Should You Offer LTR, MTR or Short term rentals?

So, you’ve got a vacancy - what should you do with it? While long-term rentals are traditional, there are three common options each with its own pros and cons. Your building can have a mix of them. Let’s look at each possibility – primarily from the perspective of the owner-occupant landlord.

LTR - Long Term Rental. This is usually an unfurnished apartment. The lease is normally a year and the tenants will have to bring their own furniture. Leases are often governed by state and/or city regulations, and licensing and city inspections are common in major cities. A “Lead Paint” pamphlet is generally required to be attached to the lease, and maybe a “Tenant’s Rights” booklet. You will need to retain proof that your tenant received documents. TIP: Using rental management software for lease preparation and signing can make keeping those records a snap. I use and recommend TurboTenant software, as their document handling is excellent and they have state-specific leases. The advantages of LTR tenants are that they stay longer partly because the cost of moving furniture can be significant and time-consuming, especially if a moving company is involved and a lot of landlords will hike rents each renewal. On the flip side, it can be more difficult to get bad tenants out. As an owner-occupant landlord, LTR is not my first choice.

MTR - Medium Term Rental - Generally means 1 to 6 months, but it can turn into a long term rental. The apartments are generally furnished, which means it is very easy for a tenant to move in and be settled without buying or bringing furniture and kitchen utensils, etc. I like this approach for the owner-occupant landlord and it has worked well for me. The tenants I have now (in place for several years) started out on a three month leases that then converted to month-to-month. The tenants preferred short leases as their personal situations were in flux (one had recently relocated and their furniture was in storage in another state, and one was getting divorced). They did not know what the next year would bring. They wanted the flexibility to leave if needed. I was okay with that. At the same time, I wanted the flexibility to see how they would be as tenants, and not renew if I so chose. If they were noisy or and didn’t keep the apartments clean then I would not renew the lease. As it worked out, the tenants were good. We all get along, they are quiet and keep the property neat and pay right on time. I advertised for “mature professional” tenants and that’s what I got. For the owner-occupant landlord of a 2-4 unit property who personally manages it, Federal housing laws give you more privileges to pick and choose tenants than non-owner-occupant landlords or landlords who use 3rd party management. (More about that in a future article. Click Contact (above) and sign up to be notified when that is published.)

“Renting month-to-month can be ideal for tenants whose living situation is in flux and also for landlords who are taking a cautious approach to new tenants. ”

Annual lease renewals create stress and paperwork for both landlords (especially small landlords) and tenants. After 40 years of being in business, my desire is to have only happy clients. I prefer no long-term commitment. I only want customers who are happy with my product. Life is too short to be locked into situations you are not happy with, whether it’s a business or personal relationship.

How furnished does a MTR need to be? I include enough to make it comfortable. Each apartment is decorated with its own theme, one is for skiing, another is for various Colorado parks, another is decorated for Denver’s famous Botanic Gardens. With the help of an interior decorator, I selected furnishings that reflect those themes. Each unit has a bed, couch, dresser, closet with hangers, kitchen appliances like a toaster oven, microwave, dishes, refrigerator, desk, TV, and Internet. Also sheets, towels, vacuum, iron and ironing board, etc. I primarily furnished the units through Amazon - and a list of what I used is available on request.

You can view my furnished STR/MTR/LTR units at DenverBnB.com.

Short term rental - this is usually an AirBnB or VRBO unit. Most major cities across the US now have strict laws including licensing and inspection of STRs. Some cities ban it, because they don’t want all the housing to be gobbled up by investors who then put the properties on Airbnb (although recent STR research has shown it may not be as dramatic a problem as some think). Short term rentals can be a problem for neighbors when the STR guests are noisy or rude. STRs may require more city services due to calls to police, or when there is drinking or partying going on. STRs may also need to collect lodging taxes and remit to the city. On the other hand, STR nightly rates can be much higher than LTR rates. There’s more work and costs involved too, including licensing, inspections, insurance, and more wear and tear on the property. There are also time-consuming chores including cleaning, laundry of dirty sheets and towels, and restocking of essentials like toilet paper, paper towels, possibly food too. Guests may use towels for cleaning or make-up removal and that usually leads to the need to replace towels regularly. The city I live in allows only one short-term rental unit in your primary residence, it has to be licensed and inspected. I have operated a unit for several years using Airbnb to keep it rented. Overall, I like it, but it IS work. I find it fun, and it keep me busy, as well as engaged. On the downside, there is not much control over the guests you get and there is some seasonality to it. My town is very busy from May to October, but the winter months are very quiet and prices drop. Still, the income covers a lot of my homeowner expenses. The apartment is a small studio so an AirBnb is a perfect use. One big side benefit of having a short-term rental unit is that I keep it empty when family or friends are coming to visit for their use. I encourage my family to visit often and having a beautiful private apartment for them is a plus. With a few clicks, I can block off a week on the Airbnb calendar for a family member.

Why would tenants want furnished apartments? Some may have just moved to a new city and left their belongings in storage until they can choose a neighborhood and make a long term commitment. They may have sold or discarded old furniture. Possibly they are going through a divorce and the ex-spouse is keeping the furniture, or they may not want to be tied down with a new home and furnishings - maybe they are hoping to get married in the future, or perhaps they just don’t have the money at this time, or started a new job and don’t feel comfortable making an investment right now. Or maybe they are worried about their company’s future or being laid off. It could be a hundred different things, but the point is that there is a segment of renters who absolutely want and need a furnished unit.

A recap of the pros and cons:

Long-term rental:

Pros: Less turnover, more stable income, no need to furnish.

Cons: If you get a tenant with habits you don’t like, it could take a year to see them leave.

Medium-term rental:

Pros: Rental of a few months lets you see how the tenants behave before making a LTR commitment.

Cons: May have more turnover and some vacancy, need to furnish the apartment.

Short-term rental:

Pros: More income, tremendous flexibility to rent only when it works for you.

Cons: More work. Will need reliable cleaners. Less able to screen who your guests are. More regulation. Lodging taxes may need to be tracked and paid.

In summary, the choices for an owner-occupant landlord are great. You can start with medium-term and switch to long-term, or STR as needed. Units can also be mixed, operating one of each. Some apartments may lend themselves to a particular type of rental. Need space for family, or a child who might move back in? Keep one apartment as an STR, and only rent it when it’s convenient. It’s all up to you.