved. Short-term rentals can require consistent cleaning and maintenance, which can significantly cut into profits.
Cover off-season gaps
Afraid to give up the benefits of premium pricing during vacation season? There's no need. Plenty of investors do both; busy season can operate via a short-term model, with the option to offer mid-term leases during the slower times. This will keep income coming in without the need to wrangle up a revolving door of short-term guests at undesirable times of the year.
Who will succeed in the mid-term investment market?
While investors of all kinds can see success in mid-term rentals, some areas and rental strategies are better positioned for profits than others. These include:
- Property investors in seasonal towns that see high demand periods throughout the year; these landlords can leverage short-term rentals in the busy season and convert to mid-term when the tourist rush dies down
- Properties near corporate headquarters or businesses that bring in out-of-towners for projects, ensuring a steady stream of potential tenants from consistent sources
- Investors who are tired of the hassle of short-term rentals but would prefer not to offer long-term leases
- Real estate investors who previously worked in long-term rental but who want to leverage the possibilities in a burgeoning market
Tips for mid-term rental success
The right approach is key if you're ready to commit to the mid-term rental market. These tips for success can help you get started on the best possible foot.
Outfit your property appropriately
Simply having a room for rent may not be enough in an area with a growing mid-term market, so this means your property will need to meet area demands. Be sure your property offers the amenities and options tenants will expect, like a video doorman in busy cities where safety might be a concern. Whenever possible, go the extra mile.
Create a home-like experience
No one is settling into a vacation rental like it's a new home, but that mindset shifts with mid-term rental property investments. With tenants staying for as long as a year, you'll want to do all you can to help them feel safe and comfortable. This can mean things like comprehensive furnishings, quality mattresses, quality linens, and appropriate decor – in short, all of the things you expect to have accessible when in your own home.
Consider extra costs
Mid-term rentals are generally easier to manage than short-term rentals, but there's still an onus on a landlord to consider. Things like cleaning between tenants, more frequent credit checks, and more required listings to advertise your property when vacant can add up in a way that's less significant in long-term properties. In addition, consider things like:
- WiFi and TV costs
- Higher utility expenses, especially if included in rent
- Regular pool maintenance, if applicable
Learn how to market
When marketing your property to prospective tenants, don't just post some pictures; reassure them you can meet their needs. This includes things like noting the proximity to grocery stores, whether healthcare is easily accessible, your proximity to public transportation if necessary, and the employment opportunities in the area.
Know the laws
As with any form of real property investment, local laws will play a big role in your obligations as a landlord. Always read up on requirements before renting out an investment property, and if in doubt, consult a real estate lawyer to be sure your approach to property management is on the up and up.
Ensure visibility on mid-term rental platforms
Some websites, like Zillow, focus on buying homes and long-term rentals, so it's important to be sure you're available on more specialized platforms, too. Websites like Leasebreak, which advertises mid-term sublets for those who don't want to break a lease as well as rental periods from landlords, Sublet.com, which goes beyond true subletting, and Short Term Housing (don't let the name fool you—the offerings are largely mid-term), all let you target renters looking for properties like yours.
Whether mid-term rentals are a new and intimidating space or you've been looking for a promising alternative to short-term vacation rentals, jumping into this exciting market can be a valid – and profitable! – real estate investment strategy.