Mid-Term Rentals in Real Estate Investment

Mid-term rentals (MTRs) have become quite popular in the past couple of years, especially as many companies work on a hybrid system. Plus, with so many people having to relocate for work or education, many want a place that does not include a full-year contract or a hotel room. This is where mid-term rentals come in.

With the growing demand for temporary residences, MTRs have become a popular choice for real estate investors. They bring almost all the tax and commodity benefits of LTRs while leasing in the short term, but without having to respect STR regulations. In this article, you can find out more about MTRs and how they can be used to your advantage.

What Are Medium Term Rentals?

Medium-term rentals (commonly called a mid term rental or MTRs) are a type of rental property where the lease is around 1-6 months. This is a common choice for those who need a temporary stay of more than a few days but can’t commit to the full year.

This rental option is great for traveling professionals (e.g., businesspeople or doctors) who are only in the area for a limited time. Students who are part of exchange programs or internships could also benefit from this type of program, along with remote workers looking for a temporary change in scenery.

Mid-term rentals differentiate between short-term (STR) and long-term rentals (LTR) in the following ways.

Rental Duration

The average STR lasts for only a couple of days, or weeks, at most. In comparison, LTRs start at one year with the possibility of the contract being prolonged. MTRs fall somewhere in between, with the average duration being around half a year or less.

Tenant Type

Short-term rentals are the common choice for tourists or people going on vacation, who are only planning to stay in town for a day or two. Business professionals can also choose this type of property when they’re only in town for an event. Those seeking long-term residency usually go for LTRs, where they can stay for years, depending on the contract agreement.

In contrast, mid term accommodation is aimed at digital nomads, traveling businesspeople, and healthcare professionals who have to temporarily relocate their work. Families relocating to a new city could also consider MTRs if they have to move fast but aren’t ready to sign a long-term lease yet. The temporary rental property could serve as a transition point.

Income and Profitability

In terms of nightly rates, STRs have the highest ones. The profit can be high, but only if the owner of the property can obtain near-full occupancy. With LTRs, you don’t have to worry about occupancy, but the daily income is generally lower. MTRs once more fall somewhere in the middle, offering a steady cash flow with less volatility when compared to STRs.

Regulations

STRs generally face stricter regulations in many cities, having to respect zoning restrictions and local laws. LTRs are not as restricted, but they still have to meet different landlord-tenant laws. Since MTRs fall somewhere in the middle, they can bypass many of these regulations.

Maintenance and Turnover

Because of high turnover, STRs require you to clean up after every guest, even if they stay for just one day. This turnover is lower with LTRs, but you’ll still have to deal with wear and tear. With MTRs, your main concern is periodic upkeep and maintaining low operational costs.

Marketing and Tenant Acquisition

The strategy you choose can depend on the type of property that you offer as a rental. You can use REI Lense to perform an analysis and compare the profitability of each strategy. The mid term rental calculator will also help you determine numbers such as annual income based on rate, cash flow, cap rate, and more.

Advantages of Mid-Term Rentals

Mid-term rental properties come with a series of advantages that can benefit real estate investors in the long run. These are:

Higher Profitability Potential

The demand for properties leased over periods of less than 6 months has increased significantly in the past few years. This trend started in 2020, when the pandemic limited office time and many companies implemented hybrid systems that only require occasional presence.

Since these properties come fully furnished, they appeal more to those who relocate. They also have the potential to bring up to two times the cash flow of a long-term property, according to FurnishedFinder.

More Stability than STRs

Short-term rentals have higher operational costs, mainly because you have to handle cleaning and maintenance after every guest. Mid term rental property management is easier to handle, as guests take care of their own cleaning while they are there. The only thing you’ll be expected to do is offer maintenance when needed, but if the property is in good condition, that’s rare.

Moreover, with STRs, income usually fluctuates depending on the season. You may have a fully booked short-term rental in summer when everyone travels, but that usually drops in the off-season. With MTRs, you can enjoy a steadier cash flow, as people are renting year-round.

Lower Vacancy Risks

When you invest in rental property, your number one enemy is likely vacancy. This is especially the case if you have a mortgage on the house and need tenants to cover the payment. Unlike STRs that mainly target tourists, MTRs broaden the pool by extending services to more tenant types.

Moreover, if your property is near a tech hub, a hospital, or a university, your chances of drawing tenants are higher. MTRs usually target reliable people in search of accommodation but don’t want to go for full-time commitment. The flux is steady in this area regardless of the season, meaning the vacancy risk is low.

Fewer Regulations than STRs

MTRs have a few regulations that were drawn from STRs, but not as many. Many cities are putting restrictions on short-term rentals, as they are negatively affecting the housing market and rent prices. Barcelona is planning to ban short-term rentals altogether, giving travelers only the opportunity of hotel rooms.

Mid-term rentals are a good way around because they don’t have to follow these restrictions. They also spare you from having to deal with zoning regulations, hotel taxes, and permits that other rental options require. Legally speaking, they are more flexible and need less paperwork.

Tax Benefits

Investors are drawn to LTRs because they bring certain tax benefits, but here’s some good news: you can get similar ones with MTRs. Wear and tear makes investors eligible for depreciation deduction, and maintenance taxes can be deducted as well.

As a bonus, mortgage interest can be deducted with MTRs, which can ultimately lower taxable income. Plus, there’s a handy IRS regulation called the “14-Day Rule,” also known as the Augusta Rule. This lets property owners lease out a place without paying income tax, as long as the tenants don’t stay more than 14 days.

Challenges & Risks of Mid-Term Rentals

Mid-term rentals can be an attractive alternative to STR and LTR. That said, they also come with a few challenges that an investor has to get around. These can include the following:

Tenant Acquisition

Tenants for mid-term rentals are looking for accommodation for quite specific timelines. These can be more challenging to find in comparison to long-term tenants, who sign leases for at least a year. The client pool for these types of properties is smaller, which means the requests might not flow as often. Plus, unlike STRs, MTR tenants will have to be vetted for their income and reliability, thus avoiding potential payment or legal issues.

Vacancy Gaps

With MTRs, there’s also a good chance you’ll be facing vacancy gaps between tenants for days or weeks on end. Demand often depends on the job market or season, with some months being slower than others. This could result in cash flow issues, which could be problematic if you’re relying on that income to pay the property mortgage.

Legal and Regulatory Concerns

While regulations for mid-term rentals are slightly more flexible compared to the long-term kind, you still have to follow some of them. At this point, you’re a landlord, so you’ll need knowledge of lease agreements, tenant rights, and eviction steps. Local rental laws could differ from one city to another, and some regulations on STRs could apply to MTRs too. As an investor, you should make sure you comply with both local and state laws if you want to avoid an expensive fine.

Furnishing and Maintenance Costs

Unlike LTRs that can very well be leased unfurnished, MTRs work pretty much the same as an STR. Before leasing it out to a tenant, you’ll have to make sure the house is fully furnished. Mid term furnished rentals need all the necessary furniture to be comfortable, along with appliances to make the tenants’ stay easier. This includes everything from beds and dining sets to cutlery and kitchen pots. Amenities such as TVs, Wi-Fi, and cleaning supplies should also be provided, along with on-demand maintenance. This could bring some additional costs, both initially and in the long term.

How to Achieve Success with a Mid Term Rental

As an investor looking to make a profit from MTR properties, you’ll have to put together a good strategy to draw more clients. Here are some tips to consider:

Offer Competitive Prices

Seeing as half of the US population can’t afford to pay their rent, you’ll have to offer competitive prices that’ll drive customers your way. At the same time, you must ensure you stay profitable in this competitive market. Look up market rates for MTR properties in your area and adjust the prices based on seasonal demands. A rental calculator such as the one provided by REI Lens could offer a few ideas on what the best price would be in your case.

Opt for Quality Furniture and Amenities

Tenants want fair prices, but they are more drawn to places that have all the amenities. Furniture is also important, because these individuals don’t stay enough time to bring their own furniture. Comfortable bedding and functional furniture are essential, along with high-speed Wi-Fi and full kitchen appliances. Don’t forget the washer and dryer, proper heating, and an A/C system. Having a dedicated parking space or making the property pet-friendly allows you to tap into a broader tenant pool and justifies a higher price.

Consider Seasonal Trends

MTR demand usually changes based on the season, and different tenants could look into your property around these times. For example, fall and winter are when most traveling professionals are relocating for temporary jobs, whereas spring and summer are great for internships. College towns could see a spike in demand during summertime, as students will likely seek mid-term accommodation for an internship. If you notice a period when there’s a lull, you should consider flexible leases or perhaps a discount to make the property more appealing.

List the Property on Various Rental Websites

To make sure your house enjoys the highest visibility, you should list it on as many rental websites as you can. Traditional rental websites such as Zillow are where most people go when looking for flexible accommodation. FurnishedFinder also lists properties where people can stay for a month or longer. STR platforms such as Airbnb also let owners set up “30+ day stays,” where you can offer discounts for longer stays. The more listings you’re on, the higher the chances of low vacancy will be.

Keep an Eye on Market Demand

To keep your property profitable, you should stay up to date with market changes and adjust your offerings accordingly. Look at occupancy rates – if there’s a shift in demand, you’ll want to adjust the prices strategically. If there are local events in the area that draw more visitors to the town, you can hike up the prices to keep up with your competitors. A good tip is to also offer discounts for longer stays if the competition in your area increases.

Offer Excellent Customer Support

Good customer support is something that every tenant appreciates, and they’ll likely stay longer or come again if they feel cared for. Try to respond to inquiries as fast as possible and communicate house instructions. Should repairs be necessary, have reliable contractors on hand to streamline maintenance requests. A good tip would be to also offer flexible check-ins and checkouts when possible, along with luggage storage when it's not possible for clients to stay past them.

Optimize Searchability

Your chances of being booked depend on how well you craft your medium term rentals. For starters, make sure that you use high-quality photos to showcase all the important areas. The more images you have, the higher your chances will be to get chosen. Optimize the title to include things such as the property type or location, as many are looking for accessible places. The description should also include highlights such as amenities, and nearby attractions, as well as who the property could be perfect for.

Build a Strong Reputation

We live in a time when people trust reviews more than they can trust the listing itself. If they see that a property has many bad reviews (or very few, for that matter), they’ll be less inclined to go for your property. Encourage your satisfied customers to leave a review on your property and handle complaints with professionalism. A good idea to make tenants feel welcome is to leave some “bonuses” like coffee, toiletries, or other items they might find useful. The better your rating, the easier it should be for you to fill vacancies.

The Bottom Line

With the rising popularity of temporary stays, real estate investors can make significant income by capitalizing on MTRs. With a good strategy, they can bring a reliable tenant flow, ultimately leading to profit. If you’re planning to put your money in the rental market, look more into MTRs and research suitable opportunities for your needs!