Have you ever heard of corporate rentals? Do you wonder what this is? Do you think it might be a good strategy for you as a real estate investor? Do you want to learn more about it? If so, just keep reading for answers to your real estate questions.
What Are Corporate Rentals?
Corporate rentals is a segment of the lodging industry which caters specifically to the needs of corporate travelers. Corporate rentals refers to renting out fully and well furnished real estate properties – usually apartments – to business travelers, frequently executives, for periods of at least one month. According to statistics from the Corporate Housing Providers Association (CHPA), in 2015 the US corporate rentals industry comprised of 63,000 rental units, and the total revenue was $2.93 billion. The average stay of corporate rentals clients is 84 nights, and the occupancy rate is about 88%, which is not bad at all for the short-term rental industry within the US.
It is important for real estate investors to note that corporate rentals are different from furnished apartments for rent. Furnished apartments for rent could be any housing unit within an apartment building which has the basic furniture, regardless of the quality and the state of the furniture. Moreover, furnished apartments for rent are available for anyone and everyone to rent. Corporate rentals, on the other hand, are more towards the category of luxury rentals. The furniture has to be complete and to be of high quality. When furnishing corporate rentals, the real estate investor must keep in mind the tenants pool – executives and other high-ranking corporate clients. Thus, you should include all furniture necessary to cater for the needs of such clients and make their stay comfortable and problem-free.
What Are the Pros of Corporate Rentals as a Real Estate Investment Strategy?
Now that you know what corporate rentals are all about, you must be wondering why you as a real estate investor might be interested in going about them. Let’s take a look at the main advantages of corporate rentals as a real estate investment strategy:
1. Higher rental income
Corporate rentals offer much higher rental income than most other types of investment properties. Such rental units are well furnished, luxurious, well maintained, well provided for, and in safe locations. Moreover, the tenants are all corporate clients. This means that you can charge significantly higher rent rate than with ordinary rentals.
Related: The 12 Best Places to Buy for Rental Income in the US This Year
2. Good tenants
Running into bad tenants is one of the worst risks of renting out properties. Some people are just reckless, regardless of whether they live in their own home or in a rental property. A landlord involved in corporate rentals will never have to deal with bad tenants. Corporate clients are the best tenants you could ask for. They are clean, well-behaved, and always paying on time.
Related: 8 Things That Make a Good Tenant
3. High occupancy rate
As mentioned above, the average occupancy rate of corporate rentals is 88%, which is quite good, especially when compared to Airbnb rentals. Every real estate investor wants high occupancy and low vacancy, which is one more reason why you might want to go after corporate rentals as your next investment property.
4. Less turnover
While short-term rentals like Airbnb properties can make real estate investors tons of money, the turnover is sometimes just too high. It is tiring to have to look for and deal with new tenants (guests) every day. Since most corporate clients stay for about 3 months, turnover is much less of an issue. On average, you will have about 4 tenants per year, which is not that bad.
Related: What has to be cleaned during turnover time in a rental property?
What Are the Cons of Corporate Rentals as a Real Estate Investment Strategy?
Of course, corporate rentals are not the perfect real estate investment strategy; otherwise, everyone would have been going for it. Let’s have a look at their disadvantages:
1. Quite expensive
While corporate rentals can be rented out for much more than regular rental properties, they also cost more. First of all, you have to buy a real estate property in a top business location such as New York, San Francisco, Chicago, Houston, Los Angeles, Washington, Boston, Seattle, etc., where property prices tend to be quite high. Moreover, you have to go for a central neighborhood and a safe location, which further raises the property price. Still then you have to furnish the investment property with high-quality furniture, so there you have another expense. So, if you think about starting out in corporate rentals, be ready to spend some serious amount of money as an initial investment.
2. Limited pool of tenants
While you will deal with top-quality tenants, corporate rentals actually limit your potential tenants greatly. After all, you will only host corporates traveling to a city away from home. Since the tenant base is so small, you will really have to create a highly competitive rental property to attract clients.
3. Tenants too demanding
As your tenants will be well-paid executives, they will have high expectations of everything related to your corporate rentals – from the property itself, through the furniture, to the available services. Corporate clients will not think twice before calling you at 2 A.M. because the wireless has gotten too slow. So, be ready to cater to some quite demanding tenants.
Is Corporate Rentals the Right Real Estate Investment Strategy for You?
There is no right or wrong answer to this real estate question. Now that you know what corporate rentals are and what their major pluses and minuses are, you can make an informed real estate investment decision whether you should go for this kind of real estate investment strategy or not. Don’t ever forget how diverse the real estate investing world is. You don’t have to stick to the wrong strategy as a real estate investor. Just choose the one that feels the most appropriate for you.
While deciding whether corporate rentals is the right real estate investment strategy for you, keep reading Mashvisor’s blogs to explore other opportunities for real estate investments. Once you are ready to buy your next investment property, Mashvisor is here to help as well!