Getting out of Mid-Term Rentals

Investor · Orange County, CA · Member since 2014 · 363 posts · 408 votes

I'm considering getting out of the Mid-Term Rental Game.

I purchased 30 apartments (two 10 units, a 6-unit, and a 4-unit) for the purpose of running them as Mid-Term rentals.Currently, half of them are being run as MTRs while the remaining are still LTRs.

My MTRs average $1,600/month while the LTR rate $900/month.Now that I have some data, I wanted to compare apples to apples for MTR vs LTR revenue.After adjusting for the increase in Insurance, my VA for communicating managing, and supplies/increased repairs it's looking closer to $1,200 for MTR compared to LTRs $900.

It's a lot of extra headaches for $300 more per month.

I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash.

The numbers still work great as a long term rental but ever since I ran the numbers comparing the two I realized it's not as profitable as it looks on paper.

For context, im in a small tertiary market (Dayton, OH) and most of my apartments are 1 bed / 1 bath with some 2 beds.

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Tracy Ross

Member since 2022 · 75 posts · 73 votes

Hi Matthew,

Are you managing these yourself? And if so, will it kill your cashflow to get a good property manager? That can ease a lot of the headache of multiple turnovers. Sometimes you have to see where you can actually leverage back your time.

Otherwise I think LTR's are ALWAYS a great strategy if you're into it for the long term equity potential. Then, like you mentioned you can refinance and repeat- building your portfolio!

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Tracy Ross
Member since 2022 · 75 posts · 73 votes
3y
Hi Matthew,
Are you managing these yourself? And if so, will it kill your cashflow to get a good property manager? That can ease a lot of the headache of multiple turnovers. Sometimes you have to see where you can actually leverage back your time.
Otherwise I think LTR's are ALWAYS a great strategy if you're into it for the long term equity potential. Then, like you mentioned you can refinance and repeat- building your portfolio!
3 Reply
Brian Cauldwell
Lender · Springfield, MO · Member since 2023 · 109 posts · 78 votes
3y
Hi @Matthew Masoud, I think you touched on the biggest issue with mid-term rentals.

"I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash."
In my mind, this is the biggest reason why mid-term rentals are a headache. Most lenders are going to want there to be a 12-month lease for any property type.
For 1-4 unit rentals, they would look at market rents.
However, I have not run across a multifamily mid-term rental. Very interesting. I will shoot off a couple of emails to some of my lenders and see what they say about that and refinancing a property of that type.

1 Reply
Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
3y
OK, let's make a list:

1. Forced-air furnace for each apartment. A lot of the multis of the size you're describing don't have that. You will need it in order to compete with LTR buildings up here in the Northeast.
2. Cameras and bright lights. Good LTR tenants love extensive working camera systems.
3. Pet policies and pet-walking and waste-disposal areas. You're going to need these.
4. Available on-street parking or garage. Again, something that's often a deal-breaker for good LTR tenants.
5. School district and elementary school. Are you in a good school district and specifically, is there a good elementary school within walking distance?
6. Playground facilities. Anywhere for children to play?
7. General neighborhood. What the neighborhood like? You cannot attract good C-class tenants to a D-class hood. They can and will go elsewhere.
3 Reply
Matthew Masoud
OP
Investor · Orange County, CA · Member since 2014 · 363 posts · 408 votes
3y
Quote from @Tracy Ross:

Hi Matthew,
Are you managing these yourself? And if so, will it kill your cashflow to get a good property manager? That can ease a lot of the headache of multiple turnovers. Sometimes you have to see where you can actually leverage back your time.
Otherwise I think LTR's are ALWAYS a great strategy if you're into it for the long term equity potential. Then, like you mentioned you can refinance and repeat- building your portfolio!

My VA takes care of most things and he is MUCH cheaper than paying a property management company 15%-20%. If I'm paying 20% to a manager than LTR is the no-brainer.
0 Reply
Matthew Masoud
OP
Investor · Orange County, CA · Member since 2014 · 363 posts · 408 votes
3y
Quote from @Brian Cauldwell:

Hi @Matthew Masoud, I think you touched on the biggest issue with mid-term rentals.

"I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash."
In my mind, this is the biggest reason why mid-term rentals are a headache. Most lenders are going to want there to be a 12-month lease for any property type.
For 1-4 unit rentals, they would look at market rents.
However, I have not run across a multifamily mid-term rental. Very interesting. I will shoot off a couple of emails to some of my lenders and see what they say about that and refinancing a property of that type.

Let me know if they get back to you.
Most banks said they will refi based on long term market rents. Some said they won't do it at all.
I also can't refi in Frannie/Freddie.
1 Reply
Conner Olsen
Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
3y
Quote from @Matthew Masoud:

I'm considering getting out of the Mid-Term Rental Game.
I purchased 30 apartments (two 10 units, a 6-unit, and a 4-unit) for the purpose of running them as Mid-Term rentals.Currently, half of them are being run as MTRs while the remaining are still LTRs.
My MTRs average $1,600/month while the LTR rate $900/month.Now that I have some data, I wanted to compare apples to apples for MTR vs LTR revenue.After adjusting for the increase in Insurance, my VA for communicating managing, and supplies/increased repairs it's looking closer to $1,200 for MTR compared to LTRs $900.
It's a lot of extra headaches for $300 more per month.
I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash.
The numbers still work great as a long term rental but ever since I ran the numbers comparing the two I realized it's not as profitable as it looks on paper.
For context, im in a small tertiary market (Dayton, OH) and most of my apartments are 1 bed / 1 bath with some 2 beds.

I think the biggest downside to MTR is the lack of refinancing. I talked to a commercial appraiser and he said that even if the bank would lend on an MTR commercial property, they'd likely give it a higher cap rate because of the lack of knowledge and the space and more variables. $300/month is not worth it if you hate it.
1 Reply
Brian Cauldwell
Lender · Springfield, MO · Member since 2023 · 109 posts · 78 votes
3y
@Matthew Masoud wanted to give you a quick update. There are a few options in the private institutional lending space that I found that could accommodate a MTR. Some of those options depend on the length of the lease agreements for the MTR components.
However, some can do it based on the market rent for the property as well.
1 Reply
Ryan Webb
Member since 2019 · 4 posts · 2 votes
3y
@Conner Olsen To make sure that I am understanding correctly, it is $300/unit/month more. Which in this case equates to $108k per year across the 30 units. That seems a bit harder to toss away for convenience.
2 Reply
Jim K.
Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
3y
Quote from @Ryan Webb:

@Conner Olsen To make sure that I am understanding correctly, it is $300/unit/month more. Which in this case equates to $108k per year across the 30 units. That seems a bit harder to toss away for convenience.

The real problem Matthew is facing is that he has to hold the equity in these properties. It just sits there, minimally useful and minimally liquid. He has trouble refinancing them, since banks aren't really set up well to deal with refinancing commercial properties that are not rented out with annual leases. This is also an unforeseen complication.

It's a lot like buying twenty ailing houses in the hood, fixing them up, and slumlording them as D-class rentals with no insurance (NOTE: THIS IS A TANGENTIAL COMPARISON, I AM NOT CALLING MATTHEW A SLUMLORD!). But in the scenario I'm outlining, you have high maintenance costs, you put in lots of labor-intensive management and renovation...but although there's plenty of cash flow, when you go to the bank to refinance, oops, sorry, we can't loan on your crapshacks.
What is the real value difference between having a property that you are able to refinance in your portfolio versus one that you can't?

0 Reply
Patrick Rohan
Property Manager · Member since 2023 · 12 posts · 5 votes
3y
Mathew I am the BDM for a local property management company. I think property management would be more affordable than what you think. If you have time to discuss this, please let me know.
0 Reply
Steve Stackman
Investor · Fairborn, OH · Member since 2012 · 36 posts · 26 votes
3y
@Matthew Masoud, if you are interested in selling them rather than converting to LTR, reach out to me. Depending on where they are I might be interested in them as MTR. Or buying into them to give you access to your equity.
0 Reply
Conner Olsen
Real Estate Agent · Austin, TX · Member since 2020 · 1k+ posts · 941 votes
3y
Quote from @Ryan Webb:

@Conner Olsen To make sure that I am understanding correctly, it is $300/unit/month more. Which in this case equates to $108k per year across the 30 units. That seems a bit harder to toss away for convenience.

I agree, but it depends on the person. Some people prioritize convenience over cash flow. That's why property managers exist.
0 Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
3y
Quote from @Matthew Masoud:

I'm considering getting out of the Mid-Term Rental Game.
I purchased 30 apartments (two 10 units, a 6-unit, and a 4-unit) for the purpose of running them as Mid-Term rentals.Currently, half of them are being run as MTRs while the remaining are still LTRs.
My MTRs average $1,600/month while the LTR rate $900/month.Now that I have some data, I wanted to compare apples to apples for MTR vs LTR revenue.After adjusting for the increase in Insurance, my VA for communicating managing, and supplies/increased repairs it's looking closer to $1,200 for MTR compared to LTRs $900.
It's a lot of extra headaches for $300 more per month.
I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash.
The numbers still work great as a long term rental but ever since I ran the numbers comparing the two I realized it's not as profitable as it looks on paper.
For context, im in a small tertiary market (Dayton, OH) and most of my apartments are 1 bed / 1 bath with some 2 beds.
Is that $300 differential inclusive of taking in account the probable higher vacancy rate of MTR? If so, $300 per month per unit seems like a significant bottom line differential. A quick analysis would place operating expenses for LTR at about 1/3 of rent, so net income before debt service and depreciation would pencil in at $600/month per unit. Raising this to $900 per month per unit is 50% increase. How much of that would be lost to hire a competent person to do the activities that are causing you to consider giving up this profitability?

I have found that rather than hire a “professional” property manager, (although I have had great success with just such in one instance, and a very bad experience in another), find someone with experience in property management who desires to build long term equity. Then set up a deal where he “buys into” some ownership position by meeting or exceeding target figures for ROI, Revenues, costs, etc. of course, a thorough analysis must be done to see where financially you end up with this plan vs just hiring a property manager straight and where you end up with a LTR. But with this much differential, it may be worth considering. I’ve done just such a deal on a 22,000 SF retail/service center I own, and it’s worked out very profitably.
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Marcus R.
Real Estate Agent · Denver CO · Member since 2019 · 210 posts · 333 votes
3y
@Matthew Masoud Interesting discussion! Following along. Let us know what you decide.
I've thought about this myself but from the angle of converting a LTR to a MTR. So far the numbers have been too close to justify the additional time a MTR might take.
2 Reply
Henry Lazerow
Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
3y
Is the vacancy the same? If the vacancy is much higher or you are paying any of the internet, utilities, etc. its not really $300 more a month.
1 Reply
Michael SmytheBusiness Member
Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
3y
You should be able to get a FNMA loan on the 4-unit, based upon 2 years of tax returns - but ownership will have to be in your personal name.
Many banks will also lend on the 6 & 10 units with 2-3 years of tax returns showing they are profitable.
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Allen DuanPro Member
Property Manager · Los Angeles, CA · Member since 2022 · 590 posts · 463 votes
3y
Adding to what others are saying, if you can remove the additional headache of managing the MTRs by delegating to your team, $300 additional rent from each unit for essentially minimal additional work from you is great! You're at the level where you shouldn't hire a property manager and instead build an in house property management team to take the busy work off your hands.
0 Reply
Matthew Masoud
OP
Investor · Orange County, CA · Member since 2014 · 363 posts · 408 votes
3y
Quote from @Allen Duan:

Adding to what others are saying, if you can remove the additional headache of managing the MTRs by delegating to your team, $300 additional rent from each unit for essentially minimal additional work from you is great! You're at the level where you shouldn't hire a property manager and instead build an in house property management team to take the busy work off your hands.
Using a property manager instead of a VA would put MTR and LTR at nearly the same income. After taking into account supplies, insurance, and additional repairs.
1 Reply
Kurt Baltutat
Investor · Knoxville, TN · Member since 2017 · 25 posts · 8 votes
3y
Great discussion all! Does it make any sense to simply convert your MTRs to LTRs over a year or so as you want to pull out equity? Bank the higher cash flow until it makes sense to refinance and then convert to LTR to make the bank happy?
0 Reply
Kevin Morgan
Rental Property Investor · Forest Park, IL · Member since 2018 · 28 posts · 22 votes
3y
Quote from @Matthew Masoud:

I'm considering getting out of the Mid-Term Rental Game.
I purchased 30 apartments (two 10 units, a 6-unit, and a 4-unit) for the purpose of running them as Mid-Term rentals.Currently, half of them are being run as MTRs while the remaining are still LTRs.
My MTRs average $1,600/month while the LTR rate $900/month.Now that I have some data, I wanted to compare apples to apples for MTR vs LTR revenue.After adjusting for the increase in Insurance, my VA for communicating managing, and supplies/increased repairs it's looking closer to $1,200 for MTR compared to LTRs $900.
It's a lot of extra headaches for $300 more per month.
I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash.
The numbers still work great as a long term rental but ever since I ran the numbers comparing the two I realized it's not as profitable as it looks on paper.
For context, im in a small tertiary market (Dayton, OH) and most of my apartments are 1 bed / 1 bath with some 2 beds.

For Comparison:

I'm all in on my Chicago-area MTR operation. I run over 30 Mid-Term rentals in 5 small apartment buildings (6-10 units) in suburban Chicago. I own all of the buildings except one (6 units) which I sold and then leased back the apartments from the new owner (Arbitrage/Master Lease) .

I generally try to get 2X the market rent - and get that amount most of the time. I usually am 90-100% occupied (last year 91% occupied). Since we are getting 2x market rent, my cash flow is many multiples of what I would get using a typical LTR tenant.

We only offer extended stays of 30 nights or greater. These are not full-amenity buildings. These are small vintage buildings but we have fully renovated and updated all of the units and common areas. We spend a lot of time furnishing and styling these units. They are decorated in a very stylish manner. We are generally trying to attract an upscale, professional guest. Some of the units have an in-unit washer and dryer (or we have a laundry room in the building). Most of the units have a dishwasher. On a case-by-case basis we allow pets. Each comes with 1 parking space. We have 1 and 2 bedroom apartments and a few studio apartments.

Note: These are suburban buildings but in highly desirable towns with close proximity to downtown Chicago. So there is plenty to do in the suburb itself. In other words, these are GREAT locations.

I used a traditional bank to finance the purchase of each of these buildings - using a traditional commercial real estate loan. The bank underwrites the loans using a traditional "market" rent analysis for the property. In other words, they don't really consider my projections for the enhanced (very enhanced) cash flow from the furnished operation. For the most part, I've self-financed the renovations and furnishings of the apartments. However, they recently provided a relatively small LOC for that purpose.
1 Reply
Porsha Fross
Member since 2023 · 35 posts · 10 votes
2y
Quote from @Brian Cauldwell:

Hi @Matthew Masoud, I think you touched on the biggest issue with mid-term rentals.

"I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash."
In my mind, this is the biggest reason why mid-term rentals are a headache. Most lenders are going to want there to be a 12-month lease for any property type.
For 1-4 unit rentals, they would look at market rents.
However, I have not run across a multifamily mid-term rental. Very interesting. I will shoot off a couple of emails to some of my lenders and see what they say about that and refinancing a property of that type.

@Brian Cauldwell Dr Rachel has a podcast on funding MTR that might help. Check it out to see if it’s what you need to do the refinance https://podcasts.apple.com/us/podcast/the-luxury-short-term-...
0 Reply
Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 679 votes
2y
Quote from @Matthew Masoud:

I'm considering getting out of the Mid-Term Rental Game.
I purchased 30 apartments (two 10 units, a 6-unit, and a 4-unit) for the purpose of running them as Mid-Term rentals.Currently, half of them are being run as MTRs while the remaining are still LTRs.
My MTRs average $1,600/month while the LTR rate $900/month.Now that I have some data, I wanted to compare apples to apples for MTR vs LTR revenue.After adjusting for the increase in Insurance, my VA for communicating managing, and supplies/increased repairs it's looking closer to $1,200 for MTR compared to LTRs $900.
It's a lot of extra headaches for $300 more per month.
I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash.
The numbers still work great as a long term rental but ever since I ran the numbers comparing the two I realized it's not as profitable as it looks on paper.
For context, im in a small tertiary market (Dayton, OH) and most of my apartments are 1 bed / 1 bath with some 2 beds.

Matthew, It is not that difficult for a good DSCR lender to take on an MTR. These non-qm banks and lenders realize what an opportunity they have to lend on stabilized assets even with this strategy. Your leverage may be reduced as far as cashing out is concerned but there are definitely mid term rental cash out options available. Happy to connect!
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Johnson Best
Member since 2017 · 68 posts · 10 votes
2y
Quote from @Kevin Morgan:

Quote from @Matthew Masoud:

I'm considering getting out of the Mid-Term Rental Game.
I purchased 30 apartments (two 10 units, a 6-unit, and a 4-unit) for the purpose of running them as Mid-Term rentals.Currently, half of them are being run as MTRs while the remaining are still LTRs.
My MTRs average $1,600/month while the LTR rate $900/month.Now that I have some data, I wanted to compare apples to apples for MTR vs LTR revenue.After adjusting for the increase in Insurance, my VA for communicating managing, and supplies/increased repairs it's looking closer to $1,200 for MTR compared to LTRs $900.
It's a lot of extra headaches for $300 more per month.
I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash.
The numbers still work great as a long term rental but ever since I ran the numbers comparing the two I realized it's not as profitable as it looks on paper.
For context, im in a small tertiary market (Dayton, OH) and most of my apartments are 1 bed / 1 bath with some 2 beds.

For Comparison:

I'm all in on my Chicago-area MTR operation. I run over 30 Mid-Term rentals in 5 small apartment buildings (6-10 units) in suburban Chicago. I own all of the buildings except one (6 units) which I sold and then leased back the apartments from the new owner (Arbitrage/Master Lease) .

I generally try to get 2X the market rent - and get that amount most of the time. I usually am 90-100% occupied (last year 91% occupied). Since we are getting 2x market rent, my cash flow is many multiples of what I would get using a typical LTR tenant.

We only offer extended stays of 30 nights or greater. These are not full-amenity buildings. These are small vintage buildings but we have fully renovated and updated all of the units and common areas. We spend a lot of time furnishing and styling these units. They are decorated in a very stylish manner. We are generally trying to attract an upscale, professional guest. Some of the units have an in-unit washer and dryer (or we have a laundry room in the building). Most of the units have a dishwasher. On a case-by-case basis we allow pets. Each comes with 1 parking space. We have 1 and 2 bedroom apartments and a few studio apartments.

Note: These are suburban buildings but in highly desirable towns with close proximity to downtown Chicago. So there is plenty to do in the suburb itself. In other words, these are GREAT locations.

I used a traditional bank to finance the purchase of each of these buildings - using a traditional commercial real estate loan. The bank underwrites the loans using a traditional "market" rent analysis for the property. In other words, they don't really consider my projections for the enhanced (very enhanced) cash flow from the furnished operation. For the most part, I've self-financed the renovations and furnishings of the apartments. However, they recently provided a relatively small LOC for that purpose.

how do you consistently get 2x the LTR? What venue or platform do you go to get tenants?
Does most of your competing neighbor MTR also gets close to 2x LTR?
Thanks.
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