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Fix and Flip

Corporate Housing

The Profit Potential Is Worth Exploring By Angela Healy Flipping a home — or the process of renovating a home and reselling for a profit is nothing new for real estate investors. When considering home flipping, the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) Method is often followed. Beyond this strategy, the most successful real estate investors know that profitable property investments are intentional and have a vision for the future. This is especially true if reselling the home is part of that strategy — requiring foresight into the market appraisal opportunities, renovation costs, and buyer demand. Over the last three decades, I’ve worked on my own investments and those of my clients to identify, renovate and lease properties for corporate housing. While home flipping requires a baseline level of experience, home flipping for corporate housing has many requirements that must be considered from the start. In this market, my clients — with some upfront capital investments — can turn an unfurnished rental property into a furnished corporate housing rental and triple (if not quadruple!) their monthly revenue. In today’s tight housing market, the desire to move to new locations is at an all-time high. Those seeking to buy a home in a new area need interim housing and many want to “try-out” their new city before making a major investment in a new home. It is a great time to explore opportunities in corporate housing. If the purchaser is prepared to make the right investments to attract this highly attractive target market the financial returns could be significant. Here are four factors to consider. 1. Up Your Investment to a Class A Property Properties are often classified as Class A, B or C to help potential investors identify an ideal property. There is no industry-wide standard for evaluating a house, but factors such as age, condition, location and appreciation opportunities factor into the classification. The traditional, unfurnished rental market is mainly consumed with Class B properties owned by real estate investors for a passive income source. These properties are almost always in demand from low to median income tenants, and less expensive to purchase when compared to Class A properties. When purchasing a property to rent, the investor will usually invest just enough to make it a Class B property that can be rented to generate approximately 1% of the value of the property to cover the mortgage each month. To do this, appliances are updated, finishings such as countertops and lighting are replaced, paint is refreshed and new carpeting is installed before each new tenant. However, unlike a Class A property, expensive finishings and design features are not incorporated into the renovation. With a Class B approach, asset preservation is not prioritized as renovation must happen every 1-2 years in-between tenant occupancy. However, those investing in the corporate housing industry can benefit from owning a Class A property to be rented. With a Class A property, asset preservation is prioritized and investments are made to extend its durability and appearance. By bringing it to a higher value — and renovating it as if you would sell it as a Class A property — owners can demand a higher rental value. Unlike unfurnished housing, a corporate housing property typically does not have to be refreshed every year and the asset is preserved. Consider the above chart. While the upfront costs to purchase and renovate a Class A property is higher in year one, the market opportunity in corporate housing should generate greater long-term returns. 2. Not Every Property is Well Suited for Corporate Housing When considering purchasing a property for corporate housing, the investor must consider a variety of factors that extend beyond a typical evaluation. What may look like a great property to the traditional investors, may lack characteristics that enable that property to be leased for corporate housing. It is important to solicit the services of a realtor who is experienced in corporate housing with an understanding of the distinguishing characteristics and can help the investor evaluate potential properties. In my experience, we consider location, safety-ratings, the unit quality, design aspects and layout as well as the HOA and rental regulations that apply to the property. Often, small details such as unit accessibility, can make it difficult to rent to corporate housing guests. It is important to start with a solid foundation so that the renovation and maintenance costs are contained where possible so it can be a flip versus a flop. 3. Quality Over Quantity In traditional real estate investing, particularly with unfurnished apartment leases, the quantity of properties — versus quality — can increase the revenue potential of the investor. However, with corporate housing given the more frequent turnover (every 3-6 months on average) and the higher level of service required to maintain the quality over time, a large volume of properties could become increasingly difficult to manage. Therefore, it can often be more advantageous for a property investor that manages his or her own properties to consider purchasing a 3 or 4 bedroom corporate housing property which would generate the equivalent of 4-8 single bedroom properties, with a fraction of the management and maintenance needs. The combination of remote work and a tight housing industry has put a demand on fully-furnished single-family homes and townhomes suited for families. These are often used for families that are relocating or traveling as a family, and resulting in an increased demand that is not expected to fall. Therefore, property investors should consider the quality and revenue potential of one or a few properties versus numerous, lower-quality properties. In some cases, a happy family and corporate housing tenant may decide the property is such a perfect fit that they want to make an offer to purchase it. Long-term mind-set A corporate housing investment strategy requires a long-term mind-set. It is likely that after renovating and furnishing a corporate housing property, the first year of rental income would result in neutral or minimal revenue for the property investor. However,

Single-Family

Corporate Housing

Corporate Housing is Essential to Welcome New Businesses and Residents By Angela Healy The spring housing market tends to be the real estate industry’s peak season, and this year looks to be no different. In an already booming market, the ongoing increase in consumer behavior patterns such as relocation, remote work, and inventory availability add even more impact. Key consumer trends driving the real estate market will continue to do so and have led to a demand in corporate housing, making it a great time to invest in this growing industry. Specifically, investing in single family homes presents a prime opportunity to capitalize on the increase in demand for corporate housing as Americans move to smaller and more affordable markets. Real Estate Market Drives Up Corporate Housing Demand  Last year, home prices soared nearly 20% and 70% of homes were in bidding wars. The wide acceptance of remote work has allowed Americans to sell their homes in some of the country’s most expensive cities and move to up-and-coming ones, such as Nashville, Charlotte and Salt Lake City, giving them a bigger budget than locals. In some of the hottest markets, transplants have up to 30% more to spend on homes than local buyers. This trend gives insight into ever increasing home prices, but also further high-lights the mounting pressure on some of the country’s most competitive cities for housing availability – particularly single-family homes. Inventory is significantly lower now in comparison to recent years. Among over 300 housing markets across the country analyzed by Zillow, 254 of them have inventory levels that are down by more than 30%. That being said, a record one-third of Americans are still looking to relocate. Many, especially families, are moving to smaller markets where they can have more opportunities, lower cost of living, and escape high urban areas as mortgage rates and increasing rent prices make affordable metros more attractive than ever. As a result, the demand for corporate housing, especially fully-furnished, single-family residences, is on the rise without signs of slowing down. Many Americans are choosing to sell their homes and move into rentals to ensure they can make non-contingent offers on new properties and utilize corporate housing as an interim stay until finding their permanent home. Given the limited inventory numbers, buyers are needing to wait longer to find their ideal buy, so a corporate housing option becomes that much more valuable. In today’s real estate environment where housing inventory remains at record lows and prices continuously surge, temporary housing is critical for city growth. Behind the Trend Individuals and families are not the only ones making a move. Businesses relocating to smaller-sized cities are scooping up corporate rentals for transitioning executives and employees, and families conducting full home remodels are leveraging these temporary stays as well. It is also projected that traditional, unfurnished rental housing will see vacancy rates go up as rental prices rise. If demand amongst tenants is to decrease, landlords and property managers may take advantage of the opportunity to get into the corporate housing market. In addition to remote work and individuals moving by choice, business office relocations are also proving to be a key driving factor in demand for corporate housing for single family homes. When a company seeks out a corporate relocation to a new city or is ready to expand to a new geographic location, there are several critical factors that are essential for consideration, whether moving within the current state or to another region of the country. Employee retention and recruitment is one of those important considerations. Companies are recognizing the long-term importance of remote work for retaining their workforce and the shift in preferences for employees to live and work closer to their homes and families. Additionally, factors such as quality of life, cost of living, and education opportunities are increasingly carrying significant weight as part of businesses’ decisions on where to locate their operations. As a result, smaller and medium sized cities are positioned for ongoing growth and economic development. However, to truly realize the benefits of these transformational business shifts, economic planners must recognize the importance of supporting relocating employees in the process. Corporate housing has proven to be a key component of the equation. Investing in Single-Family, Corporate Housing In addition to corporate relocation housing needs, this model is an attractive and needed option for families and individuals in a range of situations such as traveling for medical reasons, those on government or military assignments, or those moving to a new area before securing long term housing. Single family, fully-furnished properties are essential to enable urban growth and should not be overlooked by investors looking to capitalize on the demand for corporate housing. Corporate housing is significantly different from short-term housing, and essential for cities poised to welcome new businesses and residents following the COVID-19 pandemic. According to data from the Corporate Housing Providers Association’s (CHPA) Annual Report, both the international and U.S. corporate housing markets experienced significant increases in demand and revenue during Q3 and Q4 2021, with the U.S. market in particular skyrocketing and representing a large part of revenue during those quarters. Additionally, the vast majority of residences that make up the current industry and are most in demand are one and two-bedroom residences. The corporate housing market segment continues to grow year after year, even outpacing the hotel market and traditional short-term residences. It is evident that there is a significant opportunity for investors to get involved with an industry that is well positioned for significant growth along with the already red-hot real estate market, especially as businesses keep accepting remote work and Americans continue to relocate for various reasons. The ongoing growth of the corporate housing industry and the importance of maintaining this inventory in smaller cities and growing markets to welcome population growth make investing in single family homes in particular an optimal way to capitalize on investing in the corporate housing industry.

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