I've posted a few times about my remodeling an office basement into apartments and trying mid term rentals (1 month +) project. So here's how it is turning out so far. This may be long so I understand if you don't read it.

It's easy to look back and see if something is a good move but it hard to look forward and know that there will be success. I was scared to start. I was scared about the money. I did not know if it would work or if I could even do it.

My motivation was I could not find my usual 3 bed / 2 bath 1960s ranches at a price point where I could break even let alone make any money. What I was buying for $140K was now costing $240K. I attended the Mr. LL convention last year and felt empowered to try something new (shout out to Justin).

I have an office building where I practice my day job in the upstairs and the downstairs had a dental office in it for years. Well the old fellow built a new office and it sat vacant for a couple of years. Then another dentist rented for 3 years I think and they left. The basement sat empty for another 3 years or so. It needed an upfit or upgrade or something as it wasn't very appealing as a space. It looked and felt like a basement. I felt overwhelmed at the prospect of changing it which is probably why it took so long for me to act.

The building is zoned commercial and residential so the city did not have an issue with putting 3 apartments in. They were concerned about fire ratings. This is a brick building with steel I-beams supporting a poured concrete 2nd floor. Anyway the builder satisfied their concerns. There is a fire rated drop ceiling and 2 hour fire blocking or something along those lines. I did not have to install a sprinkler system.

The 2000 sq ft level got broken into 3 apartments. Two 1 bed / 1 bath and One 2 bed / 1 bath. About 600 sq ft for the 1 bedroom units and 800 sq ft for the 2 bed unit.

The build took 7 months and involved some side projects like removing the 55 year old cast iron pipes (which were amazingly constricted and I am surprised I had as few problems as I did) and replumbing just about everything. Even with the drop ceiling each apartment has 8 foot ceilings and the LED lighting makes it white and bright and clean looking. The end result turned out really great.

It was estimated to cost $300K. Final number was 325K from the contractor and then I spent an additional 35K for appliances and furnishings. In my mind I am getting 3 units for 360K or about 120K each.

If I rented them long term, the 1 beds would probably rent for $800 and the two bed $1000. Conventional wisdom says short term might make 2-3 x that. I am charging $1600 for 1 bed and $1900 for 2 bed per month.

My only experience is with long term unfurnished rentals so this is really a new adventure and has a hard learning curve. For those curious, it is more work, it requires you to be more hands on, and more flexible. I also do not have an interest in short term rentals. It is too much work and too much turn over so my plan has been to dance in the middle with mid term rentals. Things over 30 days.

There are 2 different scenarios I have encountered so far. One the travel professional and two the building a home person.

I listed on Furnish Finders first. It costs $150 per unit per year. I just listed 1 unit. They are basically a referral service and you work out an application, lease, and payment scheme locally and not on the website. So far this sounds very long term rental'ish but in reality it is not. These traveling people have no intention of staying long term. They tend to have money and don't appreciate being treated to the 3rd degree with the intense screening procedures most of us use.

I had to pare down my application to the basics, where do you live, what's your job (send your hire letter), how long you going to stay, emergency contact, copy of DL and SS# for credit check.

The lease I had to pare down from 14 pages to 7 and I could and probably should pare it down more, These people are not bringing pets, or drama. They are in town to do a job and then are going home.

1st guy is ex-Navy and is here for 7 weeks to repair hospital equipment. Self sufficient, quiet, no issues.

2nd guy is ex-Marine and is here for 10 weeks to work at the Toyota battery plant they are building. He's gone at 5:30 AM and I have no idea when he gets in to sleep but all evidence suggests it is late.

3rd is a couple who sold their house and are building a house in a retirement community. Planned stay is May 1st to September 30th.

4th person is a kid who's dad is paying for everything and has an internship at a local business until 7/31 and he will take the Navy guys place in May.

Basically this is a success story. The 3 units are rented fully until the end of June and the other two until later in the year. My fears of it not renting were unfounded.

Now I have been dabbling with AirBnb. Some of you did not have a good experience with it (I think it was Sid). It is a mixed bag and I am just learning it. You set a nightly price. Let's say $100 a night, they add their fee and the guest sees $120 a night. you can add cleaning fees or maintenance fees and you can set it for experienced guests and in my case a minimum of 7 night stay. The 2nd person came to me from AirBnb and booked 1 week which we then converted to a longer term stay. He paid me $700 for his 1 week (it was probably $950 with all the fees on his end) and will pay me $400 a week for the rest of his stay. I supposed I could get more but I am happy with the rental amount running at $1600 a month.

AirBnb vouches for the person, so you don't really collect a security deposit or run a background check. If there are issues there is a process to get the guest to pay you for damages. The advantage to you is you can make more money in the short term arena. You have to keep up with the listing, with your calendar, cleaning people, check ins, check outs.

I still have a lot to learn with regard to this subset of renting. Trying to set up standard operating procedures, streamlined forms and payments.

Speaking of payments, I signed up for Square. They make it very easy. I bought a $300 handheld terminal that can take any form of credit card, debt card, google pay, apple pay, tap, swipe, keyed in, etc. The other neat thing is I can create invoices via their web site, the guest can pay from the emailed invoice, and I can set up reoccurring invoices. In the case of the guy who wants to pay by the week, he gets an invoice, pays with his CC and it ends up in my checking account. The downside to Square is they charge about 3.5% per transaction. Given that they make it so very easy to sign up and all their back end help I am accepting it so I can focus on other things.

My points to you (my fellow landlords, my peeps) would be - don't be afraid to try something different. The STR / MTR can be more profitable but it will be more work. The clients /guests are different that what you may normally deal with and you will have to adapt your processes, your screening, and your mindset. As Jeffrey encourages us - think outside your box. Don't tell yourself this would never work in my town. You won't know unless you try it. You can always go back to long term rentals if it doesn't.

you can see the finished product here

furnishedfinder.com/property/673236_1

My goal of sharing is to encourage all of you as you have encouraged me. My life would be very different if I didn't start this land lording business 7 years ago. It was just a little seed of an idea and the MR. LL universe fueled it, shaped it, and nurtured it.

Looks and sounds great!

Bonanaza,

Congrats! on your success and for stepping out to try.

I have furnished a few small, harder to rent apts to make them more desirable. Also cuts down on the moving hassles.

Thanks for the info!

My foot print is wedged between the largest spring feed lake in the state and the largest man made lake. I have been pondering doing the MTR jump, but haven't made the shift yet. The property that I would be doing it to I have had for 21 years. I am dumping a considerable amount into it and plan on selling it since the market is so awesome here.

Thanks for taking the time to share your experiences! That sounds like a great way to increase profits.

If each unit "cost" you $120K and you're making $1900/mo, that puts you at about 1.6%. Not quite at the 2% that is a "great" deal, but still very solid. Did you finance that to improve your cash-on-cash return?

Bonanza, that place looks great!

Happy that you followed through with it and finished it so well. The fact that you have them all filled already says a lot too.

@Ray in PA - I don't know your situation. If you are sprucing up an existing place figure 5 to 10K in furniture and AirBnb type supplies (keurig, silverwear, etc.) Why not use what you have?

I think a small place would work best - too small for parties, self selecting single or couple professionals instead of families, less to buy, less to supply, less to clean up after. There aren't any additional guests with a 1 bed unit :-)

The contrarian approach would be go big or go home and have a 4 bed and cater to the man weekend crowd, or big family get together. Maximize beds and thus profit. I think either way could work in your market.

I know you have a wide assortment of RE experience so I would definitely encourage you to explore this niche. If you can keep it rented 60% of the time you are making more than long term.

@Vee - I did try and do some research into card processors and I signed up for Helcim because they were very transparent with their fees and after I jumped through all their hoops I got an email that said my business model doesn't mesh with theirs and the account was closed. I was very surprised.

Square, while more a more expensive processor, has been easy to work with, easy onboarding, simple tools for a simple guy, and the portable terminal does everything I need it to do.

@FloridaNative - Yes I am aware that I need to work on my "system". My thought is to use Pricelab (which costs money per month) to dynamically offer the units on AriBnb for rent short term if there is a vacancy and no bookings within 14 days. I just haven't set it up. This hybrid approach to favor 30 day plus and then squeeze in a short term stay is what I trying for. A short term stay could be almost the price of mid term stay so there is some financial incentive to do this. Downside is added turnover and cleaning.

The system for short term stay needs to be different than a mid term stay. A ST will not have a lease. A mid term will have a lease. I'll screen a mid term. Probably won't run a credit check on a ST. What happens if the ST moves to MT? I don't have a good answer yet. It is a work in progress.

@Robin - that's a great use of $15K to generate additional income. It's that kind of thinking I am trying to encourage with my story. There was no financing. It was all cash via property that I sold and incoming rents that I do not live on. So yea cash on cash return is low. My plus side is now my monthly income is higher, the value of the commercial building will likely double (if I sold it), and it is more likely that I can retire (someday).

If anyone wants a spreadsheet copy of what I used to furnish the units. let me know.