Everything You Need To Know About The Rise of the Mid Term Rental
COVID-19 has brought a lot of changes to the world since 2020, and the real estate industry was not exempt by any stretch of the imagination. I remember watching my fully booked months of my Nashville short term rental get wiped out in a matter of 48 hours once the pandemic sunk its teeth in. At that point in time, there were hundreds, if not thousands of vacant short term rentals (STRs) that needed to pivot to survive. I recall seeing a stat at the time that furnished long term rentals rose by 1500% in a matter of weeks there, absolutely flooding the market. These furnished units though weren’t really ideal for long term (12 month plus) tenants, and with traveling near dead at the time, not ideal for short term guests (less than 30 days) either. So with disaster sometimes comes ingenuity, or fortune, or whatever they say, and out came the rise of the Mid Term Rental (MTR).
Now mid term rentals weren’t invented during the pandemic, let’s not get it twisted. I remember as a traveling consultant years ago that our team had some members staying in monthly furnished apartments, kind of like an extended stay type of situation. One thing, however, that the pandemic did bring out was a steep rise in traveling nurses. Many nurses saw this bleak time as a way to see other places in a time that was very strict on travel, and also fill slots where nurses were severely short. Let’s face it, nurses were in high demand, and the local ones serving their communities were working ungodly hours and handling way too many patients. With this demand surge came the need for some hybrid type housing. Apartments that had everything you needed to live (full kitchen appliance set, laundry, silverware, furniture, etc.) as if you were a short term tenant but with longer, more flexible time horizons. Mid term rentals, defined by some as stays longer than 30 days, came to satisfy this need and house these nomadic saviors. Sites like furnishedfinder.com began to boom as this demand increased and was a marketplace to match increasing supply with the demand.
The economics of a mid term rental are kind of like a goldilocks scenario when it comes to revenue, not as hot and lucrative as short term rentals but not as cold and boring as long term rentals, kind of just right. For example, our team in Chicago has converted almost a dozen apartments into furnished MTRs and the numbers are pretty solid. Normal rent for a 2 bed 1 bath, in say the Humboldt Park neighborhood for a 12-month tenant might fetch $1500-$1800 a month (depending on a number of factors). For the same units our MTRs bring in on average $2300-$2500 per month, so around a 40-50% increase in revenue or so. Now the thing to remember though is that while revenue increases, there’s also additional expenses that come with it. Utilities and internet service are usually included in the price of rent. These might account for an additional few hundred dollars per month, lowering the profitability of the units. All in all, the MTRs do make sense in a market like Chicago, where we can see a payoff of furniture costs in around 18 months if done efficiently.
Operating a mid-term rental is also like the goldilocks scenario, not as intensive with turn-overs and partying guests as an STR but not as slow and homely as LTRs. There are a few points to drive home though that we have learned throughout our time doing this:
- Allow pets. Somehow 90% of our MTR guests have dogs or cats. You need to create a plan for this if you want to be successful. We charge a non-refundable pet fee and an additional monthly fee. Trust me you will pay for it on the back end with cleaning.
- Expectations of cleanliness are high. Between each tenant you almost have to do a deep clean. Remember there is furniture in the unit that has to last many, many guests. No one wants to sit on a couch that literally had a dog on it for 3 months straight. Getting the cleaning team aligned with the expectations is a MUST and could take some time to figure it out and get it right.
- Internet is a must, but can be a major pain. We had our ups and downs using a Eero mesh system to spread internet throughout a building but perfected it over time. We were responding to way too many issues that the internet was down in a building so this was a big pain point for us. Whatever method you choose, make sure the internet is strong in each unit. If you have economies of scale and can do this in multiple units, paying for one internet bill versus 2 or 3 is a huge cost saver.
- Screen your guests. Furnished finder has a good tool to screen tenants (background and credit check) and sometimes travelers will come with references from prior stays. If the traveler is a nurse, reviewing their contract could also help to make sure they have income stability.
- Buy good, durable furniture. Skimping on furniture costs for beds and couches will cost you more in the long run. We had to do some trial and error first before we got it right.
- Plan for SOME vacancy. It is hard for the stars to line up with start and end dates of incoming and outgoing tenants. Oddly enough though, our team has found that our MTR vacancy rates are similar to, if not better than our LTR units that we manage. Oftentimes, nursing contracts align as one group ends another group begins. Also, these tenants are often more flexible than people moving loads of furniture and belongings into a unit. They may be able to start a lease a little early if it means locking in the right place.
- Location matters. Setting up MTRs makes sense in more densely populated areas close to hospitals. You may get lucky for a short period of time in other parts of town, but I wouldn’t expect any long term stability in this plan.
- Pictures matter A LOT. We have found that our properties that have nice features and updates, and have high quality, vibrant pictures get 4-5x more requests than the ones that don’t. This includes floor plan photos which we see requested very frequently.
A question that comes up a lot is around winding down a furnished rental and what that all looks like. From our experience, used furniture and kitchen appliances are being traded in a variety of different places from Facebook marketplace to Craigslist. If we can recycle things into other units, we will, if we need to find a place to store items for future use, our basement office makes a good spot for that, and if we need to sell some items, there are a number of places to execute that and recoup some of that initial investment. Returning a unit back to a LTR is not the end of the world and can be done efficiently and effectively if properly planned out.
One final note to point out about this is that while short term rentals are being more and more heavily regulated in larger cities, mid-term rentals are often overlooked and fall between the cracks. Many cities are putting heavy restrictions on which areas, zoning types or building types can allow STRs in them. These restrictions make it harder for folks to legally obtain STR permits from cities. As of right now, the cities we operate in have very little restrictions with longer stay furnished rentals. The other thing to note too is that many condo buildings have major issues with converting individually owned units into STRs and will restrict them in the HOA rules and regulations. Many buildings, however, allow for rentals with a minimum of 30 days which would be perfect for this scenario.