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How to Make 500% More Cash Flow with Medium-Term Rentals

The Antidote for Short-Term Rentals

If you're tired of the high turnover and constant management required for short-term rentals, medium-term rentals might just be the antidote you're looking for. With medium-term rentals, you can enjoy longer rental periods, more professional tenants, and higher monthly rates, all while avoiding the intensive management of short-term rentals.

Less Turnover, More Stability

Unlike short-term rentals, medium-term rentals offer more stability with longer tenant stays, resulting in less turnover and fewer vacancies. This means less time and effort spent on constantly finding new tenants and managing turnovers.

Professional Tenants

Medium-term rentals often attract professional tenants such as corporate clients or traveling nurses, who are more likely to treat the property with care and respect, reducing the risk of damage or neglect commonly associated with short-term rentals.

Higher Monthly Rates

Due to the extended rental periods, medium-term rentals often command higher monthly rates compared to traditional long-term rentals, resulting in increased cash flow and profitability for property owners.

How Much $$$ Do You Need to Start?

Considering the initial investment required to start a medium-term rental business is crucial for success. From setting up the property to managing and maintaining it, here's a breakdown of the financial aspects to consider before diving into the medium-term rental market.

Property Setup Costs

• Initial setup typically takes 3-4 weeks, allowing time for furnishing and preparing the property for rental.

• Depending on the size of the property, budget between $13-$15 per square foot for setup costs. For a standard three-bedroom, two-bathroom property, expect setup costs ranging from $20,000 to $23,000.

• Reserves are essential, with a recommendation of at least three months' worth of expenses set aside to cover potential vacancies or unforeseen expenses during the setup phase.

Managing and Maintenance

• Once operational, budget approximately 4 hours per week for managing and maintaining the property.

• It's important to have additional reserves to cover unexpected maintenance or replacement costs, such as HVAC units, which can incur significant expenses.

Where to Find Renters

Medium-term rentals cater to a diverse range of professionals and individuals in need of temporary housing. While traveling nurses are a significant tenant base, there are many other professions and situations that create a demand for medium-term rentals.

Professions Utilizing Medium-Term Rentals

• Travel nurses

• Insurance agencies for displaced individuals

• Corporate professionals on short-term assignments

• Individuals displaced due to natural disasters

• International professionals working on specific projects

Identifying Rental Opportunities

When exploring potential rental opportunities, it's essential to consider the job growth, company relocations, and the overall trajectory and growth of the city. Researching the presence of hospitals, international companies, and other industries with a transient workforce can provide valuable insights into potential rental demand.

Where to Buy

Choosing the right location for medium-term rentals is crucial for attracting renters and maximizing profitability. Location plays a pivotal role in determining the success of a medium-term rental property, and strategic considerations are essential when making investment decisions.

Identifying Target Markets

When selecting a location for medium-term rentals, it's important to assess the job market, growth potential, and the presence of industries that frequently require temporary housing for professionals. Consider factors such as proximity to hospitals, corporate offices, and areas experiencing significant job growth.

Building Relationships with Companies

Prior to purchasing a property, proactively connect with potential corporate clients and establish relationships with companies that frequently require medium-term housing for their employees. Understanding the specific needs of these companies and aligning your property investments with their requirements can position you for success in the medium-term rental market.

How to Get HUGE Rental Contracts

Establishing relationships and winning contracts is essential for maximizing the profitability of medium-term rentals. Here are some key strategies to secure significant rental contracts:

Identifying Needs and Opportunities

Start by identifying the specific needs of potential renters in your market. Look for opportunities where there is a demand for temporary housing, such as professionals traveling for work, construction crews, or individuals displaced due to natural disasters. Understanding these needs will help you tailor your rental properties to attract potential clients.

Building Relationships

• Reach out to potential corporate clients, hospitals, and companies in need of temporary housing solutions. Establishing relationships and understanding their specific requirements can open doors to lucrative rental contracts.

• Consider connecting with construction companies involved in infrastructure projects, as they often require housing for their workers. Building relationships with such companies can lead to substantial rental opportunities.

Offering Unique Amenities

Think outside the box and consider offering unique amenities such as car delivery services, grocery delivery, or convenient transportation options. Providing value-added services can make your rental properties more attractive to potential clients and increase your chances of securing significant rental contracts.

Everything Has Changed

The landscape of the rental market, especially in the realm of medium-term rentals, has evolved significantly. Here are some key factors indicating the shifting dynamics in the rental industry:

Shift Towards Experiential Offerings

The traditional approach to rental properties, including short-term rentals, has evolved to focus on providing experiential and value-added offerings to guests. As a result, operators need to think beyond standard accommodations and curate unique experiences for their guests.

Increasing Emphasis on Amenities

As the industry standard for rental properties has elevated, there is a growing emphasis on providing exceptional amenities to attract and retain tenants. Properties with unique and desirable amenities, such as mini-golf courses, pickleball courts, and personalized services, are gaining prominence in the market.

Technology and Personalization

The integration of technology and personalization is becoming a pivotal aspect of the rental industry. The ability to leverage data and technology to personalize guest experiences, anticipate their needs, and offer tailored services is shaping the future of rental property management.

Amenities to Include

When setting up a medium-term rental, it's crucial to consider the amenities that will enhance the guest experience and set your property apart. Here are some key amenities to include:

Professional Photography

Invest in professional photography to showcase your property in the best possible light. High-quality images are essential for attracting potential guests and setting your rental apart from the competition.

Unique Services and Offerings

• Consider offering unique services such as car delivery, grocery delivery, or convenient transportation options to enhance the convenience and comfort of your guests.

• Explore partnerships with local businesses, such as gyms or restaurants, to provide exclusive discounts or packages for your guests, adding value to their stay.

Property-Specific Amenities

Customize amenities based on the specific needs of your target guests. This could include blackout curtains, noise machines, hobby-related amenities, or personalized experiences tailored to the preferences of your guests.

Pricing Your Rental

When it comes to pricing your medium-term rental, it's essential to consider various factors to determine a competitive yet profitable rate. Here's a guide to pricing your rental effectively:

Market Comparisons

Research top-performing properties in your area and analyze their rental rates. Use platforms like Airbnb, Mashvisor, or AirDNA to gather insights into comparable rental prices for properties similar to yours.

Adjustment for Corporate Contracts

For corporate contracts or insurance displacement, start by setting the initial rental rate at a higher multiple (4-6x) of the long-term rental rates. However, be prepared to negotiate and adjust the rates based on the specific needs and coverage of the corporate client or insurance company.

Building Relationships and Referrals

Focus on building a network of allies within your market to facilitate referrals and collaborations. By maintaining a consistent availability of listings and helping others in your network, you can establish a reputation as a reliable and resourceful partner for corporate clients and relocation specialists.

Managing a Medium-Term Rental

When it comes to managing medium-term rentals, various systems and strategies come into play to ensure smooth operations and guest satisfaction. From handling maintenance and cleaning to utilizing property management software, effective management is crucial for maximizing the potential of your rental property.

Property Management Software

Utilizing property management software such as igms or guesty can streamline the process of managing bookings, calendars, and overall property operations. These platforms provide transparency for homeowners and offer efficient management of reservations and property maintenance.

Maintenance Crew and Relationships

• Hire a reliable maintenance crew to address any property issues promptly and maintain the overall condition of the rental.

• Building strong relationships with local contractors, handymen, and cleaning crews is essential for ensuring efficient and effective property management.

Amenities and Enhancements

Periodic vacancies can be leveraged to refresh the property, gather guest feedback, and consider adding new amenities to enhance the guest experience and stay competitive in the market.

Should You Allow Pets?

Allowing pets in your medium-term rental can be a strategic decision, offering opportunities to attract a broader range of tenants. However, it also comes with considerations for property maintenance and potential challenges associated with pet-friendly accommodations.

Pet-Friendly Policies

Implementing clear pet-friendly policies and considering non-refundable pet deposits can help mitigate potential risks and ensure responsible pet ownership among tenants.

Pet Amenities and Services

• Exploring the possibility of offering pet-related amenities such as dog-walking services or pet-friendly features to cater to tenants with pets.

• Considering the specific needs and behaviors of different pet types to determine the feasibility of allowing pets in your rental property.

BEFORE You Buy a Medium-Term Rental

Before diving into the world of medium-term rentals, it's essential to consider a few key factors to ensure a successful and profitable venture.

Educate Yourself

Take the time to thoroughly educate yourself about the medium-term rental market. Understand the dynamics, trends, and potential challenges associated with this rental strategy.

Business Mindset

Approach medium-term rentals as a business from day one. Building a strong foundation and treating it as a professional endeavor can set you up for long-term success and sustainability.

Passion and Commitment

Ensure that you have a genuine passion for the medium-term rental business. It requires dedication, continuous improvement, and a proactive mindset to thrive in this competitive market.

Mastering the 1 (or2)%, 50% and 70% Rules of Real Estate Investing

Navigating the world of real estate investing can be daunting, but there are a few key rules of thumb that can help you make informed decisions. In this blog, we'll dive into the 2% rule, 50% rule, and 70% rule, and explore how you can use them to evaluate potential investment properties.

Understanding the 2% Rule

The 2% rule, also known as the 1% rule or the 2% test, is a common rule of thumb used by rental property investors to quickly estimate the potential cash flow of a property. This rule looks at the monthly rent divided by the value of the property in a percentage form. For example, if a property rents for $2,000 a month and the value is $200,000, the calculation would be 2,000 divided by 200,000, resulting in a 1% calculation. In simple terms, the 2% rule gives a quick and dirty view on whether or not the property will produce positive cash flow.

How It Works

The 1% or 2% test provides a rough estimate of the property's potential cash flow. Generally, the higher the percentage, the better the cash flow. However, this rule of thumb is not always precise and depends on factors such as location, price, and actual expenses. It helps investors make initial decisions on whether or not to pursue a certain property based on its potential for positive cash flow.

Real-World Example

• Property rents for $2,000 a month and costs $200,000

• Calculation: 2,000 / 200,000 = 1%

• Result: Property does not meet the 2% rule

Applying the 50% Rule to Estimate Cash Flow

The 50% rule is a valuable tool for real estate investors to quickly estimate the potential cash flow of a rental property. This rule states that, on average and over time, half of the income from a property is spent on operating expenses, excluding the loan payment. By combining all operating expenses into one easy number, the 50% rule provides a straightforward way to estimate the cash flow of a property.

Understanding Operating Expenses

Operating expenses include taxes, insurance, utilities, repairs, vacancy, and other monthly or annual expenses involved in running a rental property. The 50% rule allows investors to factor in these expenses to get a clearer picture of the potential cash flow of a property.

Calculating Cash Flow

By applying the 50% rule, investors can estimate the cash flow of a property over time. For example, if a property rents for $2,000 a month and the 50% rule states that half of this, $1,000, will be spent on expenses, the remaining $1,000 can be used to make the mortgage payment. This calculation helps investors understand the expected cash flow from the property.

Exploring the 70% Rule for House Flippers

For house flippers and wholesalers, the 70% rule is a crucial guideline in determining the appropriate property purchase price. This rule states that the maximum amount to pay for a potential flip is 70% of the after repair value (ARV) minus the repair costs. In essence, it helps house flippers assess whether a property is worth pursuing for potential profit.

How It Works

The 70% rule involves calculating the maximum purchase price by taking 70% of the ARV and subtracting the estimated repair costs. This provides a clear threshold for house flippers to determine if a property aligns with their profit goals and risk tolerance.

Limitations and Considerations

• Low ARV Properties: The 70% rule may not be viable for properties with a significantly low ARV, as the 30% deduction for holding costs, closing costs, and profit might leave minimal room for a profitable flip.

• High-Value Properties: In markets with expensive properties, strictly adhering to the 70% rule might make it challenging to find suitable flip opportunities, as the anticipated purchase price could be unrealistic.

• Varying Costs: The rule's effectiveness can be impacted by varying fees and costs based on an investor's location, real estate expertise, and specific market conditions.

Staying Connected with the Real Estate Investing Community

Joining a community of like-minded real estate investors can provide invaluable support and knowledge sharing. BiggerPockets boasts a community of over 1.5 million members, offering forums for asking questions, sharing experiences, and learning from others in the real estate investing space. Engaging with this community can provide a wealth of resources and connections for your investing journey.

The Importance of Proper Analysis Beyond Rules of Thumb

While rules of thumb provide quick estimates, proper analysis delves deeper into the intricacies of real estate investments. Factors such as location, actual expenses, and market conditions play crucial roles in making informed decisions. It's essential to go beyond rules of thumb and conduct thorough analysis to accurately evaluate potential properties.

Defining Operating Expenses in the 50% Rule

Operating expenses encompass various costs associated with maintaining a rental property, excluding the loan payment. These expenses include taxes, insurance, utilities, repairs, and vacancy costs. Understanding and factoring in these operating expenses is vital for accurately estimating the potential cash flow of a property.

Applying the 70% Rule to Properties with Low ARV

When dealing with properties with a low after repair value (ARV), such as $50,000, the 30% deduction from the ARV covers holding costs, closing costs, and the desired profit for the flipper. However, if the 30% of a $50,000 ARV only amounts to $15,000, this leaves minimal room for profit after factoring in fees and holding costs. In such cases, following the 70% rule might not align with the profit goals of the investor or flipper.

Adapting the 70% Rule for Higher-Priced Properties

For properties with higher values, such as those with an ARV of $700,000, strictly adhering to the 70% rule may present challenges. Following the rule would suggest a maximum offer of $440,000, which may not be feasible in most markets. This highlights the need for flexibility and adaptation when applying the 70% rule to properties with significantly higher values, as it may not always align with market realities.

Seller lead call script

One of the biggest problems I see with real estate investors, is how the initial call is handled.

This call is not necessarily a seller appointment, but rather the first contact a (potentially) motivated seller has with you or your company.

This call should be information gathering, report building, and motivation gauging activity.

It's an area that I see so many new and even experienced investors making huge mistakes.

This week I am going to give you my seller lead call script to download.

👉🏻 Click this link to grab your copy and start turning these initial seller contact calls into gold for your business!

DISCLAIMER: This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.