The days when the American Dream meant simply owning your own home are long past. These days, the American middle class is spending billions of dollars on renting, not buying, each year. To take control of your American Dream, you need to understand the true income potential of your residential rental properties. In some cases, particularly if you are using a retirement account to hold your real estate portfolio, you may stand to gain exponentially better returns if you rent to corporate tenants rather than traditional vacation renters or 12-month tenants. In 2016, the Corporate Housing Providers Association (CHPA) reported revenues of $3.2 billion in the United States alone. That is $3.2 billion in rental dollars that corporations are spending to lease furnished residential properties on a month to month basis. This is an enormous and largely untapped potential rental income stream.
Corporate housing investing can substantially increase the returns on your residential investments while also reducing your pain-per-dollar compared to vacation rentals. Although corporate housing has traditionally been transacted between corporations and large-scale corporate housing providers, individual real estate investors can leverage the rising demand for corporate housing to their own benefit. With corporate housing tenants paying an average of $4,500 per month for furnished one-bedroom apartments and the need for these housing units still on the rise after four years of trending upward, the possibilities are staggering.
More and more real estate investors are opting to purchase their future retirement homes using individual retirement accounts (IRAs) and then using those properties to generate income until retirement. Many find corporate housing appealing because it often represents higher returns and lower maintenance than a typical vacation rental, which is another option for the property short of simply buying and holding it.
Making Corporate Housing Rentals Work for You
To make corporate housing rentals yield the returns you want, you must understand who uses corporate housing and determine whether the model will fit your real estate investing goals [see sidebar]. Corporate housing has emerged as more than just an essential business service for relocated or traveling business executives.
Today, corporate housing is a full-fledged lodging solution for everyday individuals who need short-term housing that has the space and convenience of a home on the road.
Some examples of today’s corporate housing tenants include:
- Visiting professors
- Legislators and lobbyists
- Displaced families dealing with insurance issues like floods, fires, mold, and natural disasters
- Traveling medical professionals
- Patients seeking medical treatment
- Families involved in corporate relocation
- Professional athletes and entertainers
These tenants are likely to seek certain types of properties and amenities to meet their needs. If your properties fit the bill, then you could be a good fit with the corporate housing rental model.
Pulling the Trigger on Your Corporate Housing Investment
If you are planning to use your corporate housing rental as a retirement home sometime in the future, then a big factor in its purchase will be the location. If you are buying a property using your retirement account, you also must factor the cost of management into your decision since you likely are prohibited from managing the property directly. A good corporate housing rental manager can help you identify properties in any area that are good candidates for corporate housing, then work with your personal team of investment advisors to determine if the move is right for you.