The Differences in Short-Term Rentals (STR's) and Medium-Term Rentals (MTR's)
A common question we get from property owners and managers is “What exactly is the difference between short-term rentals and medium-term rentals?” MTRs are a new area of real estate investing that has emerged after the advent of Airbnb.
Duration, Revenue and Stability
The level of involvement and risk vary amongst short-term, medium-term, and annual leases. To help you better understand, we assess these three types of real estate investments with three criteria: duration, revenue, stability.
It’s likely obvious that for duration, STR, MTR, and annual lease increases progressively.
Short-term rentals increased in popularity as we recovered after The Great Recession in 2008. People were struggling with paying their mortgage and the idea of renting out an extra space became more appealing. As the economy caught up, people started to become more confident and by 2014, people started to buy investment properties to rent out short-term. Revenue from short-term rentals is much higher than annual leases so it was a no brainer for a lot of people to start increasing their real estate portfolio.
Inadvertently, short-term rentals were also increasing the cost of living for residents as supply decreased for residents and increased for travelers. Hotels found a lofty competitors which resulted in regulation battles and varying cities imposing hotel taxes and various levels of permitting.
Although medium-term rentals provide more stability than STR’s but higher revenue than annual leases, it often wasn’t motivating enough for investors unless they were facing friction from cities with regulations and permitting. Many investors were drawn to the higher revenue in short-term rentals and felt that demand would continue to stay the same. Why care about stability when there’s no sign of travel stopping in their city?
We all now obviously know the answer to that question. Covid-19 came in March of 2020 and wiped the city clean of any travelers. Many property owners and businesses that relied on STR’s lost thousands if not millions of dollars overnight.
Travelers vs Relocation + Extended Travelers
Little did we know that a pandemic would convince the world to see travel like how we did. We started Homads with the perspective of a digital nomad (or extended traveler as some have termed it). In the early years of the company, we targeted digital nomads but found that there wasn’t as large of a population traveling months at a time as we had imagined (especially in Austin, TX where we started!). So in 2018, we refocused our marketing to help people who were relocating and interested in learning their neighborhoods before committing to a longer lease or buying a home.
It wasn’t until Covid-19 that we’ve come full circle and are now seeing more people travel for extended amounts of time. The thought of, “If I can work anywhere, why work from home?” was on everyone’s minds. “Home” could be anywhere. That opened up a whole new way of working and living for the world.
As a property owner, this is important to understand as well. We design and set up our properties to align with our customers. If you’re working with STR’s, you’re getting a lot of travelers so you want to market the city’s top tourist destinations, local hot spots, and provide an experience like a personalized hotel.
For relocation, you want to make sure they can get a resident’s experience of the neighborhood so you’re showing them local transportation options, best grocery stores and nearby activities within the neighborhood such as parks and trails. You design for comfort but want to give enough room for them to make it their home for the several months they’re there.
With extended travel, you have to get into the mindset of the digital nomad. Creating spaces for them to work at a desk with high speed internet is a must. They’re more likely to be location independent so they’re coming to your home for a change of scenery while still needing to check in daily for work. Top locations for coffee shops to work, easy access grocery stores, and nearby activities are high priority.
You Don’t Have to Choose Just One Type
Often times property owners and investors will diversify their portfolio depending on the city regulations and location of the property. You’ll also see that blending the types of rentals throughout the year can be just as effective. Prior to the pandemic, many homeowners would do short-term for high seasons for travelers and move to medium-term when it’s a low season for travelers. Conversely, the end of summer and the beginning of the year is a high time for people to move the family or start a new job. These highs and lows blend well together if you understand your customer’s needs.
The Ultimate Guide to Setting Up and Managing Your Monthly Rental Property
This guide walks you through, step-by-step, everything you need to know from finding the right property and understanding the laws and regulations to setting up and managing your monthly rental property. We'll give you tips and hacks to help automate your property so that you can save time and make more money. There's tons of resources out there on short-term rentals but with the pandemic pushing people to stay home, extended stays or monthly bookings are here to stay as well! Whether you're a seasoned real estate investor building an empire or a beginner house hacking your way to financial independence, you'll want to know all the different nuances that affect you and your rental property.