Why should you have a mid-term rental? What are the pros and cons of mid-term rentals? What do corporations look for when looking for corporate housing? Angela Healy, CEO of AvenueWest Managed Corporate Housing shares her knowledge.
Tell us a little bit about yourself.
I have had two careers in my life. My first career was in commercial lending, and I did that for a decade throughout the United States with Silicon Valley Bank, which had made the news not in a good way last year. I got my feet wet there and understanding the financing side. In 2000, I moved over to fully furnished corporate rentals, and haven't looked back. I enjoy this industry because it is very much a service-oriented industry. Still, it allows us to work with many real estate investors interested in putting their properties into our program so that they can rent to corporate rentals.
When did you make the move and why did you do it?
I made the move officially in 2004 because I decided to move to Denver, Colorado, and while I had moved several locations with the bank, it wasn't a move that was going to transfer with them. I had met up with this company from a friend that I knew in college and had been helping them for a couple of years remotely and then I decided it was time. I had my real estate license in 1995 in California, and my parents owned rental property when I was young, so I always had a love for real estate and knew that I would probably end there someday, even though I didn't start there.
What are midterm rentals? Why should someone have to offer a midterm rental as an investor?
Most people are very familiar with long-term unfurnished rentals, and in the last decade, short-term rentals have been very popular with Airbnb. Those midterm rentals have slid under the radar for quite some time, but we're making more headlines now because so many cities are prohibiting short-term rentals. In New York and Denver, we have a lot of regulations around short-term rentals, whether you need a license, whether you're restricted in which kind of properties you can offer, whether it has to be your primary residence, or whether you can only do it for 90 days. A lot of regulations happening around short-term rentals so what people are finding is, instead of either selling the property, especially in this real estate market, or switching it back to an unfurnished, long-term rental. They have another opportunity to be able to keep the rental furniture there and still be able to make a higher yield than they would be renting unfurnished.
The nice thing about midterm rentals is if you work with a corporation like ours, you could rent them to corporations in the area, so you have a really solid customer base. No one's going to do anything to their corporate apartment that will make them get disciplined at work, and the average stay is about 90-100 Days. You do have a couple of turns a year but nowhere like what you were doing with Airbnb in terms of maybe a couple of nights and then a turn. It is a nice medium compared to the unfurnished rental.
We have a couple of offices in California where the rules and laws around renting properties are very much geared toward the tenant. By having the corporation rent the property for a specific assignment, you're not going to have somebody end up squatting or staying there beyond their term of what they're allowed, which also allows you to keep the rental rate up with the market. Once someone moves out, you're not subject to rent control, you can set your new market. If the industry or the real estate market is on an upswing, you can certainly get the increased prices related to the upswing and it is a nice way to diversify your overall portfolio. if you're heavy in commercial real estate, it is another way to stay with that commercial customer even though it's on the residential side.
Corporations want a very high-end property, they're paying top dollar for the property because they want everything perfect. They want nice finishes and with today's requirements: granite countertops, stainless steel appliances, a washer and dryer, parking. And they want it to be close to the offices, to the city center. I have people call me up and they say, "I have a perfect property. It's only a 10-minute drive from downtown Denver." And my answer is "I'm looking for a five-minute walk, not a 10-minute drive." There are some specific items that corporations will look for, but we could certainly walk anyone through whether their property would meet those requirements, or whether it would be good for a midterm rental.
For the education of our listeners, can we go through these questions live so that you can qualify for a house in real-time?
Do you have a specific property in mind that you want to go over?
Yes.
Where is it located?
It is a five-minute drive from downtown Dallas.
Dallas is a very robust area. It doesn't have to be downtown because Dallas has so many offshoots, whether it's Frisco or Plano, or even by the airport. Is it a house or a condo?
It's a condo, a townhome with two bedrooms and two and a half baths.
That is a perfect size. A lot of the corporations bring in consultants on an assignment. They might want 10 bedrooms in an area because they want them all to have their separate property to go into when they're off of work. But also, a lot of times they may double them up. Let's put two consultants in if it's a two bedroom, two bath, so that could certainly work.
And then another use is relocation. Are they relocating a family, or are they relocating an individual who wants additional space? Maybe the second space is like an office, or a guest bedroom, or one of the spouses is temporarily relocating and wants a second bedroom. If the family comes to visit, they have a place for them to stay when they come and visit so a two-bedroom is a wonderful option.
Does the community have any amenities with it?
No, it's a gated community.
Is there anything nearby like gyms?
Not really.
Does it have its washer and dryer on the property?
Yes.
Is it currently furnished? Are you renting it unfurnished?
It's unfurnished, but we were thinking of doing an Airbnb and furnishing it.
Having the primary bedroom with a king or queen bed is very nice. I've also seen people put two twin beds in the second because the twins could be pulled together and create a king. If you did have two consultants, then they could both have a similar size bed. The other thing is that corporations do like to have TVs in different spaces, especially with a two bedroom, and having a TV in the living room as well. Streaming service is certainly the way to go, as far as not having the recurring monthly expense of cable. They may be spending a couple of days at the property, working from home, at the condo, a lot of times it's hybrid. You want to make sure you have very fast internet service.
Where would you market the property?
We do work with hundreds of corporations already. We let our existing customer base know that we have an additional property in this area. We could also target certain corporations that might be very close to your location. If you're near a hospital, or you're near a corporate center, just look around and see what might be nearby, it doesn't necessarily have to be in a city as large as Dallas. There are a lot of manufacturing plants that can be in the middle of nowhere, but they use corporate housing a lot. Of course, you are tying yourself to that one company so there's some risk in terms of how many corporations are nearby that might be able to use the property. That's a consideration.
A lot of times, cities will look at it and say "Oh, we don't have enough housing, and we need to restrict Airbnb's, or all of these other kinds of housing so that we just have the long term unfurnished." But the corporate housing is a real key piece in getting a company to move to your area, because they're always going to give corporate housing to the employees first, depending on the level of employee, 30, 60, 90 days, or whether it's an executive that might get a year or two years. If they can't house those employees temporarily before they can find their permanent home, they may not consider that city. While lots of the cities are trying to restrict this kind of housing, they also want these corporations to come in and move their headquarters to their area, and they don't realize they're undermining themselves.
Another scenario I see here is seasonal and short-term rentals. Let's say an area that doesn't get a lot of rentals during winter time, that could be an option as well.
We have an office in Phoenix, and over the summer, it can be over 100 degrees over 100 days in a row. People are fleeing from there during that timeframe and normally there are a lot of rentals available. But we do have a steady stream of business year round where we may not get the high rents that we get in high season, but we can certainly keep it occupied during that period. A little bit less seasonality than you might get from a vacation rental. For example, if you're on the coast in Florida, you might have a great, busy summer season. But what do you do for the rest of the year? And can we fill that with corporate rentals during other seasons of the year as well?
What are some cons to midterm rentals?
We are subject to corporations and their ebbs and flows. That doesn't necessarily mean that it's only good in an up environment, because when there's a down environment, we do see movement of employees when they consolidate locations. Maybe they're closing this office and they're going to relocate everyone to this office. If your property is located near the office that closed, that could certainly be a con.
And then, there are times where we can be affected by the overall economy, like, if the government shuts down for a week, and everyone takes a deep breath. "How long will they be closed?" We could see pockets of times when everyone is taking a breath and trying to adjust to the new economy, but once they do start making those plans, either closing places, or maybe they're going to expand, or maybe interest rates are rising, and everyone's taking a breath, businesses will start to adapt to that and start to make some sort of change, and that change is good for corporate housing.
Corporations do not relocate people, and they do not start new assignments in December, but that doesn't mean that we go vacant in that month. But if your tenant happens to leave in December, the likelihood of us finding somebody new before January slips.
Is there anything else that we have not covered that you think is important for our audience to know?
Do not just diversify across classes, but also diversify across locations. Do not put all of your properties in Denver or Dallas. Ask yourself, what can I do in terms of putting some of this type of property in different cities across the country? What we saw during Covid, obviously, everything shut down, but three weeks after, all of our clients left California, and they were filtering into other areas that we have in the country, or they left New York.. The New York and San Francisco LA area was hit a little bit harder by Covid, but the rest of the country was booming. Once people take that breath and adapt, then where are they going?
Another example of that would be property insurance. In some states, it's doubling, tripling, quadrupling, so if you have properties in different states, you can leverage that.
We've some properties in Miami that are getting hit with that insurance right now. And it's very hard for me because you need the insurance, but how can we justify a price increase that covered that insurance that we might not have been able to do a year ago or two years ago? It's something to consider when you're looking at each property, all of the costs and property taxes. Here in Colorado, property taxes jumped this last year. The legislature is trying to do something to give relief back but that was an unforeseen cost that just hit when they issued the new property taxes this year. All of the pieces, not just your mortgage and your utilities, but the insurance and the taxes as well.
Angela Healy
angela@avenuewest.com