When I invest in a real estate rental property is there a right way and a wrong way to rent it? And if so is there a way I can distinguish what is best between a corporate rental vs. a vacation rental opportunity? What should I look for and what should I ask?
According to the 2012 CHBO Annual Report: 19% of Corporate Housing Investors are ready to buy more real estate this year.
What is a Corporate Housing Rental? The biggest difference between a corporate rental and a vacation rental is the length of the occupancy. Corporate rentals are typically rented for one month or longer, with the average stay being three months. Vacation rentals often limit their clientele to weekly stays, although some are open to nightly or weekend stays.
Location: The other big difference can be location. Many vacation rentals are located in beach and ski towns, while corporate rentals are located in city centers and suburban locations. That said, corporate and vacation rentals overlap in cities like Orlando and Las Vegas, for example, which attract business and vacation travelers year round.
Why Choose Corporate Over Vacation Rental Route?
1. Vacation Rentals are Exposed to Great Regulations: The real estate industry, like other industries, is not immune to government regulation. However, regulation has become a hot button issue with bans on rentals occurring in major cities like New York and Chicago. Plus, HOAs are sometimes hesitant to allow rentals for less than one month stays – so a buyer should investigate the HOA rules inside and for any type of short-term rental.
That said, what’s important to remember is that regulations, for the most part, are occurring for rental property’s that only require nightly or weekly stays and for people who treat their properties like a transient hotel. As a corporate rental requiring minimum monthly stays, your client will be immune to much of these regulations and lodging tax issues (you will still need to pay income tax on your rental earnings, but not lodging taxes in most cases).
2. Corporate Rentals Create Less Grief Per Dollar: If you’re going into the short-term rental business, your client needs to know what he or she is getting into. Yes, the property may turn over every month and you will need to find a new renter at a monthly frequency. However, with a nightly or weekly rental (i.e., a vacation rental), your property will turn over even faster. Plus, vacationers may create more wear and tear on your home (hey, they’re on vacation!) than a traveling business professional who just needs a place to hang his or her laptop between conferences. For the furnished housing market, your grief per dollar is much lower in the corporate rental space – trust us!
3. Better Cash Flow in Corporate Rentals: Corporate rentals, on average, command one-third higher rental rates than a traditional 12 month, unfurnished rental. That higher income often allows a property to cash flow better than it would as a traditional rental. If cash flow is a priority for your investor, a corporate rental might do him or her well!
4. Taxation and Regulations: In most states rental stays less than 30 days are subject to lodging tax and even private owners are required to get a sales tax license and charge and submit tax to both the state and local municipalities. For years, private owners did not bother to pay these taxes; however as a result of budget shortfalls, tax agencies are now going after these owners with a vengeance. In addition, some municipalities are outlawing less than 30 day rentals of private residences. Be careful about selling a property to your client to use as a vacation rental investment property because it may be against the law.