Mid-size cities are seeing an influx of new residents. These residents relocate from large cities with excessively high living costs. Most of them are out-of-town homebuyers who prefer to physically tour listings in the area to find their new home. In the meantime, they rent a place to stay.
These out-of-town homebuyers create rental opportunities for property owners in these desirable mid-sized markets.
Out-of-Town Homebuyers are Setting a Rental Trend
Before 2020, there was a decades-long trend for out-of-town homebuyers moving from small or mid-sized markets to large cities like Los Angeles, San Francisco, and New York. These large, expensive cities had better employment prospects so people were willing to pay the higher living costs.
Post-pandemic, with many companies supporting the hybrid work model, residents of expensive urban markets are moving to the suburbs with attractive housing markets and lower living costs.
Mid-sized cities in Texas, Arizona, Nevada, Idaho, Colorado, Washington, Oregon, and Florida are now in extremely high demand. Out-of-town homebuyers are coming from distant locations, and they want to secure a home they’ve seen before they move. They typically need a short-term rental while they search for their new home, creating rental opportunities for property owners in these cities.
What are Out-of-Town Homebuyers Looking For
Unlike the typical renters who look for home amenities relevant to their long-term stay, out-of-town homebuyers have simple needs and preferences. Here are what they are looking for:
In many cases, these buyers who come to their new areas with kids and pets need enough space to move around. Even though they’re looking for a short-term rental, they aren’t willing to squeeze into a one-bedroom for months.
When out-of-town residents bring their families along, they look for a home that will work for everyone. A rental with a good layout that allows for comfortable proximity to one another is preferable. A home with an outdoor space is likewise a top choice, allowing the whole family to engage in outdoor activities.
Out-of-town home buyers prefer rentals in residential locations to have a feel for the area in which they look to buy their new home.
These homebuyers want to take their time looking for their new permanent home but often prefer to move into it as soon as they buy it. So, a flexible rental lease is highly suitable in this case. Lease terms such as month-to-month renewal, three months, and six months are quick, easy choices for them.
Why Rent to Out-of-Town Homebuyers
Rental owners benefit in several ways by renting to out-of-town homebuyers, including:
High Rental Rates
Short-term rentals cost more than long-term rentals; out-of-town residents are willing to pay more for the rental flexibility.
These residents are keen on keeping a good record to avoid affecting their home loan applications. So you can expect that they will avoid paying rent late, being a nuisance renter, or committing property damage.
Extra Tax Deductions
Maintenance, cleaning, utilities, and other property-related expenses give you additional tax deductions that you do not typically get with long-term rentals. This gives your bottom line a profit boost.
The Downsides of Renting to Out-of-Town Homebuyers
There are a few possible challenges of renting to this demographic, including:
Your guaranteed rent income is directly tied to your lease term, affecting your cash flow upon sudden lease termination.
Higher Vacancy Cost
The goal for out-of-town residents is to buy the home they desire as soon as possible to avoid renting for too long. That translates to higher tenant turnover for your rental business. The longer it takes to place your property with a new renter, the higher your vacancy loss.
Laborious Tenant Placement
With higher tenant turnover and frequent tenant replacement, you may find this to be the most tedious process as a short-term rental owner. To place your property with a renter quickly, you must be willing to do active property marketing and efficient tenant screening. You also need to be available for showings.
The good news is that you can mitigate these potential downsides by working with a property manager. Having a professional property manager market your rental will reduce vacancy costs, manage rent payments, and handle the turns between renters – keeping your rental business more stable and profitable.
- Hire a property manager who understands the needs of this unique demographic.
- Offer month-to-month leases that can be terminated with a 30-day notice to vacate. It will give your residents peace of mind as they shop for their new homes.
- Consider furnishing your property. Most of these buyers prefer to use a moving company that stores their furniture and belongings until they buy their new home and are ready to move. Renting a furnished home means they don’t have to complete two full moves.
- Highlight the convenience of your residential neighborhood. The ideal short-term rental for out-of-town homebuyers is in a residential community near the main road for easy access to nearby areas. Being close to a grocery store, pharmacy, and public transportation makes the transition easier for your residents.
- Offer resources. Hook your renters up with a digital guide to your city, including referrals for real estate agents, utility companies, the local DMV, etc.
Capitalizing on today’s growing short-term rental market fueled by out-of-town homebuyers is simple once you understand the market and the needs of these types of renters. Now, you just need to price your rental right and watch the applications come in.