As many of you know, Ken and I have our own real estate investments, and we are always learning, reading, and talking with fellow investors to learn more about how we can continue to improve our investment strategies. We must be proactive and know how to maximize our returns, as real estate is a large part of our retirement plan.
We have held several homes as long-term rentals (with one year+ leases), and last year we decided to try our hand at a furnished mid-term rental (with bookings for 30 days or more.)
Here is an update on what we have learned and what we might do differently next time.
First off, why did we move into mid-term rentals?
In the past few years, as workers across the US have been able to work remotely, many of them have adopted a nomadic lifestyle. They travel from place to place, working remotely, staying a few months at a time. This has dramatically increased the demand for furnished rentals for mid-term stays (30-day – 6 months). So much so that the returns one can achieve on a typical rental property, once converted to mid-term, increase by 50% per month or more. For example, a long-term rental that typically rents for $3000 per month would rent as a mid-term for $4500+ per month. If this strikes your fancy, you can learn more about this method in American Nomads, a book written by a Denver area real estate investor that compiled a large amount of research on the topic. Of course, we’d be happy to chat with you about it too :)
So what have we learned?
There has been a lot of demand. We have been over 90% booked, even as we were learning some booking "best practices" last year. Our tenants have been traveling nurses, folks moving into the area, people on vacation, and grandparents coming to see grandkids.
This is our best cash-flowing property. Given that the home is furnished, we can charge more monthly rent. However, we had to put more money into it to get it started. We worked with Debbie Miller of Main Street Stagers to furnish it and had to buy the furniture, so those were all start-up expenses to the tune of about $20,000.
Airbnb has been the primary source of bookings. We have it listed on VRBO, and we had it listed on Furnished Finders as well, but almost all bookings have come through Airbnb. There can be reasons to list on other sites, but Airbnb has worked best for our purposes. We seem to get the best exposure and the best nightly rate. However, the downside is that almost all bookings are just a month, so there is more work to turn over the property between tenants.
We need to make sure to have enough time between bookings to get things back in order. We always want to have at least 24 hours to get the home back in tip-top shape before someone else moves in. Tenants have done some interesting things like moving furniture around, moving the TV to a different bedroom, and things do come up that need to be fixed. It would be really challenging to reset the property in just a few hours and keep it as nice as we want to.
The home has stayed in better condition than we thought. We have had families with kids, lots of folks with dogs, and even with all this use, the home has stayed in pretty good condition. As with all rental properties, there is a certain amount of "letting go" that we need to do as owners, but we've been pleasantly surprised that the home still feels really great after a year.
The location has been a big draw. This home backs to open space and the Waneka Lake area and people have been drawn to that. We made sure to highlight that in the photos. The location has made it a favorite of folks who have booked it. It's peaceful and quiet.
So what would we do differently next time?
We would get a home with an updated primary bathroom. The primary bathroom at our mid-term rental is not updated and it’s showing its age. We are considering whether or not to update it and as with most updates, we know we won't get over 100% return on our money. Also, we will have to leave the home empty for some time to get it done. This would be a nice project to have already been completed before we purchased. If we purchase another home in the future to use as a mid-term rental, we will make sure the big remodel projects are already completed.
We would Invest in a better home office setup. The work-from-home space has been very important to people and we anticipate it will continue to be into the future as many people are still able to work remotely. The office furniture we got was pretty inexpensive and it isn't super comfortable. We would upgrade this for the next home.
We would find a home without carpet. One of the ways we maximize our bookings is by allowing pets. Given how many people have wanted to bring their dogs, the carpet hasn't been ideal and we've spent quite a bit of money on carpet cleaning to make sure the home feels fresh. If we do this again, we will find a home without carpet and we would use rugs to make it feel cozy. Those could be easily replaced when needed.
Wonder if furnished mid-term rentals are a good fit for you? This strategy might make sense for you if you:
A. Have family coming in town frequently and you'd like a nice place for them to stay,
B. Don't mind doing some hands on managing of a rental property and you don't mind visiting the home between bookings to reset it.
C. Are looking to maximize your monthly cash flows and have some extra money on hand to invest to get the property up and running.
If you are interested in this, give us a ring, we’ll tell you all about it.