Are you familiar with midterm rental properties? If not, then this article is for you!
It goes without saying that real estate investing is a popular avenue for generating passive income, and traditional long-term rentals have long been the go-to option. However, there is a growing trend towards midterm rentals, which offer unique advantages for real estate investors. In this article, we will explore what midterm rentals are and why they are a great alternative to long-term rentals.
First off, what IS a midterm rental?
Essentially, midterm rental properties are defined as the style that fall between short-term (below 28 days) and long-term rentals (a year+). They bridge the gap between short/long-term rentals with a range of 1 month or 30 days upwards of 6 months.
Who would want to rent a property for a duration of time such as this?
You’d be surprised!
There are tenants who require temporary housing for a wide range of reasons which can include anything from relocation and work assignments to other circumstances. They don’t want to pay the high prices of a short-term rental but also can’t commit to the responsibilities and legal obligations of a long-term rental agreement.
What kind of advantages do midterm rentals offer? Let’s review them.
- FLEXIILITY & HIGHER RENTAL RATES
One of the key advantages of midterm rentals is the flexibility they offer. Real estate investors can adjust rental rates and lease durations according to market demand. This flexibility allows for higher rental rates compared to long-term rentals, as landlords can capitalize on short-term market fluctuations and seasonal demand. This is an ideal option if you want to optimize your cash flow and yield higher returns on your real estate investment.
2. LOWER VACANCY RATES
As you can likely appreciate, keeping a short-term rental booked all the time can be challenging. Another benefit of midterm rentals is attracting tenants who require temporary accommodation for a specific duration. As a result, the turnover rate is typically higher, leading to reduced vacancy periods and a more consistent cash flow for investors. As a general rule of thumb, midterm rentals tend to have lower vacancy rates compared to long-term rentals.
With tenants usually staying for a few months to a year, you can avoid prolonged periods of vacancy that are common in short-term rentals, as well as long-term rentals when you can have gaps of time when the property is vacant between tenant moves. This means you can have a more stable stream of rental income and reduce the risk of financial loss.
3. FLEXIBILITY FOR YOUR FUTURE PLANS
Midterm rentals offer real estate investors greater flexibility for future planning. Since the lease terms are shorter, you have the option to reassess and adjust your rental rates or change your property’s use based on market conditions or your investment goals. This flexibility allows you to pivot and adapt to changing real estate trends and maximize your returns.
4. LESS WEAR & TERM
Unlike short-term rentals, which often require frequent turnovers and can result in higher maintenance costs, midterm rentals tend to have lower wear and tear on the property. With tenants staying for longer periods, there is less turnover and fewer chances of damages, which can help you save on maintenance costs in the long run.
5. DIVERSIFIED, PROFESSIONAL TENANT POOL
Midterm rentals attract a diverse tenant pool, including professionals, corporate relocations, and individuals in transition. This allows you to tap into different markets and cater to a wide range of tenants, reducing the risk of relying on a single type of tenant for your rental income. Additionally, midterm rentals provide an opportunity to build long-term relationships with tenants who might choose to renew their leases or refer other potential tenants to your property.
6. MITIGATING TENANT ISSUES
While long-term rentals can sometimes lead to tenant-related issues that require lengthy legal processes, midterm rentals provide an advantage in this regard. The shorter lease durations minimize the risk of problematic tenants. Additionally, investors have the opportunity to conduct thorough screening and choose tenants who are likely to maintain the property and adhere to the lease agreement. For a great article on how to screen tenants properly, click here.
7. PROPERTY MAINENANCE & UPGRADES
Midterm rentals allow for regular property inspections and maintenance between tenants. As a real estate investor and landlord, you can address any necessary repairs or upgrades promptly, ensuring the property remains in excellent condition. This proactive approach enhances tenant satisfaction and minimizes potential damages, thereby safeguarding the investment.
8. ADAPTING TO THE MARKET
The real estate market is subject to fluctuations, and investor strategies must adapt accordingly. Midterm rentals provide greater flexibility to respond to market conditions and adjust rental rates. In areas with high short-term rental regulations or restrictions, midterm rentals offer a viable alternative that complies with local laws.
9. DIVERSIFYING YOUR RENTAL PORFOLIO
Investing in midterm rentals allows real estate investors to diversify their portfolio beyond traditional long-term rentals. By catering to a different demographic of tenants, investors can mitigate risks associated with relying solely on one rental strategy. A diversified rental portfolio helps spread financial risk and provides stability during economic downturns.
10. HIGHER QUALITY TENANT POOL
More often than not, midterm rentals attract professionals, business travelers, and individuals with stable employment or corporate sponsorships. These tenants generally have higher income levels and better creditworthiness, reducing the likelihood of rent defaults and increasing the likelihood of timely payments.
11. STRONG MARKET DEMAND
The demand for midterm rentals is on the rise, fueled by factors such as corporate relocations, job transfers, educational programs, and medical treatments. The flexibility and convenience of midterm rentals appeal to individuals who require temporary housing solutions without committing to long-term leases.
12. SHORTER LEASE AGREEMENT EXPENSES
Compared to long-term rentals, midterm leases result in reduced turnover costs. With shorter lease terms, investors avoid expenses associated with frequent turnovers, such as advertising, background checks, and property cleaning. This leads to higher net profits for investors.
I’ve touched on it a little bit above, but I’ll now go into greater detail about the types of tenant profiles that are generally interested in midterm rentals.
BUSINESS PROFESSIONALS: Think of consultants, sales representatives or others who travel a lot for work may need midterm housing options during their extended stays in different locations. Advertising on business travel websites, professional networking platforms, or reaching out to local companies can attract potential midterm rental tenants.
CONSTRUCTION COMPANIES: Is there a lot of construction happening in your area? Consider new developments, roadways and bridges – then to source potential tenants, document the name and information of the construction companies branded on the onsite vehicles. This could be a great avenue to source tenants.
CORPORATE HOUSING: In the corporate world, companies often provide temporary housing for employees who may be on short-term opportunities or even relocations. They engage corporate housing agencies to help them source midterm rental properties for their employees.
FAMILIES WHO NEED TO RELOCATE: If a family needs to move, they may require a midterm rental to leverage while they find a permanent place to live. You could partner with local REALTOR®’s or even relocation companies to find your tenants.
INSURANCE COMPANIES: if a home owner has been displaced due to damage caused by fire, floor or storms, they may require midterm rentals to place them while a home is being repaired. This could be a great avenue to find new tenants for your midterm rental.
STUDENTS: Students, faculty, and visiting scholars often require midterm housing during the academic year. Contacting local universities and colleges can be a good source of midterm rental tenants. In additional, some language schools or exchange programs offer midterm housing options for their students who come from different countries to learn a language. Contacting local language schools or cultural exchange programs can yield potential midterm rental tenants.
MEDICAL PROFESSIONALS: often times, hospitals or medical facilities require temporary lodging for employees. You can contact local hospitals, clinics, or medical staffing agencies for potential midterm rental tenants. Another amazing option are travel nurses. Check out indeed or search RN recruitment sites online then contact the agencies that are hiring and reach out to them.
MILITARY: Personnel, especially those on temporary duty assignments or training programs in the military, may require midterm housing options. Contacting local military bases, installations, or military housing offices can be a good source of midterm rental tenants.
REMOTE WORKERS: Digital nomad positions have been rising in popularity with many individuals may require midterm housing options while they travel or work in different locations. Advertising on digital nomad websites, remote work forums, or co-working spaces can attract potential midterm rental tenants.
SEASONAL: Interns or workers in tourism, hospitality, and agriculture, hire interns or seasonal workers generally require short-term housing options. Connecting with local businesses or seasonal employers can be a good source of midterm rental tenants.
SHORT-TERM RENTAL PLATFORMS: check out platforms like VRBO and/or Airbnb. They allow property owners to rent their homes or rooms for midterm stays. Listing your property on these platforms can attract potential midterm rental tenants who are looking for temporary housing options.
In conclusion, midterm rentals provide real estate investors with a versatile and profitable alternative to traditional long-term rentals. The flexibility, higher rental rates, reduced vacancy periods, and ability to adapt to the market. Please be advised however that it is EXTREMELY IMPORTANT that you provide midterm rental tenants with a tenancy agreement. Do NOT treat them as a short-term guest as by tenancy law, anything longer than 28 days is considered long-term and these tenants have the same rights as a long term tenant.
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