Money While You Sleep: The Rise of Long-Term Rentals

It’s gone insane. There’s no supply of long-term rentals. And now the next wave of people is coming…” Talking to my contact on Portugal’s Algarve, his words echoed those of my contacts in other international destinations.

Millions of folks are now free to live and work from anywhere. And many are taking the opportunity to move to the most beautiful places on earth… ditching the office and trading up their lifestyle.

As a result, if you own the right real estate in the right location, and you bought it at the right price, it’s now possible to see incredible rental yields from longer-term renting. I’ve heard of folks making 12% gross or more.

Long-term renting is now a sweet option for real estate investors, requiring less attention and admin than short-term rentals. What’s more, you’re often renting to the very same professionals you would be in Austin, San Francisco or New York. They bring their price expectations overseas, happy to pay premium prices, and you can buy for a lot less than you would back in the U.S., supercharging your yield.

Let’s take, for example, the recent news from my contact in Portugal, Chris White. A friend of his owned a villa there in a location that would be considered too far out of the way for a vacation rental. They asked Chris if he could help list it for €1,500 a month and sent him some poor pictures of the place. Instead, Chris decided to test the waters. He advertised it for €3,200 a month—more than double what they asked. Almost immediately after putting the listing on Facebook it had 72 people inquiring about a viewing. Nine of them were willing to send money on the spot.

“When I first moved to the Algarve, a villa like that would have rented for €800 a month, and it would have taken six weeks to find a renter,” says Chris. “Today, I could ask for six to 12 months’ rent in advance. “Portugal’s D8 Digital Nomad Visa is drawing in a lot of remote workers. They come for the lifestyle, the sunny weather, and the low cost of living. Renting costs more than it used to, but that aside, they can live well off €1,000 a month.”

Chris is now in the process of buying low-cost condos away from the main tourist areas with the intention of renting them out long-term. He can buy two-bed condos and have them renovated and furnished for €220,000. He can then rent them out for €1,250 a month—making a gross yield of about 7%. Meanwhile, he’s paying a mortgage of just €750 a month.

This trend is being mirrored across the world’s most desirable destinations. I know of members of my Real Estate Trend Alert who have happily switched from renting short term to long term. In Playa del Carmen, one member bought two condos in Siempre Playa. This is a superb location just a block from Fifth Avenue, close to the beach and the Caribbean Sea. In 2017, this RETA member snapped up a one-bed and a two-bed in a RETA-only off-market deal.

He told me: “I took possession of the properties, furnished them nicely, and put them in the rental program. After a couple of months, I had inquiries about long-term rental opportunities. After the initial startup costs, the condos have rented long term without a gap. That has allowed for a 9% net profit and about 35% in paper gains on the units.”

That would have been a strong yield if he’d been renting by the night. But for a long-term rental it was phenomenal.

A Sweeping New Migration Equals Opportunity

The beauty of this strategy, as I say, is that the remote workers looking to stay in Playa del Carmen for months at a time aren’t looking for cheap. They’re looking for more. More amenities… more space… more sunshine… And they’re willing to pay for it. By buying the right real estate in the right location, you have what they want.

By buying at a low price, you supercharge your potential yield. When I brought RETA our 2017 deal in Siempre Playa, our off-market price for a two-bed condo was from $198,300. Today, two-beds in the same building are priced from $397,514.

Across the world, folks who would never have been able to live overseas before are trading up, thanks to remote work. They’re switching their cramped $3,000-a-month studio apartments in San Francisco for spacious Caribbean condos in Belize. Instead of enduring a miserable winter, Midwesterners are bringing their laptops to Tulum’s stunning white-sand beach…

I’ve seen some experts describe it as the biggest new movement of people in decades, akin to the suburbanization we saw in the 1950s.

A study by freelance platform UpWork last year estimated that 14 million to 23 million Americans may relocate due to the rise of remote work, which amounts to between 9% and 13% of today’s workforce.

At the same time, the supply of new real estate is critically low. The economic aftereffects of the pandemic and the war in Ukraine have ushered in more shortages, skyrocketing inflation, and easing of monetary policies.

Real estate isn’t something that can be created out of thin air. It takes a complex mix of capital, material, and labor, now all hindered by a high-interest-rate environment, inflation, and supply chain issues. Added to that, bottlenecks in permitting processes in much of the world have slowed to a crawl.

And then there is this surging demand. An entire new market of renters are arriving en masse to destinations that were already getting record numbers of visitors pre-Covid.

The result? Best-in-class real estate in the best locations is scarce. Prices are skyrocketing. In March the Cabo Sun reported price rises in Cabo San Lucas, at the southern tip of Mexico’s Baja Peninsula, of 14.2% in 2022.

Know this too: The average price of homes sold in Cabo MLS as I write this year-to-date is about $760,000.

According to Knight Frank, luxury homes on Portugal’s Algarve were up 15.3% in 2022 on the previous year. It’s the same story in all the places in the world that attract people in good times and bad.

Anywhere on my beat I see a headline screaming about price rises, I remind myself that RETA members who bought in deals stand to do much better again. Because RETA members buy at prices much lower than anyone else, using our group buying power to get exclusive off-market deals.

It all comes down to a simple formula. Own one of the most coveted things in the world—best-in-class real estate in desirable destinations—and people will pay you good money to use it.

I experienced it first-hand in Cabo San Lucas. The first summer I rented out my place there, pre-pandemic, it made me $1,800 a month. Not bad, even if renting to a friend of a friend meant that it was below market rate. But then the pandemic hit and things went crazy, with more and more folks arriving from the U.S. and staying long-term.

I started seeing more and more young professionals in my community, filling up the gym, using communal spaces for co-working, taking walking meetings in the car lot. Rental prices then hit $2,500 a month. That seemed huge… until it went to $2,750 a month.

Today, even that seems cheap. Before I left Cabo for Europe earlier this year, I advertised my condo for rent through an agent, and couple of days later, I accepted an offer of $3,000 a month. It was lower than I could have gotten, but it was from a very low-maintenance renter who could work around my departure and return dates. I was happy to sacrifice extra profit for convenience and ease.

And besides, I was also sitting on strong capital appreciation. I bought my Cabo condo in Copala in the Quivira resort in 2015. The RETA price was $336,156. In 2022, a local broker contacted me to see if I wanted to sell my condo for around $600,000. Last November, an identical condo two floors above me listed for $725,000.

In these uncertain times, it’s clearer than ever to me that being ahead of the big trends in international real estate, and putting our money into the right deals, is the way to go.

Do it right and you create options, to rent short-term or long-term, or a neat mix of both with some personal time. You can lock in capital appreciation, and you have a real, tangible asset that you can escape to, live in… enjoy.