You guys I will tell you change is hard. But we recently made the decision to convert one of our studio apartments from a long term lease option to a mid term one. Now, some people refer to this as a medium term as well. So, you may be wondering, what is a mid term or medium term rental, and how does it differ from the typical long term rental we usually talk about here? Mid term rentals is when you furnish your unit and offer leases that span no less than 30 days and can last up to 6 to 9 months depending on the situation. Sometimes it will be only 60 to 90 days. Rents are usually significantly higher than long term. Well, because the tenant can pretty much show up with their clothes and a few personal items and move right in.
StacieWelcome to your Landlord Resource Podcast. Many moons ago, when I started as a landlord, I was as green as it gets. I may have had my real estate license, but I lacked confidence and the hands on experience needed when it came to dealing with tenants, leases, maintenance, and bookkeeping. After many failed attempts, fast forward to today, Kevin and I have doubled our doors and created an organized, professionally operated rental property business. Want to go from overwhelmed to confident? If you're an ambitious landlord or maybe one in the making, join us as we provide strategies and teach actionable steps to help you reach your goals and the lifestyle you desire, all while building a streamlined and profitable rental property business. This is your Landlord Resource Podcast. Hey there, landlords. Thanks so much for tuning in and listening to the Your Landlord Resource Podcast. I am your host, Stacie Casella, and I'm here with my co host, Kevin Kilroy.
KevinHello there, landlords. So I noticed you didn't refer to me as your husband, or hubby, or love of your life, like you usually do. What's up with that?
StacieSorry, I didn't purposely not say it. I just figured everybody already knows. Well, maybe I'll have to create a new intro, I guess. I don't know. But for those of you who are new, Kevin and I are happily married and not only partners in life, but in business and work as well. I think we work well together, don't you?
KevinWe do. I mean, well, when you get what you want anyway.
StacieWow.
KevinYou know, typical marriage stuff. I will say one thing we do well is that when we have a tough work day, we do our best to leave it as work stuff and not try to let it flow into our evenings.
StacieYeah, some days are easier to do that than others though. Like a couple months ago when we got that text at five o'clock at night that the tenant had bugs crawling in through the wall and immediately we knew, oh crap, we got termites again.
KevinYeah, well, I think that was an exception, but you're right though, getting late afternoon or evening calls is a bummer. But we don't get those very often anymore. We've got things pretty dialed in at this point. I think, don't you?
StacieWe do. So dialed in that, we've been able to really work on analyzing each property and seeing where we can make changes and potentially earn more profit. And not because we are those money hungry landlords, but because we have had some expenses explode on us. So, as a way to maintain our profit margins and continue with our investment plan, we have had to be creative and think outside of the traditional box of long term rentals.
KevinExactly. And you guys I will tell you change is hard. But we recently made the decision to convert one of our studio apartments from a long term lease option to a mid term one. Now, some people refer to this as a medium term as well. So, you may be wondering, what is a mid term or medium term rental, and how does it differ from the typical long term rental we usually talk about here? Mid term rentals is when you furnish your unit and offer leases that span no less than 30 days and can last up to 6 to 9 months depending on the situation. Sometimes it will be only 60 to 90 days. Rents are usually significantly higher than long term. Well, because the tenant can pretty much show up with their clothes and a few personal items and move right in. So here's the deal. Our six plex has two, two bedroom units, two one bedroom units and two studios. And they aren't really large by any means. I think the studios come in around 450 square feet each. So you can imagine that where we rent them out well as long term units, tenants really don't stay long, maybe two years max. And that's okay, but when we have to go in and flip them each year, we start to wonder if maybe we would be better off using these units for shorter terms than a year. So we did some research and found that we could likely get much more monthly rent if we furnished the units and converted them to a midterm rental.
StacieYeah, exactly. Some people who have midterms like ours will also offer short term rentals in between leases to keep the money coming in. But if we did that, our insurance rates would increase again to be covered for those short term vacationers or business people who rent for less than 30 days. Some who own furnished units in vacation and seasonal areas will be short term in the high season and then convert them to mid term during the off season. Plus, many cities are now regulating short term or vacation rentals and are requiring special permits for short term units so that they can, 1 cap the number of short term rentals to protect the hotels, and the neighborhoods from being overrun by a bunch of transient vacationers. And so they can also, 2, collect more taxes. Much like hotels have to charge and then pay the city for taxes, many cities and counties are now charging short term rentals what is called a TOT or a transient occupancy tax. And to be honest, I think that's completely fair. If Hotels have to pay, then so should short term units.
KevinSo with this building being in Sacramento, there are regulations, but not many restrictions. For short term rentals, they require a permit. It costs around$450 and is non refundable. They require this permit for rentals that are 29 days or less. Which eliminates the need for us to get this permit as we will only rent for 30 days or more This building is located in a great location, only one mile from the California State Capitol building, two miles from three major hospitals, and five miles from a state university. And it's right smack in the middle of great restaurants, parks, and the arena for the Sacramento Kings basketball team.
StacieYeah, so my brother is the one who found this place back in 2005. He lived in the general area and knew of all the great things around that would attract people to live there. And we have had nurses, business professionals, government employees, et cetera, all live in our units over time. And each one has expressed that they're really sad to leave and they love the area. So we know we're in an excellent location. While doing our research, we were lucky enough to meet and talk to another landlord in our area who created a small ADU in his backyard and uses it for a midterm rental. He was doing really well working with travel nurses renting from him and they were working at one of those three hospitals that Kevin had mentioned earlier. So who rents these midterm rentals? For us, we target travel nurses, government contract employees, business professionals, professors at the university who are going to be teaching like one semester and potentially students who are doing government internships. Although our unit might be out of a student's budget, honestly. For others who own larger units or single family home rentals and you allow pets, you might be targeting digital nomads. But the one demographic we are seeing a lot of others be really successful at is insurance claim housing. This is where families lose their home due to a fire or a flood and their insurance is paying for the rental as it's covered by the homeowner's or the renter's insurance policy. Other landlords are doing really well housing traveling employees that have to work on a construction job. Some just do rent by rooms and are killing it. So it all depends on your location and what you can offer to a specific market. Us being in the heart of Sacramento and being surrounded by government jobs and also being so close to those three major hospitals, one that's a teaching hospital, and one being a Shriner's Children's Hospital. Plus, being centrally located to a ton of great restaurants and nightlife, we think we can appeal to a variety of midterm runners.
KevinYeah, that's for sure. So imagine being part of this thriving market where midterm rentals offer property owners, investors like us an opportunity to maximize their rental income while meeting the demands of these modern tenants. This studio that we have converted was badly damaged in a flood and had a major fruit fly infestation. The guy in there was protected during COVID and was not paying rent, so when we were finally able to get in there and evaluate it, we knew we would have to pretty much remodel most of it. Luckily, the kitchen was okay, but we did have to replace all of the appliances, the flooring, we gutted the bath and made some design changes there, plus do a deep, deep cleaning. We found one of the windows was leaking, so we replaced that and had to do a full prime and paint job in order to get rid of the smell. So, that took some time too. Then Stacie had the fun task of furnishing it and filling it with all the things midterm renters need when they show up with pretty much just a suitcase or two.
StacieHey, I have to say, to me, that was the best part. I gave myself a budget for all that furniture, the linens, kitchen supplies, and appliances. I think I did pretty well.
KevinLet me jump in here and say this girl knows how to shop. I mean, there is not a store around that she can't go in and find a deal of a lifetime. And where I might be being a little sarcastic, she really knows how to find a good deal.
StacieYeah. Well, here's the thing though, timing is everything. So here's something that I learned. If you want to buy a TV, in January, they are selling TVs so that people can watch the Superbowl. They're probably all leftover from Christmas and stuff anyway. And that is when we picked up a killer deal on a 55 inch smart TV at Costco for like$499. In August, you'll find deals on stuff because that's when college kids are moving into dorms or housing. So pay attention to events like these. I also bought bath linens from Costco. They're really good quality. As well as the mattress and I think the silverware too. And I know some people make fun of Amazon shoppers, but you guys, I needed to buy all of this stuff right when they did their big sale in October. So it's not the prime day sale that's in July. Last October they did an extra sale day and I cleaned up. I mean, I think we had like 50 boxes on our front porch from furniture to plates to fake plants and throw blankets I scored big time.
KevinYeah, but the question is did you stay within your budget?
StacieI think I went over just a little bit.
KevinUh huh.
StacieHey, at least I can admit it. But okay, here's one place where I went wrong when I was creating that budget and I failed to include duplicates of all the linens So flipping a midterm rental is not unlike a short term rental. Sometimes you only have a day to get in there and clean and change all those linens out. And oftentimes there's not enough time to properly clean all the bedding. So we have found that bathroom linens often get stained and ruined. having backups of towels and washcloths and bath mats is a must.
KevinEssentially, you go in and bag up all of the linens and bedding and take it away to wash at home and flip the unit with fresh and sometimes new stuff. And pillows should be sanitized as well. And let me say, if you have someone managing your midterm or short term rental for you, this is something they will require. We have a house cleaner who is going in to do all of this for us, and will leave the dirty linens in the basement for us to come and grab and clean.
StacieYeah, well, live and learn, I guess. So, let me talk a little bit about our analysis. First, we found that our expenses had really increased, like our utilities as we cover the water for this complex. Our insurance costs had jumped quite a bit. The labor fees for our landscaper, our contractor, and everyone else who we use for maintenance had gone up. But mostly the property taxes for this particular property. In 2021, I bought this property from our family's investment portfolio. And where they were nice and gave me a discount on the sale, the property taxes have gone up around 35%. So here we're working to grow our investments and doing really well. But the expenses we had initially budgeted for were growing exponentially and not nearly as fast as a rental income. So the one thing we thought that might help us be able to increase that income was to pivot our studios from the long term rental market to a midterm one. And so many people we know have done well in the short term space, but we do know that that is not for us. We also have long term tenants in this building and we must be considerate of them and having tenants in those studios change every few days just was not gonna work. The other reason is that where we are conditioned to having tenants leave the studios each year when their lease is up and then having to go in and do a complete flip and turn the unit, we know we're okay doing this a couple times a year. But no way do we want to deal with flips and wear and tear from so many different tenants that happens every few days with a short term rental. And yes we could hire a manager to handle those flips, but honestly, it's just not the space we choose to venture into it at least not for this property
KevinAll right, so let's talk about the numbers. Because we would be operating this unit like a long term hotel room, we can charge significantly more than we would for an unfurnished long term tenant. Which is going to be someone who rents and signs a lease for one year or longer. Because midterm units are furnished and include all the comforts of home and we will pay for the utilities and we can make a lot more by offering these amenities. Plus, there is a price to pay for that shorter term stay. Because they are not committing to living there a whole year and need the flexibility of leaving only after a couple of months, you can charge more. For a studio that has an in unit washer and dryer and central air conditioning, we can get around$1500 to$1600 a month on a long term lease. Certainly not bad. In our area with a furnish unit that includes some utilities, high speed internet, and an updated bathroom, we can get around$2100 a month. So for one unit, that's around$600 more a month. In around a year, we can recoup the cost of furnishing it. Of course, the expenses are higher by covering utilities and internet, but for that small sized unit, it's not bad at all. Maybe around$150 all total. So a net increase of around$450 a month. When we have our long term tenant move out of the other studio we are hoping to be able to yield around a nine hundred dollar net increase. At that point, hopefully, we will have covered all of the increased expenses and be back to making a decent profit on this property.
StacieSo, let me talk a little bit about the pros and cons of operating your rental property in the midterm capacity. The pros are obviously higher income as we discussed earlier. Some will say there are less issues with maintenance because you or someone is in there flipping and evaluating the space more often. There is a growing demand for midterm units and in many large cities there are more people looking to rent than there are units, so the market is open and ready for these midterm rentals. Oftentimes, you're going to attract higher quality tenants. If a corporation is placing an employee there to work, they likely trust and have a high regard for that person. If you're placing a student, they have worked and earned that internship. And these qualities often go hand in hand with a great tenant. And if you market your property well and get hooked up with these companies that send employees to your area often, repeat business can make the space more passive than active. And I'm going to go off on a little tangent here. As with everything you get out of owning rental properties, what you put into them, regardless of whether you operate short term, midterm or longterm units. Treat your tenants well. In the short term and midterm spaces especially, referrals and repeat customers are the key to how successful you can be. You own a business and they are your clients or your customers. We do this in the longterm space and I think this is why we have such a high renewal rate. We treat our tenants with respect. We are firm on our rules, but we are kind and professional. We set them up for success by giving them tools and resources to care for the unit properly. And there's something to be said about listening to your tenants as well. If they express something that might make your rental better, like adding amenities or needing updated appliances, research the expense, and if you can, implement it. We often will do this with a renewal, so they will want to stay on and not move out. If they have a birthday, send a card. That's a two dollar generic card that can make a world of difference to some people. All right, I'll stop now.
KevinWell, you're absolutely right. As soon as we made that mind shift away from the outlook of, we own this property and let you live here, to a more customer based outlook of we own this property and are happy you have chosen to live here. What can we do to make your stay enjoyable? You see the rental income we earn is a portion of our living income and so we need to make sure that income is steady and improving whenever we can. It's no different than working for someone else and working hard with the hopes the boss will notice and give you a promotion and a raise. It's no different than owning a customer service based business like a retail store, restaurant, or a dry cleaning business. Being kind, treating people with respect, and having good customer service, while getting the job done, will hopefully earn you repeat business and referrals.
StacieAs you can see, you guys, Kevin and I are very passionate about this area of owning rental property. And honestly, you win some and you lose some. Not everyone will be your ideal tenant, but you as the owner have to do your best to remain professional and considerate. All right, I'm going to get back to midterm rentals now. Because we want to be real and give you the whole picture, let's now talk about some of the potential drawbacks of operating midterm rentals. When you first start out, finding the right tenant can take a lot of time and effort. Because the pool of prospects is more specific, you need to learn how to tailor your marketing strategies to attract that ideal tenant. This time can mean that your unit is vacant longer and more often until you get the hang of it and learn more. If you're looking to convert a short term to a midterm, your income is going to be lower. Short term units yield a much higher rate. Seasonality might be an issue. If you own a rental where it is a popular place to be in the winter months, but not so much in the summer, like Arizona, you might have large gaps in your stays. You have to furnish a unit and that costs money. Now, we budgeted about$5000 for this studio, and that might seem high, but we wanted better quality furniture than, say, Ikea. The average cost to furnish a midterm rental is between$9 and$15 per square foot. Since we have a smaller space, we could afford to spend a little bit more with the hopes that these furnishings would last longer, and the upkeep and replacement of broken or damaged furniture would be less. You also might have a higher turnover rate. The demand for midterm rentals can fluctuate. As we mentioned before, until you get up and running for a while, or if seasonality is an issue, you might have longer stints of vacancy. You also might be in the market that can shift. So if you're banking on only hospitals and travel nurses, that's probably not a good idea. Because hospitals can change their business direction and decrease the number of traveling nurses that they use and decide to hire permanent employees instead. Large corporations are moving their offices and are now offering satellite offices. So what we would consider long term travel for employees might be eliminated.
KevinAbsolutely right. And here's a good example. Oracle, which had its headquarters right near us, moved their headquarters to Austin, Texas in 2020. And they just announced they'll be moving their world headquarters again to Nashville, Tennessee by 2030. So if you are evaluating your market and are dependent on housing only one demographic, you might consider another way to increase your income. And with that, let me give you guys some tips on how to research whether an area would do well or not. Let's start with the size of your rental. If you are looking to place families, the most commonly sized home is a three bedroom, two bath. This is also a great rental for rent by room options, so like for students or construction workers. If you have one primary room that has an en suite bath, you can earn more for that room than one that would have to share a bath. Then the living areas and kitchen are all common space that is shared equally. Often we will see ADUs as short term or mid term rentals. These are great if you're okay with having people live on your land with you and likely share a yard with them. And here's a side note, check your city for regulations on ADUs and rentals. The city of Sacramento does not allow ADUs built after, I believe it's 2022, to be used for short term rentals.
StacieYeah, I guess everyone and their brother started throwing up ADUs to rent out a few years ago, and they wanted to nip that in the bud.
KevinYeah, not sure why, as every state is in a big push to create more housing, but who knows. Now, our studio is not the norm, and to be honest, limits our market and demographic. We really need to focus on single people who are coming to Sacramento to work in government, one of the hospitals, or in a business. We do not allow pets, so we know that might be an issue as well. But anyway, when evaluating locations, you might want to look into capital cities, like we have in Sacramento and Boise. Government is not going anywhere and there will always be jobs. Military bases are another one that often will have mid term rentals. Some come in for consulting, some come in for teaching, some come in and then have to move bases and are only given a couple of weeks to a month's notice. Clusters of hospitals are a good bet. It's not only traveling nurses, but for example, our niece is an x ray tech and is hoping to travel around with her husband who is in the baseball minor leagues and will probably have to move often. For us and for homes and apartments around Shriners Hospitals, can be a decent option because families are forced to relocate for a sick child. And where that is sad and must be extremely difficult, there is a significant market for this type of housing. And the last type, which is not our market at all, is insurance claims. Again, this is a very specific market. You have people who have lost their home to a fire, flood, or some other catastrophic event, and where the insurance is paying for the rent, they get to choose where they live. So, you would want to make sure you're in an area with a nice neighborhood, has a nice yard, and definitely nice neutral furniture. Typically, these homes will be in a C plus or higher area. Again, this is a very defined market, so you would need to create relationships with placement agents for all of the major insurance companies. The larger the city, the more likely your unit will be leased too. More people live in and visit larger hubs. Small towns are less likely to have an abundance of insurance claims to need temporary housing..
StacieSo the thing is, insurance claims, if you have a rental in the right place and you can get into that market, it can be very lucrative. Single family homes that might get like$3500 for long term renters are sometimes yielding double or more rent by these insurance placements. And the insurance company is who pays you, so you're guaranteed on time rent in full every month. Plus they are usually staying for a year to 18 months depending on the level of damage to their current home. Can you imagine furnishing your single family rental and then doubling your rent for a year or more?
KevinDefinitely not a bad deal. And there are groups that arbitrage or essentially wholesale placements where you can pay them a percentage, sometimes as little as 10% and sometimes as high as 50%, and you don't have to do any marketing. Not exactly what we would recommend, but yeah, the insurance placement market can be very lucrative indeed. Now, if you're considering switching your rental from a long term to a midterm one, of course you will want to research rental rates in your area. And honestly, this is not as easy as it is for a long term rental rates. You can research market demand and going rents by using Furnished Finder. They have stats on their site that can be very helpful. You also need to know who your competitors are. And I don't mean it has to be a competition, just who you're going up against. It is our opinion and that of many other landlords, that we should all work together and not necessarily quote unquote compete with each other. This is how you can learn about your market, learn new approaches to landlording like switching from long term to mid term, and it's also how you build relationship with like minded people. You might be able to connect with someone's contractor or appliance repair person. Or in our case, a housekeeper that can handle flipping the unit. You can refer them business when you are full and hopefully they will be willing to do the same thing. You can also learn who or what companies are best to work with and who to avoid. You will also want to research the laws around short and midterm rentals. If you are in an HOA, you absolutely want to read your bylaws. We just read a post on one of our Facebook groups we are part of from a guy who owns a home in a vacation destination. Their previous bylaws stated they could rent their home for 30 days or more, so it was a perfect situation for summer renters to come in and rent his property. But the HOA changed the bylaws and now they can only accept rentals that are six months or longer. If you have not listened to episode 63 about owning rentals within an HOA go give it a listen. We'll link it in the show notes. But now this guy is panicking because he owns several homes in this community and is being forced to sell them or to pivot his strategy. And I won't go into the advice other landlords are giving him, but it was deceptive and really not cool.
StacieYep. This is why you must do your research on regulations. So Kevin and I were in San Diego a couple of years ago and looking at condos to potentially buy so that we had somewhere to stay when we visited our oldest who lives down there. We figured we could buy a place and short term rent it out and then use it when we wanted to go. And then Kevin did some digging around and found that the county, not the city of San Diego, and if you're not familiar with the county, it is rather large. The county was implementing a restriction on short term rentals where you had to have a permit that was only obtainable through a lottery. I believe they were only allowing 1 percent of whole home rentals to access permits. So I think we figured it was around 5000 permits or something like that. And at the time there were like well over 10,000 short term rentals registered and trying to grab a permit in that lottery system. Now, I will say, it is a tiered system, and if you live in and rent rooms, or only rent your home for 20 days a year, you are not looped in with that whole home rental lottery. And when I checked it out recently, Tier 3, which is where we would have landed, still had 800 permits available. Oh, and the permits are only applicable for two years, and then you have to reapply and go through the lottery system all over again. And at this point, it was not something we wanted to deal with.
KevinDefinitely not, but it's promising that there were still permits available. I know that these regulations have weeded out a lot of the short term rentals, and many of them have now moved on to the midterm arena. So there's that to think about as well. Okay, I want to end the episode with talking a little bit about leases and midterm rentals. They are a bit different, but not horribly. You'll need to address the furniture, which generally is not noted in the basic lease. You also need to use an addendum to state who is responsible for what. Like for us, we would cover the cost of the internet in full, but only cover utilities up to$125. And we do this because even for this little unit, the cost to run that air conditioner can be outrageous. And if they take off and leave it running, we aren't going to be stuck with a$400 electric bill for that. Sometimes the lease is not executed directly with the tenant. Sometimes, and if I'm being honest, preferably, the leasee is a business, like a hospital, insurance company or a corporate placement company, who is paying for the employee to live in that city. And this is a good thing because then the tenant has an incentive to keep the space nice and return it in good shape so the company doesn't have to deal with paying for damages. So if the lease is with the company you will want to make sure that you have the employees listed as occupants. They might not be responsible for paying the rent, but they will have to adhere to the rules of the rental. I will say that your lease for a midterm rental is really not that different from a long term one. Instead of signing a year long lease, you will be using a month to month agreement. You still need to list all of the rules, the state notices and regulations, use addendums for specific and special needs to the property, like if you have a septic tank or a well for water. And security deposits can vary. I will say that TurboTenant has leases for short term rentals, so if you have not checked them out, you should. They can handle midterm and long term rental properties, rent payments, document storage, the whole nine yards. You can sign up for a free account, no need to pay anything unless you need specific leases. But if you already have a lease you like to use, you can upload that lease and keep all the documents for rental insurance, correspondence, etc. all in one place for free. We will link them in the show notes if you'd like to check them out.
StacieAnd you guys, we will do another episode at some point where we will lay out all that we know and can share about running and operating a midterm rental. For now, we just want to share why we decided to pivot from longterm and give you a few tips and insights in case you were considering this strategy as well. That is our show for today. We cannot express enough how much we appreciate that you take time out of your day to listen to all we have to say. And we hope you learned a little something about midterm rentals and what our story was to be able to help you understand why we're giving this area a try. And let me close out the show with a few things. You want to text us a question? You can now find a link at the top of our episode or in the show notes that are attached to each podcast. We check it a couple times a day, so don't get discouraged if we don't respond back right away. We would love if you would test it out and text us a question for our upcoming Q and A episode that we're doing pretty soon. If you prefer to email us questions, you can do that too. We'll link our emails in, show notes for you. Our show notes include all the links to everything we offer, so you should really check'em out. You can sign up to get on our wait list for our upcoming course and potentially be a part of our first beta group. And, of course, we have links there to sign up for our free weekly newsletter, plus all the forms and documents that we have created for you to download, like our email template for sending tenants renewals, the form you can send to an applicant's previous landlord during your background checks, checklists to use for tenant move ins and move outs, as well as our spring maintenance checklist. What else? Oh, we have a 10 page guide on how to place your ideal tenant, which is a pretty good freebie. Most all of our forms are free and we think we only charge for two items at this point. You'll also find the link to our private Facebook group and all the social media sites so you can follow along with us. Thank you so much for sharing your time with us today. We are very grateful that you find our content useful. And until next time, you've got this, landlords.