The real estate industry has a lot of potential and there are a variety of ways to generate revenue over time. With the right business model, corporate housing may give tremendous rewards when the correct tactics are used.
A corporate housing business model is a strategy for the successful running of an executive property business, including income sources, target customers, goods, and finance information.
What is a corporate housing business?
Simply said, corporate housing is a fully furnished accommodation that is offered for rent for a certain period. The tenant must bring his bag and food for the duration of his stay. Executive apartments are another name for these units.
Corporate housing is often accessible for a period of two to six months on a rental basis. For longer business trips, however, the time limit can be surpassed.
Potential users of corporate housing
Though corporate housing started as a method to provide temporary housing for business guests, it currently draws a wide spectrum of people searching for short to medium-term housing.
According to research issued by the Corporate Housing Providers Association (CHPA), business executives who are relocating account for over 40% of longer stays. Clients for short-term accommodation come from a wide range of professions, including:
- Project managers
- Medical researchers
- Film crew
- Adventure travelers
- Military and government officials
Reasons why one should invest in corporate housing
Easier to manage
Popular short-term rental companies like Airbnb demand landlords to spend a significant amount of effort following up with renters before and throughout their stay.
Guest follow-up is moderate with corporate rentals because these tenants often stay for a minimum of four to twelve weeks, lowering your yearly tenant turnover.
Businesses that use corporate housing on a regular basis are familiar with the procedure and have dealt with property owners before. This will save you a lot of time and effort as a property investor, which you can put to better use elsewhere.
Sustainable relationships and revenue
One of the most significant benefits of investing in corporate housing is the ability to form long-term connections with businesses.
They will put their workers in your property when they come to your area for projects, training, or assignments.
Businesses prefer to invest in partnerships rather than switch their service providers without justification. Adding a new provider sometimes requires a long internal approval procedure.
If you're serious about making your investment a success, you'll have the chance to develop long-term partnerships with top corporate clients.
Type of clients/occupants
Dealing with guests from various backgrounds that present unique difficulties is a major task in a typical rental business.
Tenants who make late payments, make ridiculous requests or complaints, or fail to maintain your property can consume a significant amount of your time and finances.
Since the clients are often professional enterprises, companies, or institutions with a great reputation, operating corporate apartments eases these issues.
The main occupiers of your property are frequently aware that their conduct in your property represents their employer. They may lose their position if they mishandle or damage your unit.
When it comes to the financial elements of their rental, corporate renters are generally well-organized, and payment is received on time and without difficulty. Business travelers are usually alone and focused on their job.
These characteristics can provide an indirect benefit in terms of decreased repair and maintenance expenses, as well as less administrative oversight.
Corporate housing business model
Short rental property managers are in charge of the day-to-day operations of the business. They
often use one of three business models:
Irrespective of whether the apartment is rented or not, a Fixed Rent contract guarantees the owner a monthly income. Anything beyond the owner's set rate will be paid to the manager.
This offers the corporate housing manager more control over the business, the power to decide on how to rent it, and the chance to receive 100% of the rental money beyond the total monthly payment provided to the owner.
This also provides property owners with a feeling of stability by ensuring a consistent income.
The majority of property managers work on a commission basis, with a percentage of the income they generate going to them. Depending on the organization and the area, the commission rate might range from ten percent to fifty percent.
The Gross Price model frequently includes flat rate costs for other services that are not included in the commission, such as maintenance and cleaning. Corporate housing rental operators frequently provide free channel distribution and marketing.
Although the Net Price business model is the least used, with just a few business owners adopting it, it is nevertheless widely used in the short-term rental sector. Property managers would have agreed on remuneration in this context.
The price is determined by the property manager to satisfy the owner's rent expectations. The difference between total income and the owner's expected rent is netted by the property manager.
Corporate housing pricing model
How much can you make from corporate housing?
The amount of money you may make renting to businesses is determined by the size of the marketplace, the percentage of business travelers that visit your city, and the existence of significant corporations.
All of these factors will have an effect on the demand for executive housing as well as your profit margin. This might be above market rents or merely meet them, depending on the location you rent in.
Even when a corporate rental doesn't make more money than a regular rental, the reduced damage factor may make it worthwhile to convert the property to corporate housing.
How much can a client save from corporate housing?
Consider the following data to get a notion of the sort of value proposition executive housing provides to potential renters. A night's stay in a New York hotel costs an average of $254 in 2015.
Compare it to Manhattan studios that cost $165 per day on average, through corporate housing. This equates to a 35 percent reduction in costs.
Even for a one room apartment, corporate housing would have cost the occupant only $213 per night on average. When equated to a hotel, this still saves the company roughly 16 percent.
According to data within the same years, the customer would've saved 22 percent for a studio apartment and 10 percent for a one room apartment in San Francisco.
Furthermore, for a minimum period of 30 days, corporate housing is normally tax-free, which might result in further savings.
Challenges of running a corporate housing business
We've already discussed the financial benefits of renting your house out as business housing. It's not all smooth sailing, though, and it's important to understand the added hazards and responsibilities that come with renting your property for corporate housing.
Increased marketing and promotion expenses
To function in corporate housing and be regarded as a serious participant, you'll need to have a solid website and overall online presence. Make every effort to avoid coming across as an incopetent business.
Higher cleaning costs
You must present a professional image. As a result, you'll need to have your property professionally cleaned at the very least after each guest. For those who are staying longer, you may even provide a weekly cleaning routine.
This will help create a feeling of luxury while also extending the life of your furniture. It does, however, come at a higher price.
The demands of luxury rental clients might be high. If you want to appeal to executives and compete with luxury hotels, you must understand how to provide the kind of service they demand.
Check that each of the appliances are in perfect condition, and consider what personal touches you may add to ensure that their stay is more comfortable. This is a profitable business model, but it is not passive.
High entry cost and projected revenue
Your property must be in the ideal location to get the best predicted revenue. The problem is that housing costs in the most convenient regions, such as Silicon Valley, are sometimes exorbitant.
It's critical for property owners and managers to select a business plan that satisfies their interests. Some property managers want a guaranteed income and a fixed rate, while others prefer a more customizable alternative that allows them to make their own decisions.
However, whatever decision you make, you would want a high occupancy rate with seamless customer service operation for your property. This is why property management is very essential in your corporate housing business model.
Booking Ninjas corporate housing property management system will help with the organization of your business for better profitability. It offers cloud-based corporate housing management software with a booking engine, channel manager, accounting, online portal & more.