The best reason for self-managing your vacation rental property is the prospect of keeping 100% of your profits. But exactly how much of your profits would be forfeit to property management fees? Well, that’s what we’re going to take a look at now.
This article is not being written to tell of the horror stories that come with using a rental property management company. Experiences like that are entirely subjective. Many people are willing to pay for the option to remain 100% hands-off, and we respect that. So, there’s certainly a place for rental management companies in this business. Keep in mind, many of them rely on our software to operate.
Instead, we’re going to take an honest look at how management companies operate and what you can expect to pay if you decide to turn your property over to one.
If you’re not familiar with the work required to manage a rental operation, read the beginner’s guide to rental management.
Three Choices: Rental Management Contracts
Obviously, the most important part of your arrangement is going to be the initial contract you sign. Knowing your options will give you the power to negotiate better percentages and avoid feeling like you’re being taken advantage of.
It’ll also help you know what to look for when researching rental property management fees versus self-management costs.
There are three contract types you’re going to encounter in your search:
This is an arrangement that requires a flat fee for monthly property management services. It will likely have separate fees for cleaning & maintenance, check-in, marketing, etc. This model can be very beneficial if you know how much booking traffic you can expect to get with your property.
Unfortunately, your management company has less incentive to keep your property booked with this arrangement. You’ll want to research your company’s booking channels and the quality of their listings before agreeing to anything.
This model has become more popular with the vacation rental management market in recent years. The basic premise is that the property owner is guaranteed a fixed monthly income, regardless of the number of bookings. Profits that exceed your guaranteed payout will go directly to your management company. It’s quite obvious why this is a popular choice for management companies, but why would a property owner agree to this? Because it literally requires no effort on your part – you get a number and you either take it or leave it.
It goes without saying, a management company isn’t going to give you a guarantee without their own profits guaranteed. Yes, they’re doing all the work, but it could be quite a significant difference if you’re not shrewd in your negotiations. You don’t want to enter an agreement that’ll find you kicking yourself over lost profits.
Here we have a system that requires a little more thought on your part. Rental property management fees will vary month to month depending on booking activity. So there’s a strong incentive to keep your property booked on your end as well as theirs. There’s a lot of factors that could go into the company’s percentage offer. For this reason, the expected range is quite wide: 10 to 50%.
Do your research by looking at rates and availabilities of similar rental properties in your area. You’ll be able to assess your potential earnings to factor against their offers. This is recommended before signing any percentage-based contracts. To help you understand the fee structure more, let’s take a closer look at rental property management fees:
Vacation Property Rental Fees by Location
With the range of vacation rental property management fees being anywhere from 10% to 50%, it’s tough to say exactly where you’ll fall in. While various management companies have been taken into account to get these numbers, most agree that the national average (US) is between 28% and 30%.
A study conducted by Rented.com revealed management companies tend to charge more or less depending on geography/location. If you own a mountain home, your management fees are going to be 10% higher than if your property were in the city.
There’s two reasons for this: proximity to services and frequency/cost of maintenance. By default, properties in mountainous regions typically require more maintenance. They also tend to be further away from populous areas where services are located.
If your property management company is not local, and does not use local services, they’re going to charge you more. There’s really only one thing you need to take away from this: use local rental companies for percentage-based contracts.
Manage Your Expectations or Manage Your Property
Well, there’s the gist of it. If you’re looking to take a minimal role in your property management, you have some options. You know what to expect now – if it’s not enough, you may find self-management to be a more appealing route.
Before you make any decisions though, research your local vacation property listings. Take a look at similar properties in your area and make note of the rates. Also take note of their availabilities, amenities, etc. Use these numbers to form a revenue estimate for your property. From there, you can use that number to calculate your potential earnings using contract offers from a rental management company.
Of course, your potential earnings for properties that you choose to self-manage will always be higher. Your expectations can be met or exceeded, but only if you’re calculated in your approach. You can find out how here.