Converting a Condo into a High-End Corporate Rental

[Emanuel Cargle]

Hello all! My name is Manny and I’m brand new to real estate investing. I'm excited to take the next steps in making my first investment which will likely involve the use of my condo.

I'm primarily leaning towards the use of my own condo because I already have a mortgage on it. In a way, this accomplishes what I understand to be one of the first steps of REI, which is to secure financing for a property. Also, I travel a lot in my primary profession so I have no issue with vacating my condo and finding another living situation (maybe a small apartment) if I'm able to develop a passive income stream by doing so. I really like the idea of having a monthly cash flow and I generally appreciate the concept of renting more than I do flipping. To that end, I intend to rent.

While performing some preliminary research on rental properties, I discovered that there are several strategies that can be executed. One particular strategy that interests me a great deal is short-term corporate rentals. It appears that short-term corporate rentals (i.e. at least 30 days, but no more than 3-4 months) tend to have higher returns (principally in terms of monthly cash flow) when compared to traditional long-term residential rentals. This fact alone is leading me to believe that I should convert my condo to a corporate rental. Another factor that comes into play is that I represent the target market that I intend to serve (traveling business professionals). So in many ways, I understand the needs and desires of business professionals that frequent remote cities on short-term engagements, thus giving me an advantage (superficially). I suspect that other factors come into play when making a decision about this investment and I have plans to take them into account as I continue my analysis.

Okay, on to the main topic of discussion. The Dayton/Cincinnati, Ohio area (where I live) is considered home for many large corporations (in several different industries). I’ve looked around and have found that there are quite a few corporate rental complexes in the area. This, along with other information that I've gathered, suggests a healthy market for corporate rentals. However, it seems that very few options exist (if any) that cater to “high-end” clientele (business execs, consultants, and others that value luxurious lifestyles). To me, this segment of the corporate rental market is under-served and my thoughts are to use this as an opportunity to provide an accommodation that would be considered “high-end” or “luxurious.”

I’m considering making significant changes to my condo ($$$) so that I am able to attract and serve the needs/desires of this market segment. I project that with the changes that I'd make, I may be able to lease the condo (3 bedroom, 3.5 bath, ~2000sf) at $225/night. This is higher than the $161/night national average as reported by the Corporate Housing Providers Association (CHPA) in their 2018 industry report, but considering the fact that a king bed accommodation at a preferred hotel runs anywhere from $135-$170/night in this area, a luxury 3 bedroom, 3.5 bath accommodation at $225/night seems to be competitive. 

However, with all that being said, I understand that I’m a novice in this arena and that I may need to readjust my expectations, perspective and/or my strategy when it comes this investment opportunity.

I don’t necessarily expect every dollar spent on renovations to translate into a dollar increase in property value. Also, I presume there exists some property value threshold that—regardless the amount of renovations done to the property—my condo simply won’t exceed.

I'm mostly interested in knowing what those limitations are. Specifically, how can I determine the market value at which my condo's property value will be capped? I've seen other posts that suggest conducting an ARV analysis to get this answer, but I just don't have enough experience (or confidence) to trust the results that I would achieve. I did reach out to a real estate agent today to see if they could perform a BPO based on the renovations that I plan to make. Hopefully I get something back on that soon.

The answer to this question would be helpful because it would allow me to determine the extent to which any losses that I may incur—by way of unequal returns on the money invested for renovations—can be recouped via the rental cash flow over a period of time. I have no intention of selling the condo anytime soon, so it's very possible that in some number of years I will be upside right from a total investment perspective. I've used the Rental Calculator and if I'm able to stably rent at $225/night, the CoC return is significant.

Lastly, I'm interested in getting feedback on this entire investment strategy/idea (luxury corporate rental) in general. So please feel free to add commentary on topics that I didn't address explicitly.

I hope this all makes sense! Again, I’m a bit green when it comes to this type of investment, so I’m hoping to gain some insightful feedback from experienced professionals such as those on this forum!

Thanks,

Manny