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Medium Term Rental

Medium Term Rental

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What is Medium-Term Rental Investing?

Medium-term rental investing involves leasing properties for one to six months, catering to tenants who need temporary housing but prefer a home-like environment over hotels. This type of rental strategy is ideal for business travelers, remote workers, traveling nurses, digital nomads, and individuals relocating for work or personal reasons.
Unlike short-term rentals that rely on daily or weekly bookings, medium-term rentals provide more consistent cash flow with fewer turnovers while still allowing investors to charge higher rates than traditional long-term leases.

What is a Medium-Term Rental Property?

A medium-term rental property is any residential unit leased on a month-to-month basis or for a set duration of one to six months. Common property types include:

 

  • Furnished apartments or condos in urban centers
  • Single-family homes for relocating families or professionals
  • Accessory Dwelling Units (ADUs) or guest houses
  • Corporate housing for business executives
  • Extended-stay vacation rentals in high-demand areas

Medium-term rentals provide flexibility for both tenants and investors, making them a lucrative alternative to short-term and long-term rental models.

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Advantages of Medium-Term Rental Investing

Medium-term rentals offer several benefits, making them a strong investment strategy for real
estate investors.
One of the biggest advantages is higher rental income compared to traditional long-term
leases. Because medium-term rentals are typically furnished and offer short-term
convenience, tenants are willing to pay a premium over standard yearly leases.
Another key benefit is lower vacancy risks compared to short-term rentals. Since leases range
from one to six months, investors experience fewer turnovers, reducing the time and cost
associated with marketing, cleaning, and tenant placement.
Additionally, medium-term rentals require less hands-on management than short-term rentals.
There is no need for daily guest interactions, frequent cleanings, or ongoing restocking of
amenities. This makes it an ideal strategy for investors who want higher returns with fewer
operational demands.
Unlike short-term rentals, medium-term rentals face fewer legal restrictions. Many cities
regulate or limit short-term rentals, but medium-term leases often fall under traditional rental
laws, making them a more stable and compliant investment option.

 

Disadvantages of Medium-Term Rental Investing

While medium-term rentals offer strong financial advantages, there are some challenges to
consider.
One of the main drawbacks is potentially inconsistent demand. Unlike long-term rentals,
where tenants sign one-year leases or longer, medium-term tenants only commit for a few
months. This can lead to occasional vacancies, depending on market conditions and property
location.
Another challenge is higher furnishing and maintenance costs. Since medium-term rentals
are typically fully furnished, investors must budget for furniture, appliances, utilities, and
regular maintenance to keep the property in high demand.
Additionally, tenant screening is crucial in medium-term rentals. Since tenants stay for shorter
periods, investors must carefully vet applicants to avoid rental delays, property damage, or late
payments. Unlike long-term tenants who are responsible for their own furniture and utilities,
medium-term tenants may have higher expectations for fully stocked and maintained
properties.

 

Financing a Medium-Term Rental Investment Property

Financing a medium-term rental is similar to other investment properties, but lenders may
consider whether the property will be leased on a month-to-month basis or require a more
structured lease agreement.

 

Down Payment Requirements

The down payment varies based on loan type and whether the property is a primary residence
or an investment:

 

  • Conventional Loans: Require a 15% to 25% down payment for investment properties.
  • FHA Loans: Allow a 3.5% down payment if the investor lives in one of the units (for
    properties up to four units).
  • VA Loans: Eligible veterans and active-duty service members can purchase with 0%
    down, provided they occupy the home.
  • DSCR Loans: Debt Service Coverage Ratio (DSCR) loans focus on the property’s
    income potential rather than the borrower’s personal income, making them an ideal
    financing option for medium-term rentals.

 

Credit Score Requirements

Lenders evaluate an investor’s credit score and financial stability when approving loans:

 

  • Conventional Loans: Require a minimum credit score of 680-700.
  • FHA Loans: Require a minimum credit score of 580.
  • DSCR Loans: Typically require a credit score of 640 or higher, depending on the lender.

A strong credit score improves loan approval chances and secures better interest rates.

 

Debt-to-Income Ratio (DTI) and Rental Income Considerations

Lenders assess an investor’s DTI ratio, which compares monthly debt obligations to gross
income. Keeping DTI below 43% is ideal for loan approval.
Some lenders will consider projected rental income from medium-term leases when
evaluating financing, especially if the investor has a proven track record with similar properties.

 

Is Medium-Term Rental Investing Right for You?

Medium-term rentals offer an excellent balance between higher rental income, lower vacancy
risks, and reduced management effort compared to short-term rentals. However, investors
must be prepared for furnishing costs, occasional vacancies, and proper tenant screening.
If you are considering medium-term rental investing, The Real Estate Action Network provides
resources, networking opportunities, and expert guidance to help investors successfully
navigate this growing market.