We’ve all heard about physicians investing in long term rentals like renting out a house to tenants on a yearly basis and short term rentals, like vacation properties and Airbnbs. However, there’s another asset class that can leverage some of the unique advantages of both of these options, the mid-term rental. Mid-term rentals have also gained more awareness amongst doctors recently, as the number of locums physicians and traveling nurses continues to grow, and increasingly, these parties are looking for furnished housing options that don’t involve staying in a hotel or paying the higher prices associated with short term rentals.
Below, we’ll cover the pros and cons of investing in mid-term rentals, as well as how to get started.Â
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A lot of physicians stay away from rental properties because of the perceived time commitment. This course is taught by a general surgeon who actively managed 64 units while he was working full time and had a family, and who was able to achieve financial freedom through real estate. He walks you through his methods in four weeks titled Emergencies and Maintenance, Turnover, New Tenants and Money, and Evictions, Taxes, and Accounting. He also gives you access to all of his spreadsheets and forms for your personal modification and use. The course is significantly cheaper than most real estate courses and there is a satisfaction guarantee. Incorporating a few of these tips will save you far more than the cost of the course.
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What Classifies as a Mid Term Rental, and Who Uses Them?
Technically, the IRS only has two classifications when it comes to real estate - short term and long term, with anything rented out for an average of over 7 days counting as a long term rental. That said, we think of long-term rentals as properties that are rented out to tenants for a year or longer. Mid term rentals, on the other hand, are typically rented out for a few months at a time, typically 3 months or longer, but less than a year.Â
While we mentioned that traveling nurses and locums physicians use these properties above, there are actually many people that use mid term rentals. Insurance claimants are common tenants - for example, if there is a fire in your house and your house requires extensive renovations or rebuilding a portion of the house, the insurance company may pay for you to stay in a similar house while your house is being repaired. Another common instance is corporate relocation; often when people are recruited to new jobs, there may be a period of time where one member of the family is commuting to the new city while the rest of the family finishes out a school year or while the family waits for a house they’re building or purchasing to be ready. In these cases, in order to allow the employee to start working as soon as possible, corporations may offer to pay for interim housing. Other examples include visiting professors who aren’t provided on campus housing, students doing internships, families that work remotely and like to travel and get to know new cities for a few months at a time, contractors or consultants on assignment, people renovating portions of their homes or who have sold their homes but are building their next home, patients undergoing care at a specialized hospital away from home, and more.Â
What Are the Benefits of Having Mid Term Rentals as a Physician?
Mid term rentals have several advantages of long term rentals, discussed more in depth on our article on investing in long term rentals as a physician. These include relatively stable cashflow from monthly rental income when compared to short term rentals, building equity in a property through leveraging someone else’s payments, the potential for significant appreciation of the real estate itself, relatively low maintenance compared to short term rentals given longer occupancy and tenants that are working instead of vacationing, lower fees involved in property management or booking fees associated with short term rentals, and tax benefits such as depreciation and deductions related to the business.
However, they also leverage some of the benefits of short term rentals, in that you’re not locked into a very long occupancy period, you can change rent to reflect market conditions and supply and demand, and you can generally charge higher than you would for long term tenants, because often, someone such as an insurance company, corporation, or staffing company is either subsidizing or footing the bill.Â
As an additional benefit, as there are increasingly legislative or community roadblocks to short term rentals, with many housing communities or municipalities forbidding these, the regulation of property for mid term rentals is less common, and tends to follow that of low term rentals, allowing those who already own property in locations where short term rentals aren’t allowed to have an alternative option that doesn’t involve long term rentals or selling the property if regulations change.
The last benefit we’d like to emphasize here is the flexibility of mid term rentals. By nature, the real estate market fluctuates, and even within markets there can be slow and busy seasons. Because both short term and mid term rentals (and even some long term rentals) can be offered furnished, the mid term rental can be a great way to keep occupancy up during slow times in the vacation rental season, between long term tenants at a property, or to address changing regulations as discussed above.Â
Getting Started with a Mid Term Rental Property Investment
Many of the principles behind financing a mid term rental and finding the right investment property are similar to those discussed in our article about long term rentals. Of course, you will want to run a pro forma and make sure the investment can cashflow. Below, we discuss some factors more specific to mid term rentals.
Finding and Marketing Your Mid-Term Rental
The key to success in this market is finding a steady source of tenants desiring this sort of housing arrangement, and that requires thinking about why these tenants are staying here. They’re not staying here because they want to raise a family in the area and lay down roots, or because they want to enjoy the views. This is a practical arrangement for a place to stay everyday for the short term after a long day of work or as a temporary home.
As such, start by making sure the basics are taken care of - people will want nice furniture if they’re going to be living there, as well as convenience to their place of employment, schools, and amenities as applicable. A lot of these tenants will want access to a gym, for example, as they may be young, and many won’t be with their families. If you’re renting to somebody that’s going to be there for work and will take a lot of work home, then make sure there’s a desk or office set up for them to be able to work in the evenings. Everyone will want reliable WiFi.
Then you should move on to thinking about where your target demographic will look, and how to make it easiest for them to move forward. Since they’re not looking for their forever house or dream vacation, they’re going to want it to be easy to find a place that just checks off all the essential boxes. Have a virtual tour so that a busy executive or physician can take a quick virtual walk through and say ‘yay or nay.’ Make sure the onboarding paperwork and tenant screening process is streamlined and easy for them to sign and send a payment.
Advertise where they’ll be looking - let hospital HR departments or locums or staffing agencies know about your property. Ask people in your target demographic where they look for housing and advertise there (for example, Furnished Finder is used by lots of traveling nurses). Contact HR departments in major corporations in your area and let them know you offer corporate housing for relocations. Contact relevant departments at the Universities to let them know you have housing available for when people ask them as well.
If you don’t know a particular market, find an investor agent that can help you navigate this.
Being a Landlord of a Mid-Term Rental
As with other forms of rental properties, there are varying degrees to which you can be hands on. While it’s the most profitable to handle everything yourself, you can certainly use a property management company.
Many corporate or otherwise busy working clients will appreciate a level of professionalism regardless, and may be willing to pay extra for things like automated messaging and payments through rental property software.
Midterm rental leases may also look a little different than others. Some important things to think about include making sure that your tenants have rental insurance and that you properly screen tenants. Make sure to take a security deposit, especially given the greater turnover than long term rentals with the possible need to do repairs in between tenants more frequently, thus sacrificing rental income. Given the increased scrutiny towards short term rentals and laws and community rules, make sure the lease reflects compliance with any regulations.
Also, given that the timing of these tenants can be less predictable as they’re often moving between phases of their lives or jobs, all of which have unpredictable components, you should ensure that they commit to a certain amount of time and a certain notice period so you can plan accordingly. You also want to make sure that you are able to ask them to leave after a certain amount of time if you make the decision to switch back to a short term or long term rental if good opportunities come up or the market switches.
Also, similar to a long term rental, make sure you specify what responsibilities are those of the tenants and what you will supply as furnished. Lawn care duties, who pays utilities, and who clears snow are some examples of where expectations should be set ahead of time to avoid strife later.
You can learn more about the day to day of being a landlord through The Doctor's Course to Automating Your Real Estate Investments by one of our members.
Conclusion
This should get you started! Feel free to ask questions on our online doctor communities if you have more questions - many of our members have ventured into real estate and know this space well!