What makes a good mid term rental market?

[Bruce Tieu]

Hi everyone,

I am on the hunt for my second house hack. I've been doing some research on different rental strategies. It seems in order of increasing profitability:

LTR < MTR < STR

Given that I'm based in the Denver metro area, unless I'm occupying the property as my primary residence, STR is out the question, as Denver has cracked down on the short tern rental laws. Long term rentals are tough to cash flow unless I implement a co-living / rent-by-the-room strategy, which I've done before, but I'd prefer to not do again. This leaves me to consider mid terms rentals as a way to generate above average cash flow while having a reasonable amount of management. 

However, these are the questions I have:

- What makes a good mid term rental market?

- What are those submarkets in the Denver metro area?

- How would one run the numbers on a mid term rental when it comes to startup costs, rental rates, and operating costs?

Any insight on this subject would be greatly appreciated.

[James Carlson]

@Bruce Tieu

Denver's about as good a medium-term rental market as there is. You've got to know that rents are down across the board all over the country -- be it LTR, MTR or STR. Don't let that discourage you. It's just cyclical.

What makes a good midterm rental in Denver (or Colorado Springs or just about any city)? Great design, professional photographs, great location.

Don't get hung up on micromarkets or submarkets. People are coming to Denver for all kinds of reasons. Remote work, travel nursing, school. Our MTR in the Capitol Hill area has been filled with every kind of tenant, so don't get bogged down trying to target some niche.

All of these groups of people have chosen a more nomadic life because they want to experience different cities. So MTRs that are close to the "action" are great.

Also, I think the MTR market is getting more and more like Airbnb in Denver and Colorado, in that it's not an amateur's game. You've got to professionalize your place. The design and furnishings need to be solid and photographs have be plentiful and professional. 

In terms of running numbers, I find that using Rentometer's LTR estimate for your location plus 30% is a good number for right now. Our MTRs in Denver and Colorado Springs fluctuate between 1.2x and 1.4x the long-term rents. 

Good luck!

[Bruce Tieu]

Quote from @James Carlson:

@Bruce Tieu

Denver's about as good a medium-term rental market as there is. You've got to know that rents are down across the board all over the country -- be it LTR, MTR or STR. Don't let that discourage you. It's just cyclical.

What makes a good midterm rental in Denver (or Colorado Springs or just about any city)? Great design, professional photographs, great location.

Don't get hung up on micromarkets or submarkets. People are coming to Denver for all kinds of reasons. Remote work, travel nursing, school. Our MTR in the Capitol Hill area has been filled with every kind of tenant, so don't get bogged down trying to target some niche.

All of these groups of people have chosen a more nomadic life because they want to experience different cities. So MTRs that are close to the "action" are great.

Also, I think the MTR market is getting more and more like Airbnb in Denver and Colorado, in that it's not an amateur's game. You've got to professionalize your place. The design and furnishings need to be solid and photographs have be plentiful and professional. 

In terms of running numbers, I find that using Rentometer's LTR estimate for your location plus 30% is a good number for right now. Our MTRs in Denver and Colorado Springs fluctuate between 1.2x and 1.4x the long-term rents. 

Good luck!

 Thank you for your insight 🙂

[Wes D.]

Hi @Bruce Tieu! 

As you consider MTRs, I recommend reading 30-Day Stay by Zeona McIntyre and Sarah Weaver, published by BiggerPockets. They provide excellent, practical advice on every aspect of MTRs including cost metrics, location strategies, market data sources, needed furnishings, and more.

For furnishings, we bought Sarah Weaver's MTR shopping list. It's detailed, thoughtful, and specific with links for each item making it fast and easy to find and purchase everything you'll need. We spent about $9,500 on furnishings including furniture, electronics, kitchenware, bedding, towels, etc. for our 2/2 condos.

For market pricing, I collect LTR data from BP rent calculator and multiply by 1.5x. Then I get STR data from AirDNA to ensure it's well above 1.5x LTR data. And lastly, I search FunishedFinder listings nearby, find comparable properties, and track the listed rent for a few months (does it increase, decrease?). Of course the listed price may not be the actual rented price, but by tracking several listings for a while you can gain a better understanding of the market.

For assessing demand, go to FurnishedFinder.com/stats and you can see demand data for a given city. I just ran it now for Denver and it shows over 1.4 million housing searches in the past 12 months, and about 3,100 whole unit rentals available. There's also data on pricing. 

When I was trying to determine demand for our area, I selected about 20 listings near the location I was focused on, and tracked them for several months. If it gets rented the owner will update the listing with a new available date; if this moves by 30 days or more you can reasonably assume it was rented. If it moves a few days after reaching the available date, it probably hasn't rented yet. Tracking several for a few months will give you some understanding about vacancy rates. Also note if the listed rent changes. Our actual vacancy of less than 10% has closely tracked the data I collected this way. 

Lastly, Furnished Finder is known for providing tenant leads for travel nurses (about 40% of their travelers are nurses), but a broad range of professionals, relocations, students, and others use it too.

I hope this is helpful to you, all the best!

-Wes

[Bonnie Low]

I absolutely agree with @James Carlson. Denver is a great market for MTR because it's big, attracts all kinds of travelers and the MTR price points are favorable for hosts as well as travelers. And he's right that running an MTR and being competitive is not for amateurs. I use that term to mean someone who is not skilled or not willing to put a lot of effort into it as opposed to "amateur" referring to someone who is new to it. Because it's a great market, it is also competitive. You have to have a great space in a desirable location with great amenities and design and showcase all of that with professional photos. James didn't mention it but his wife Erin is an expert in this space. Check out Erin Spradlin on YouTube 

[Bruce Tieu]

Quote from @Wes D.:

Hi @Bruce Tieu! 

As you consider MTRs, I recommend reading 30-Day Stay by Zeona McIntyre and Sarah Weaver, published by BiggerPockets. They provide excellent, practical advice on every aspect of MTRs including cost metrics, location strategies, market data sources, needed furnishings, and more.

For furnishings, we bought Sarah Weaver's MTR shopping list. It's detailed, thoughtful, and specific with links for each item making it fast and easy to find and purchase everything you'll need. We spent about $9,500 on furnishings including furniture, electronics, kitchenware, bedding, towels, etc. for our 2/2 condos.

For market pricing, I collect LTR data from BP rent calculator and multiply by 1.5x. Then I get STR data from AirDNA to ensure it's well above 1.5x LTR data. And lastly, I search FunishedFinder listings nearby, find comparable properties, and track the listed rent for a few months (does it increase, decrease?). Of course the listed price may not be the actual rented price, but by tracking several listings for a while you can gain a better understanding of the market.

For assessing demand, go to FurnishedFinder.com/stats and you can see demand data for a given city. I just ran it now for Denver and it shows over 1.4 million housing searches in the past 12 months, and about 3,100 whole unit rentals available. There's also data on pricing. 

When I was trying to determine demand for our area, I selected about 20 listings near the location I was focused on, and tracked them for several months. If it gets rented the owner will update the listing with a new available date; if this moves by 30 days or more you can reasonably assume it was rented. If it moves a few days after reaching the available date, it probably hasn't rented yet. Tracking several for a few months will give you some understanding about vacancy rates. Also note if the listed rent changes. Our actual vacancy of less than 10% has closely tracked the data I collected this way. 

Lastly, Furnished Finder is known for providing tenant leads for travel nurses (about 40% of their travelers are nurses), but a broad range of professionals, relocations, students, and others use it too.

I hope this is helpful to you, all the best!

-Wes

 Really helpful -- thanks!

[Allen Duan]

Great thoughts from others already. I'll add my two (or more) cents.

Urban markets tend to do well for MTRs. If you think about all the different types of MTR tenants, many of them are in urban markets with higher population density. Best way to start looking into this is checking comps on Airbnb, look for 30 day min listings and see how they're priced, who's booking (by checking reviews), how the best performing MTRs are set up.

Start ups costs are very similar to STRs. Furnishing, design, photography, etc. Operating costs are similar as well. Compared to LTR, you have to pay utilities, supplies for guests, possibly more insurance.

Let me know how else I can help! MTRs are my thing. My company manages MTRs in SoCal and Las Vegas.