Mid-Term Rentals | What are they & why they matter!

Note that the information provided herein should not be considered financial advice. I am not an accountant, and recommend seeking professional guidance specific to your personal circumstances.

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Most people are familiar with Short Term and Long Term rentals, however there exists a third option that is rapidly gaining popularity: Mid Term Rentals. While Long Term Rentals (LTRs) lack significant cash-flow, Short Term Rentals (STRs) require a landlord to be extremely active in managing gusts. Mid Term Rentals (MTRs) offer the promise of the best of both worlds: higher cash-flow, while remaining mostly hands-off for the landlord. Could this strategy be exactly what you are looking for?

What exactly are MTRs? Mid-Term Rentals are properties rented to guests for periods of 1 to 12 months in furnished condition. MTR’s are ideal for people requiring temporary housing for work, study, or personal matters requiring extended stays.

So how do you know if Mid Term Rentals are right for your next investment? What do you need to know about them before converting a unit into an MTR? Read on and let’s dig in.

Why are so many investors switching to Mid Term Rentals?

MTRs have risen to popularity in recent times due to regulation changes imposed by local municipalities. Many areas are tightening restrictions, which have made it increasingly difficult to operate a short term rental in certain areas (note - in our where to invest series, take a look at the municipal regulation analysis that we do on every market that we look at). Since most municipalities define a “short term rental” as one leased out for less than 30 nights at a time, anything operated with longer stays fall under the regulations of long term rentals. If your municipality has recently changed its regulations, a mid-term rental approach could be an excellent alternative.

MTR Advantages?

In addition to the regulatory advantages that Mid Term Rentals have over their Short Term counterparts, there are many other reasons to choose a MTR investing strategy. Some of the best advantages include:

Rental rates are typically much higher than long-term rentals, often 50% higher.
It’s easier to update rates as market demand shifts - you can set new rates with each tenant. Not to mention, you can scale your rates to the length of term, or be strategic with your term length discounts!
MTRs are also typically exempt from hospitality, provincial and state taxes.
You’ll attract higher quality tenants, including working professionals such as travelling nurses, homeowners in transition, or some students with a higher ability to pay.
You will host much fewer people than a STR, meaning less work for you as a landlord.
You can set a Term lease with defined start and end, instead of month-to-month as is typical with long-term rentals.
Guests will require less support and engagement than the average STR guest. They tend to “settle in” and not worry about the small things like toilet paper, detergent, etc.
You are much less likely to have a guest rent your space for parties - they live in the space so will be much less inclined to trash it!
You will have less competition! There are fewer MTRs than properties in the other segments, meaning you will have your pick of tenants and have more room to set your rates as you desire.

MTR Disadvantages?

Although there are a lot of great reasons to jump on the MTR train, there are a few issues that are better to be prepared for upfront:

You will have to invest in furnishing your property, which is not typically required in a long term rental. Depending on the size of the unit, you will need to account for $10,000-$40,000 in furnishings.
Wear and tear on your furnishings will be higher than a short-term rental as cleanings are less frequent. It might be wise to schedule a monthly cleaning service for this purpose. You can even build the fee into your rates upfront.
You are leaving profit on the table relative to a STR as the average nightly rate is lower.
Neighbours may still not approve of a MTR. Although less disruptive than a STR, you will still have a somewhat transient tenant-pool. It’s always important to have neighbours informed and address issues promptly.

How do you manage a Mid-Term Rental?

Tenant Acquisition

*Photo by Los Muertos Crew @ pexels.com*

Traditional long-term rentals can be listed on RentFaster, Kijiji, Craigslist, Facebook Marketplace, or a myriad of other dedicated websites. These tools are all great and fill an excellent need in the market (I am particularly happy with some of the added tenant screening tools that RentFaster has started to add, but that’s a conversation for another time…) MTRs however, offer a unique ability to leverage not only those traditional long-term tools, but the short-term tools as well. STR online booking platforms such as Airbnb and VRBO can greatly expand your marketing reach for new prospective tenants. They also benefit from interest based algorithms, which will reward the very best properties (like yours).

An alternate strategy exists that can allow you to have a consistent funnel of prospective clients: placement agencies. Placement agencies are already in the business of relocating workers such as nurses, and assist with the coordination of housing alternatives for their clients. If you develop a relationship with these agencies, you could potentially have a constant stream of tenants coming your way without having to do any additional marketing.

Furnishing and Marketing

Operating a MTR will require you to furnish your property, so plan on this as a fixed and recurring expense. This is an area to pay careful attention to - your furnishing (and subsequent photos) will provide the visuals for your marketing materials. I would always recommend working with a designer to help you stage the area to meet the demands of your target tenant profile, and, ensure that your space is viewed in the top echelon of available properties.

Photo by Jean van der Meulen: https://www.pexels.com/photo/photo-of-living-room-1457842/

As tenants start to live their lives in your property, certain items will break, wear out, and degrade. In addition, no tenant will care for the furnishings as if they were their own. Expect and budget for these replacement costs in your rental rates , especially if they aren’t cleaned as often as you would in a Short Term Rental. Think of rugs, linens, dishware, seating, and other big ticket items. One last tip: invest in quality, commercial grade items where appropriate. Better quality items will have a longer lifespan, and look better over that time as well.

As an effective measure against wear and tear, it may be useful to charge for and schedule monthly cleanings for your unit. This will provide at least a base line of cleanliness, and also provide an opportunity to identify additional items that are in need of service. If you effectively manage your communications with your cleaning staff, they can advise you when items need repair or attention in advance.

Legal Considerations

Since most municipalities will consider a Mid Term Rental just the same as a Long Term Rental, I recommend that you write and have a formal lease signed. Any eviction procedures will need to follow your municipalities regulations, which will be much easier to enforce if you have a lease agreement in place. So even if you acquire the tenant on Airbnb, make sure you have a signed lease in place as well!

Before going MTR- are there other ways to maximize your investment instead?

If your goal is to simply earn additional cash-flow over a long term rental, it may be worthwhile to offer your rental as a furnished property. In most cases you will be able to charge a premium for this value-add luxury and could make the difference in seeing positive cash-flow on your property. This is a great option if you are still looking to retain long term tenants, but extract that last bit of profit that may be on the table. Certain tenants may also value this option - people in life transitions often do not have existing furnishings on hand, and may not want to invest in furnishing your particular unit. This can be great for students, homeowners in transition, and people undergoing life circumstance changes.

Are Mid Term Rentals right for you?

Photo by Alena Darmel: https://www.pexels.com/photo/giving-keys-to-a-buyer-7642004/

Mid Term Rentals offer a unique opportunity to maximize cash flow while remaining mostly hands-off as a landlord / host. For that reason, and their ability to be exempt from restrictive short term rental regulations, they have become incredibly an attractive option for investors. For me, I am considering wading into this space in the future. However, I might take a first step and try a furnished property, potentially with one of my basement suited properties. With that said, I’ll wait for my next vacancy to make this decision and will keep you all posted as I try it out. How about you? Will mid-term rentals be your next investment strategy? Are the potential disadvantages worth it? I’d love to hear what you think about MTRs in the comments!