Private equity and venture capital funds are investing heavily in all types of furnished monthly rentals.

2nd Address, a rental platform for furnished monthly
rentals, just received an additional $10 million in additional funds to
continue to expand their service area providing a transactional platform for
private property owners offering furnished monthly rentals.

Stay Alfred, a company trying to add professionalism to
Airbnb by leasing thousands of apartments and offering a standardized furnished
residential hospitality product, has now raised more than $47 million in
investment dollars.

Sonder, another company competing with Airbnb in the world
of hospitality and private rentals, has raised more than $135 million to build
out their program.

In the industry segment of corporate housing, Reside
Worldwide, has raised hundreds of millions of dollars in an attempt to purchase
multifamily buildings exclusively for furnished monthly rentals and to
consolidate smaller corporate housing providers under the larger brand.

AvenueWest Global Franchise, a firm that provides real
estate management of corporate housing rentals, is on track to have 25 local by
2020.

What’s going on here?

Layered under this massive rush to provide managed
residences as a hospitality option is the growing demand for the properties.
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
furnished and even unfurnished housing that has the space and convenience of a
home on the road. Some examples of today’s corporate housing tenants are
included in the chart on page 30.

Making Sense of the Options
Long before there was Airbnb, the multibillion dollar corporate housing
rental industry existed. These fully furnished and managed residences were—and
still are—available for monthly lodging needs. Traditionally, these properties
were rented by the experienced business traveler on assignment or as part of a
corporate relocation.

Today, the options have multiplied—and can be
confusing.  Here are several of the
options available in today’s market.

• Aggregators/online platforms. These are
  online platforms that allow tenants and property owners/managers to connect and
  transact a rental agreement.
• Service companies. These companies rent
  apartments, furnish and equip them and then offer the apartments as corporate
  housing rentals. They may buy or lease the furniture for these properties.
• Apartment companies. These companies own
  or manage large apartment complexes. They use some of their inventory as
  furnished corporate housing units. They may buy or lease the furniture for
  these properties.
• Management companies. These companies are
  real estate property management companies that manage properties owned and
  furnished by individual real estate investors.
• By owner properties. These are real
  estate investors who provide their individually owned and furnished properties
  as furnished corporate housing rentals.

Two Trends
Across the country, two trends are emerging. The first is 401(k) roll over
investment. The other is investing in retirement properties before retirement.

With the stock market again hitting high levels, analysts
are concerned about how long this bull market will last. As a result,
individuals are getting smarter with their retirement dollars. By taking 401(k)
investments out of stocks and rolling them into traditional real estate
rentals, investors are able to gain more control over their money compared to
the volatility of stocks.

The second trend is investors deciding to buy their
retirement home 10 and even 20 years before they need it. For example, someone
who is looking to retire in Phoenix, Arizona, may purchase that property now,
locking in low interest rates and giving the investors the peace of mind of knowing
exactly what their retirement property will cost.

What to Know Before Investing
If you’ve decided that corporate housing is right for you, here are some
important considerations to make before you purchase a property specifically
for use as a corporate housing rental.

• Evaluate price per bed, not square foot.
  Evaluate the price per bed, not price per square foot. While some people think
  more space or a bonus room is a great perk for their own home, keep in mind
  that those features are just added liability in a home you plan to rent.
• Purchase the least square footage with the
  greatest number of bedrooms. Just like a hotel, when you rent out a
  corporate rental, it’s priced per bed, not by square footage.
• Avoid first-floor units. If you’re
  purchasing a condo as a rental property, avoid first-floor units. People who
  don’t know the city may not feel as safe in a first-floor unit, which can
  negatively affect your rental success. And, often people will use a first-floor
  rental to advertise a business that they may conduct in the unit.
• Location matters. Location. Location.
  Location. Location can single-handedly ensure your property is rented
  continuously. Look for homes in urban areas, near train stations and airports,
  and close to universities and hospitals. Typically, these locations rent well
  and have the best resale value.
• Functionally obsolete homes can make good
  rentals. Don’t rule out functionally obsolete properties. Sometimes a
  property that appears to be a poor long-term home is a perfect short-term,
  furnished rental home. For example, homes with tiny closets or outdated
  kitchens make ideal furnished rental properties because a corporate renter may
  not need all the space or features. Moreover, these properties are usually less
  expensive to buy and provide good cash flow.
• Views and amenities matter. When people
  are visiting a new city for business or pleasure, they want to enjoy all that
  city has to offer. Corporate tenants like city views, covered parking and free
  gym access. Keep these things in mind when choosing a desirable corporate
  rental property.

Return on Investment
What can you expect in terms of ROI? That is the question of the century.
There are a lot of moving parts, and each market is completely different.

In a market like Fort Collins, Colorado, which you normally
would consider a quieter market, you might be able to buy a two-bedroom condo
for $175,000. Then, you may be able to turn around and rent that property as
corporate housing for $3,500 a month, whereas if you were renting it unfurnished,
you might be able to get only $700 or $800 a month for it.

Corporate housing rentals are an essential part of an
investor’s portfolio diversification. For example, if you are a full-time
investor and you watch your properties 100% of the time, then sure, make your
whole portfolio corporate housing if that interests you. But normally you will
see a strategy more like this: An investor with 10 units might rent seven of
them unfurnished, get consistent rent on them, and use three of the properties as
corporate housing. These three properties would be the investor’s high-growth
assets, just as they might buy internet or technology stocks.