The American Dream is Evolving and Your Retirement Investing Can Benefit
Corporate Housing: A solution for corporate employees who need monthly lodging, usually provided through businesses offering fully-furnished private residences for stays of 30 or more days.
Pain-Per-Dollar (PPD): The amount of work that each dollar you invest “costs” you on a property. For example, a typical vacation rental has a high PPD because it requires a great deal of maintenance. Corporate housing rentals tend to have lower PPD because the tenants take good care of the properties in most cases and the rentals only need to be inspected and cleaned a few times a year.
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. 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.
Is Your Investment Property Right for Corporate Housing?
While corporate housing can be quite lucrative, it’s not the right strategy for every property. Review the following list to determine whether you and your property are better suited for long-term renting or corporate housing:
Is the property in an urban location with good proximity to businesses, hospitals, or universities?
Almost any location that is a destination for executives and industry professionals is a good location for corporate housing.
Can your investment strategy and budget accommodate sporadic occupancy?
Corporate housing pays higher rents (in most cases) than a 12-month lease but may not be as consistent or pay as quickly since many corporations pay on a 45-day billing cycle.
How do you handle property management?
Corporate housing rentals are usually lower-maintenance than vacation rentals, but higher maintenance than a typical year-long rental because the occupants may require more services than traditional renters and you may have to “turn” the property three to four times in a year. If you purchased your property using your retirement account, you may be prohibited from managing the property directly, so make sure you are prepared to handle the unique management issues that come with this type of rental.
Do you own the right type of property?
Both single-family homes and condos can work as corporate housing rentals, but you will need to evaluate the costs, time commitments, and your own personal goals for the property to determine whether your goals are a good fit with corporate housing.