Mid-Term Rentals Have a Bright Future—But Many Investors are Spooked By the Practical Difficulties

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This article is presented by Connect Invest.

Mid-term rentals—fully furnished rentals with contracts of anywhere between 30 days and nine months—were once seen as a very niche or experimental option for real estate investors. A new report is suggesting that they are becoming more and more mainstream, and a great way to mitigate some of the risks from rising vacancies in the traditional rental sector.

The report, put together by Landing, reveals several intriguing facts about how investors currently perceive mid-term rentals. Most see them as having serious portfolio-expanding potential, with 93% of respondents saying they’re actively seeking new revenue models, and 88% saying they would use mid-term rentals as a way to reduce the impact of vacancies.

At the same time, many investors perceive major barriers to entry into this segment of the rental market. Nearly half (44%) aren’t completely certain about sufficient demand levels for mid-term rentals, while around a third (38% and 33%, respectively) anticipate problems with logistics or sourcing furnishings.

Mid-Term Rentals: High Initial Costs, Higher Rewards

Without a doubt, the often substantial investment into high-quality furnishings and appliances is daunting for an investor used to traditional rentals, which are typically leased out unfurnished. Essentially, a mid-term landlord will have to combine the know-how of an Airbnb host with the savvy of an investor.

Mid-term homes typically attract renters who are professionals. These types of rentals are very popular with remote workers and people required to travel frequently (think visiting academics, doctors, and nurses).

This category of guest expects a higher standard of accommodation, which may include a comfortable mattress, a high-end washer/dryer combo, a branded coffee maker, etc. Basically, a mid-term renter wants what they’d get from a five-star-rated Airbnb experience, but with the ability to call the place “home” for a few months.

Mid-term landlords do have some competition from hotel chains like Marriott and Hilton that are beginning to roll out mid-term rental studios of their own. However, what the hotel chains cannot provide is a home-like experience in a multifamily unit grounded within a local community. That’s where mid-term multifamily rentals have the edge: Someone renting an apartment for six months wants more of a homey, community-rooted experience in a beautiful neighborhood, as opposed to a slightly larger hotel room next to a roadside shopping plaza.

The good news for investors is that care taken in location selection and attention to detail really pays off here: Mid-term renters, as per the Landing report, are prepared to pay a premium for the right combination of convenience, comfort, and aesthetics: we’re talking $600-$800 more per month per unit compared to traditional rentals.

Additionally, in the manner of Airbnb hosts, mid-term landlords must sort out the logistics of maintenance and cleaning between stays, often with a very tight turnaround. This typically means having a property manager on site or nearby. Poor logistics, where the transition between guests is not well-managed, leads to bad reviews and the home potentially standing vacant, which is even more costly for investors than vacancies in traditional units.

Is a Mid-Term Rental Right for You?

Demand for mid-term rentals is growing rapidly, with an astonishing 94% increase for 30+ day bookings in the U.S. year over year in 2023, according to Key Data. This rental market segment is not yet oversaturated.

If you are prepared by carefully researching your mid-term location and the heavy initial investment in operational logistics and higher-quality furnishings, you will be rewarded with impressive ROIs and, in many cases, zero vacancy. Rentals in this category that get everything right are often booked up continuously, providing a steady stream of income and improving your overall cash flow.

There is one big but: If you do not have enough starting capital to create a competitive mid-term rental, it is best to stick to more traditional rentals or explore other real estate investing avenues.

Where mid-term investors often fail is when they start trying to cut corners. That will cost you here in a way that just won’t with a traditional rental. A family settling in somewhere for five to 10 years will invest in their own comfortable mattress and might just replace the bathroom fixtures they dislike if it really matters. A mid-term renter will not—unmet expectations and perceived poor quality often lead to disputes, leases broken prematurely, and those dreaded bad reviews.

How much money do you need to successfully furnish and operate a mid-term rental? Think in the ballpark of furnishing your own home, preferably on the more luxurious end of the spectrum of what you are prepared to pay.

There’s Another Way to Invest

If that sounds like it’s too much right now, it probably is. Luckily, you do have other options, like Connect Invest short notes, which you can invest in with as little as $500. With investment durations of six, 12, or 24 months and interest yields of as high as 9%, you can experience the immediate financial growth enjoyed by mid-term rental investors—just without the hefty initial cost for you.