How to Use a Mid-Term Strategy to Boost Your STR Income

Question

If you own a short-term rental, there are likely to be seasons when bookings slow and you worry about generating enough income. The resort industry knows this cycle well. They have “high season,” when everyone wants to be at that destination; “shoulder season” when demand is not as strong (usually two times throughout the year) and “low season,” when most guests want to be somewhere else.

In Arizona, we call the last one summer.

When I was arbitraging a Scottsdale STR (renting it from the owner for the express purpose of furnishing it and re-renting it at nightly rates through Airbnb, etc.) I knew that our demand weakened when temperatures reached 100 degrees and people sought cooler climates.

Since rates are lowest during our low season, the fear of not being able to make the monthly nut was a concern. Not to mention that frequent drives in the summer to check the house between bookings became less and less attractive.

That’s when I decided to switch to a mid-term rental (MTR) strategy for the summer.

Advantages of a Mid-Term Rental Strategy

• You reduce your time spent managing multiple reservations and property turnovers.
• Your MTR strategy can co-exist with your short-term strategy, allowing you to attract a different segment of travelers.
• Pay smaller fees/commissions. Advertising on Zillow ($19.99 for a 90-day listing, for example) is a lot cheaper than paying a portal’s booking fee. Zillow has an application link you can send directly to inquirers. Prospective guests pay the application fee, and you get a summarized credit check/criminal history report.
• Even working with an agent to list your home on the MLS for one-month minimum stays can be less expensive than paying the portal fees.
• Rental taxes are lower. In Scottsdale, for example, stays for a minimum of one month are taxed at 2% versus 14% (approximate numbers) for stays of 30 days or less.
• You can impose utility caps, having guests pay any amount over your cap, minimizing air-conditioning expenses.

Who Will You Rent To?

In the metro Phoenix market there is demand for furnished rentals from several groups looking for flexibility, including those who are:

• Moving here for a job and aren’t sure where they want to buy or rent long term.
• Selling their home and aren’t sure where they are headed next.
• Building a home and finding that it’s taking longer than planned.
• Temporary or contract workers, such as nurses.
• In transition (getting a divorce, for example).
• Off-season travelers wanting to save money. (There is still plenty to do in Arizona in the summer. You can play golf at the best rates of the year. Cooler spots like Flagstaff are a two-hour ride from Metro Phoenix, for example.)

While low season is never going to bring the revenue you generate in other months, adding a mid-term rental strategy can maximize low season earning potential, save you time and money and gain you very valuable peace of mind.

Michael Baum · Answer

Just to make sure everyone understands, there is no legal description of a mid term rental. Anything over 30 days (31 or 28 depending on the region) will require a lease and all the due diligence required for a long term rental. After 30 days guests have tenants rights and would have to go through the eviction process if someone decided not to vacate.

You could easily run into your high season with no way to rent the property or result in canceling bookings made during the low season. Could be a real big headache.

I am not against this idea, but it isn't as simple as people think. If you get a good tenant with verifiable work or whatever you are good to go. If not, you could be stuck.

SSLTR - Short Stay Long Term Rental. Spread the word!

Nathan Gesner · Answer

That's the problem. There are too many people thinking it's an entirely new definition and type of investment property. I regularly see people asking for a mid-term lease, laws for mid-term rentals, where to advertise mid-term rentals, etc.

Most long-term leases are unfurnished and tenants set up their own utility accounts. However, a large percentage have always been rented furnished and still fall within the umbrella of long-term rentals. Short-term rentals justify a new category because there are different laws, zoning restrictions, tax implications, eviction procedures, marketing tools, etc.

Jon Martin · Answer

There's nothing wrong with a term having no legal basis as long as it is not used in a legal context and is understood accordingly. Most LTRs are not furnished, so there needs to be some differentiator from a marketing standpoint. MTR is simply a catchy term for that, but since they are using legal language I can understand the concern.

Melanie Johnston · Answer

My thoughts exactly @Jonathan W. I'm not using it as a legal term. In our market it simply indicates a furnished rental that is longer than the average STR. Generally rented by the month.

Nathan Gesner · Answer

@Michael Baum I am fighting this battle almost daily. "Mid-term rental" is a made-up term with no basis in law and is only causing confusion.

Short-term rental: 30 days or less

Long-term rental: 31 days or more

If you are renting month-to-month, two months, four months, or 652 months, it is a long-term rental. The same laws apply, taxes are the same, you market on the same websites, you use the same lease agreement, etc. People have been renting property this way forever but called them what they are: long-term or month-to-month rentals.

Melanie Johnston · Answer

Clients have generally found multi-month summer tenants via the listings that I post on the MLS. Zillow has also attracted serious tenants for us. And at least one of my clients uses VRBO as another marketing channel. Both the MLS and Zillow lead to lower out-of-pocket fees for property owners. Even if an agent is representing the tenant through an MLS booking, the fee to agents might be half of what you would pay an online booking site.

It helps to work with the agent who sold you the property. I always feel invested in my clients' STR success.

Michael Baum · Answer

Exactly @Nathan Gesner. That is the rub. Too many folks believe that MTRs are some kind of new legal entity and not just a marketing term. We have seen questions from new folks asking about the IRS rule regarding MTRs and we always have to tell them there is no such thing.

I am all for new ways to describe things and make things easier, but in this regard, it can cause real issues if people don't take the time to understand.

Melanie Johnston · Answer

@Michael Baum thank you for your perspective. Yes, for this MTR strategy, you would need a formal lease. When I work with clients who buy and operate STRs, I offer them the marketing avenue of listing the house on the Multiple Listing Service for one-month minimum leases. Applicants are vetted and the leases have an end date. We have yet to have anyone stay past their lease.

I recommended Zillow as a route for self-operators because it offers the credit/criminal background check. They also offer an online lease.

In our market, monthly rentals are big business so an operator looking at all their options might find this helpful.

If anyone has questions on how we do things in Arizona, I am happy to share my experience.

How to Use a Mid-Term Strategy to Boost Your STR Income

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