If you look in the vacation rentals and how you can potentially break into the market, the first thing you need to know is what kind of property management business model best suits your goals. The business model you select will affect a lot of factors:
- How much money do you need to start up.
- How much time are you willing to invest day to day.
- What on-going costs are you likely to incur.
Whether you have an apartment to rent to business travelers, or a villa to share with holidaymakers, you need to work out the best property management business model to get it to market.
If you own or manage more than one property already, you need to decide if it is better to manage your portfolio yourself or hand it over to a third party who can look after things on your behalf.
The answers to these questions depend on a few things. You need to consider whether your vacation rental venture is a life style business, giving you a good regular complementary income, when you are not using it yourself, to cover costs or whether you regard your property solely as an investment and important source of income. It also depends on your willingness to dedicate time to this business and your ability to manage all accommodation yourself, and how hands-on you want to be – especially if it’s far away from where you live and work.
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Tourists or Tenants?
Before we look at different business models for managing your vacation rental property or property portfolio, let’s look at what the differences are between being a vacation rental operator and a fully-fledged landlord.
Generally, a vacation rental stay lasts for a few days, or a few weeks, more rarely a few months, and never more than six months. The accommodation is priced per night or per week and rooms are fully furnished. Guests do not live at the property and will change regularly. Short-term rentals command a much higher nightly price, but you will need to find a steady stream of guests to keep your property occupied and maximise profits.
A long term rental is considered as a tenancy. In this scenario someone lives in the property as their home and pays a monthly rent. The property may or may not be furnished. As a tenant, the person living there acquires certain rights. This limits what you can do with your property, but provides you with a guaranteed income for the length of the tenancy. Albeit at a lower rate than that you could expect from letting the property as a short-term vacation rental.
If you’re setting out down the vacation rentals path, there are a number of property management options to consider
Individual Host – Airbnb or Vrbo Rentals
The simplest vacation rental business model is one based on you owning a property and renting it out to other people directly. Let’s say you buy a property in an appealing tourist destination. You have to make a large up-front investment to buy the property (unless you’re lucky enough to inherit it).
You can use the property yourself for family vacations whenever you like, for free. However, for much of the year, it’s empty. It still costs you money to maintain, is subject to property taxes, and needs to be insured.
Why not rent it out to others, and derive some income from it?
You can have full control of when you make the property available and take care of all aspects of the day-to-day running of your vacation rental. You can make things easier for yourself by using a good property management system (PMS), like eviivo suite. You can use it to:
- advertise your property online, both on your own website and on the most popular online travel agency sites (commonly referred to as ‘OTAs’),
- manage your bookings and payments
- automate all guest communications.
- help you take care of your guest and any cleaning and maintenance for which you are responsible.
Considerations to Keep In Mind as an Accommodation Provider
To meet all of your obligations as an accommodation provider (for more information see our informative article on Permits) you need to deal with:
- Maintenance. Your property needs to be kept in good order, with décor and facilities maintained to the highest quality standard that guests will expect.
- Marketing. If you are renting your property, you need to make sure people can find out about your fantastic place. They need be able to book it, simply and securely, for their stay. Whenever it suits them.
- Pre-arrival guest communications. Anyone staying with you will undoubtedly have questions before they arrive. You need to be able to respond to in a timely fashion. Even better – you need to anticipate their queries and offer the information swiftly and automatically. This might include directions, queries about deposits and payments, pets, or parking or access codes and instructions.
- Guest reception. You need to meet and greet your guests, show them around your property and explain any do’s and don’t’s they need to be aware of. They need to get the keys from you (or know where to pick up the keys, or how to access the key box or key code). At the very least, you need to create a complete, elegant, useful handbook explaining how everything works, leave it in the rental, and offer online access to a downloadable version a few days before check-in.
- Problems. If things go wrong, you need to be on hand to deal with any issues your guests might have. Whatever time of day or night.
- Cleaning. Lots of guests means lots of cleaning up after them, every time someone checks out.
- Reviews. Your online reputation is a powerful marketing asset. You’ll want to encourage guests to leave positive reviews, and respond to any that aren’t.
If you live close to your vacation rental, or if it’s attached to your own home, doing everything, or nearly everything, yourself might not be too hard. You might even find that you are able to take on more properties, that you own or manage on behalf of others. But if you live far away from the short-term rental property/ies or don’t have the time or expertise to look after them day to day, you might follow another strategy. You can appoint a local property management company or at least invest in some solid property management software like eviivo suite and put in place a local network of trusted contractors, that are able and willing to help or step in case of an emergency
If you only want to manage changeovers and general maintenance, but don’t want to fiddle with all your OTA channels, website and social media, consider utilizing an online distribution contractor in your property management business model. This could be a local real estate agent or small agency that helps you manage your online presence.
They will list your property for you. This could be on their own website dedicated to vacation rentals, as well as online travel agencies. And they will make sure that it is looking and performing its best. They’ll likely send a photographer (at cost) out to take pictures that show off your property in its best light. They may themselves own some of the properties listed on their website as well as those they market on behalf of their owners, and will want all the properties they offer on their site to look consistently appealing.
Online distribution companies will get your property in front of the right people and get you the best price for your place. They likely offer revenue management services for vacation rentals and will flex your prices according to demand in your area. This means they’ll charge more during busy periods and lower rates at quieter times to keep bookings coming in.
You’re paying them for helping you ensure you’re staying competitive in your market and maximizing the bookings your properties receive
Full Service Property Management Company (PMC)
In this scenario, you essentially hand over full control, while still maintaining oversight. A full service property management company will take care of all the online distribution, as well as much of the day-to-day heavy lifting including managing contracted services and taking care of coordinating changeovers, guest needs and operations.
They’ll also look after your guests from when they enquire or book until when they leave. They will manage emails and calls from guests and provide a service to get the keys or entry code to new arrivals and will be the point of contact for any problems and queries during guests’ stays.
When your guests check out, they’ll deal with all the cleaning and changeover ready for the next set of guests. They might have their own cleaning team, or will work with local companies who provide this service. They’ll also follow up to get guest reviews and respond to any concerns raised.
Such companies will have a wide regional or national coverage, and have the marketing reach to get your property in front of a wide range of potential customers. Again, there will be a cost to providing you with a full, professional service, but following this vacation rental business model will take the hassle out of managing your property.
All of the above business models rely on you having your own property to market. But what if you don’t have a property but still want to run a vacation rental business?
Rent to Rent: run a Vacation Rental Business Without Owning the Properties
You can still get into the lucrative vacation rental space without owning a property. There’s more risk involved, but you could consider renting a property instead of buying one, and then managing it as a vacation rental. You would hold the tenancy agreement for the property and sub-let the accommodation to guests. Which means avoiding the capital investment of buying the property. As well as many of the maintenance costs, such as for structural repairs that your landlord would be expected to take care of. You would likely still need to furnish the property and keep it in good order. And then deal with all of the requirements detailed under Individual Owner/Manager, above.
You will need to check that the terms of your tenancy allow you to sub-let to guests. There may also be restrictions from your local authority or trading standards body. Margins will be tight with this business model and you will need to be confident that the rental income you bring in will be enough to cover the rent you need to pay out and any bills that you are liable for, such as gas and electricity. Bear in mind that as a tenant, you can keep a close eye on how often you turn the heating on and how much hot water you use, but your guests might not be so mindful of your costs.
Think about whether you can fill your rooms all season too. If not, this might be an approach that only works during the summer months when demand for ‘your’ property is high.