Mid-Term Rental or Traditional Rental??? That is the question.

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Mid-Term Rental or Traditional Rental??? That is the question.

Jennipher Jess
Investor · Dallas, TX · Member since 2023 · 10 posts · 5 votes

Hello BP,

I really need help and opinions! My husband and I need some assistance. We just closed (literally) on a 3/2 townhome (1691 sqft) in Iron Horse Village in Mesquite, TX. Since we put a deposit down on the property, the rental rate has dropped significantly, due to the fact that several investors purchased townhomes at the same time, driving prices down. They sold to a pool of 20 investors (which we were not a part of) and in a month prices that were looking like $2700-2800 are now looking like $2200-$2400.

Note - The Iron Horse Community is currently building shops, restaurants, green space for dogs, an amphitheater, and more right across the street from our unit (and the other townhomes as well). Those should be completed in 2-3 years (which is when we would consider selling).

When we originally went in on the deal we were looking to sell in a few years, as they are building a community of shops/restaurants across the street from the townhome and just take a loss until then, but these numbers are dramatically lower than anticipated around $700/month in losses.

All this said we CAN take the loss and find a renter for a 12-month lease at say $2400/month OR we were considering a mid-term rental in the area and furnishing the townhome. This is all new to both of us and we are looking for any and all advice from the best places to furnish the MTR if we go that route, to the best options with leasing.

Thank you in advance :)

Jen

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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
3y

@Jennipher Jess the first thing you need to do is assess demand in your area for furnished rentals. Look at furnished finder and look at what is on airbnb before you furnish. Add the costs including utilitlies and furnishing it and see if you will get a bigger net by MTR. Remember it isn't about the rent, it is what you net at the end of the day. Also is STR a possibility because that will likely net more. What is the size of the unit? Is renting more long term by the room a possibility? Look at all your options by the numbers before you make up your mind.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Jennipher Jess

    Is there a short term rental market - I wouldn’t think a townhome community would make a good one. I would find a renter long term personally but really your decision just remember with mid term you are paying utilities and all other fees and have vacancies to factor

    May end of the day will it bring you more money?

    Other option is to sell it now and take your loss, what happens if in 3 years it’s worth 15% less?

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    3y

    @Jennipher Jess the first thing you need to do is assess demand in your area for furnished rentals. Look at furnished finder and look at what is on airbnb before you furnish. Add the costs including utilitlies and furnishing it and see if you will get a bigger net by MTR. Remember it isn't about the rent, it is what you net at the end of the day. Also is STR a possibility because that will likely net more. What is the size of the unit? Is renting more long term by the room a possibility? Look at all your options by the numbers before you make up your mind.

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  • Jennipher Jess
    OP
    Investor · Dallas, TX · Member since 2023 · 10 posts · 5 votes
    3y

    That would be a big loss. However, they are building shops, restaurants, and an amphitheater right across the street from the townhome and those should be done in 2-3 years. So hoping that will help with some of the property value over there 

    Once done, I think a mid-term rental may work better. 

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  • Jennipher Jess
    OP
    Investor · Dallas, TX · Member since 2023 · 10 posts · 5 votes
    3y
    Quote from @Colleen F.:

    @Jennipher Jess the first thing you need to do is assess demand in your area for furnished rentals. Look at furnished finder and look at what is on airbnb before you furnish. Add the costs including utilitlies and furnishing it and see if you will get a bigger net by MTR. Remember it isn't about the rent, it is what you net at the end of the day. Also is STR a possibility because that will likely net more. What is the size of the unit? Is renting more long term by the room a possibility? Look at all your options by the numbers before you make up your mind.

    Hello Colleen, 

    It is a 3/2.5 townhome with 1691 sqft. Renting by the room is not allowed by the HOA. I just reached out to current owners of properties on Furnished Finder and they said things are slow/to break even. Both said nothing has come up for them on Furnished Finder at all. I will reach out to a few on Air BNB and VRBO now :) 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    3y
    Quote from @Jennipher Jess:

    A "mid-term" rental is really just a long-term rental with furniture and utilities included in the rent. You should still follow long-term rental practices: application screening, written lease agreement, follow the long-term rental rules.

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  • Konstantin GinzburgPro Member
    Member since 2021 · 376 posts · 242 votes
    3y

    @Jennipher Jess

    Mid-term rentals do have the potential to be more profitable but they will require more work such as furnishing and more frequent unit turns. This will also depend on whether or not there is a market for short or medium rentals in your area. Is there a nearby hospital that attracts traveling medical staff? Is there a nearby school that attractions students that need housing? Is there a nearby attraction that could attract tourists? Whether you use medium or long term rental strategies will fully depend on what the market demand is in your area. 

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    3y

    @Jennipher Jess I am going to hazard a guess that your net is actually going to be better on a long term rental if that is what you are hearing from people in your area on furnished finder. Unless you can do a STR which if the HOA doesn't allow renting by the room I doubt they allow STR. A MTR as the term is used now is a furnished rental so you can rent furniture to give it a try but that ups your costs too.

    Buying expecting a loss has backfired on you.  You basically have to find someone to rent at a premium to limit your loses. Thinking out of the box can you rent your own place and move into this one and make a profit? Can you find an institutional tenant like a group home or similar. Can you list it as open to shorter term leases at a premium and see what happens. 

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  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
    3y

    @Jennipher Jess

    So you went into the deal expecting to lose money every month? Unfortunately you just learned your first lesson to not buy property that doesn’t cash flow. Assuming your rent analysis is correct, which I am assuming will be worse since this is your first deal missing out on vacancies, maintenance, getting the property ready for the next renter etc. You will be losing $25,200 over the 3 years plus the closing costs when you bought the property and the closing cost when you sell. If you plan on keeping the property it sounds like a MTR you will also lose money plus you will have to furnish the unit which will cost you more money.

    2nd lesson would be not to speculate especially if you have negative CF. That’s great that they plan on building a shopping center across the street but that in my mind is still speculation. 3 years is a long time. The builder can decide to not move forward on the project, they can go out of business, they can have delays etc. When you are buying a property especially a new build you are not going to see massive appreciation most the time new homes come down in short term before rising. This market that just goes up is over and you can not expect the type of appreciation we had the past 3 years  

    3rd When you were looking into renting it usually want to not base your analysis off of the top of the market. Rents are down in 57 out of the 100 biggest metros YoY nationwide. Make sure you know your market, run things conservatively, and know where you are in the economic cycle. 

    Can you afford a $1000/mo loss?  if you can’t you may want to think about selling the property. I know it seems like a big hit but if it turns into a money pit you’ll lose whatever money is in the house and could potentially lose more. 

    If you can afford it you can hope rents keep going up, you get a solid long-term tenant and have minimal costs. You will have to hold it for longer than 3years but eventually you can refi and the deal will work out if you hold it long enough. 

    Good luck wish you the best 

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  • January Johnson
    Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
    3y
    Quote from @Colleen F.:

    @Jennipher Jess the first thing you need to do is assess demand in your area for furnished rentals. Look at furnished finder and look at what is on airbnb before you furnish. Add the costs including utilitlies and furnishing it and see if you will get a bigger net by MTR. Remember it isn't about the rent, it is what you net at the end of the day. Also is STR a possibility because that will likely net more. What is the size of the unit? Is renting more long term by the room a possibility? Look at all your options by the numbers before you make up your mind.


     This is a good suggestion.  Here's how to do that:

    https://www.furnishedfinder.co... 

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