The vacation rental management industry is a young one in the grand scheme of things, but its growth has been explosive. Many media outlets reported the reasoning behind this is that virtually anyone can do it. This is simply untrue.
What they really meant to say was anyone who’s willing to take the risk and put the time and effort in can do it. So, same as any business really.
This isn’t an effort to deter you though. This is an effort to prepare you. Running a successful vacation rental management company can be extremely lucrative, that’s true. But the fact of the matter is this: you are entering a fiercely competitive industry. Don’t go into it thinking it’s as easy as throwing up a couple Airbnb ads on behalf of your neighbors and letting the profits roll in.
Before you take another step, you need to have a solid business plan. You’re going to have to come up with a viable plan of attack before you take on any clients. Additionally, you need to brush up on your marketing, research, and networking skills. That’s what we’re going to help you do today.
The very first step to starting a business is selecting a mode of operation. There’s three main choices for VRMs: arbitrage, ownership, and strictly services. The first two come with a number of financing options that need to be worked out in order to calculate an ROI.
The third involves working with other peoples’ properties only. We’ll be focusing on the latter.
Services – What will you offer?
There’s quite a few roles to play as a manager, so it’s up to you to decide your level of involvement. If you start off providing full-service management and handling all the work yourself, your whole business could fall apart when you start taking more clients. On the other hand, if you decide to offer only marketing services, you may be severely limiting your ability to scale.
Before you can decide, let’s just take a look at some of the services other VRM companies offer:
1. Property Maintenance
Generally, a management company will offer scheduled maintenance and on-call maintenance separately. Most companies choose to contract this service out to local plumbers, electricians, landscaping companies, etc. If you decide to keep it in-house, make sure you hire trained and certified employees for the task.
The rise of Airbnb created a number of parallel industries, one of which is the vacation rental maid services. Of course there were maid services available in the past, but the ones that cater specifically to Airbnb-type companies are available on short notice.
They understand that bookings come and go quickly and you need to make a perfect impression on every guest. Many come complete with professional linen-cleaning, scheduled deep-cleaning, and even key deposit / recovery services.
If you decide to assemble your own cleaning crew, make sure they understand that punctuality is essential.
3. Concierge Service
This is a very hands-on role, so you (or whoever’s working for you) better be a people person. You will be tasked with welcoming the guests for each booking. Normally, this simply means meeting them at check-in time, providing keys, and familiarizing them with the property.
Some management companies offer pick-up and drop-off services for guests arriving via the airport or train station. This would fall under concierge services, but should come with an extra charge.
4. Property Enhancements
Some companies offer installation of technological modifications to the properties they manage, such as electronic locks, security systems, WiFi routers, etc. TurnKey Vacation Rentals is one such company – check out their list of rental management services if you want to be impressed.
5. Rental Insurance
Some management companies are extending their services by offering insurance policies. This is something that’d require legal counsel and financial backing to set up, so maybe hold off there if you’re just getting started. Focus on emphasizing your guest screening and rental contract services.
The backbone of your management business is your ability to secure a healthy flow of bookings for your clients. Depending on the client contract type, your earnings are tied to this as well – so you better have some experience here.
Here’s a list of typical marketing services your clients will be interested in:
- Listing services (creation, editing, maintenance)
- Property photography
- Booking management
- Website development / direct booking implementation
- Listing / site optimization
- Advertising / promotional services
Generally, rental management companies will have two types of contracts to offer clients: commission and guaranteed. The latter has become increasingly popular these days due to its simplicity and sense of security for property owners.
A commission-based model will usually involve flat fees for services like cleaning and maintenance, and then a percentage of booking profits. The flat fees may be subtracted from the owner’s share of the profits paid out on a monthly basis. With this model, it’s common to find management companies offering listing and marketing services for free. Commission percentages range between 15% and 40% (28% US average).
Guaranteed models give property owners a fixed payout every month. Essentially, the management company is running an arbitrage scheme (subletting). Depending on your research and negotiating skills, this could be significantly more lucrative for management. For property owners, it provides a boost to their monthly income without having to worry about seasonal dips.
After soliciting some help from various vacation rental managers in identifying common misconceptions of the business, the most prevalent response was this:
You don’t have to do it alone.
This is something that applies to both home owners and management companies. While some tend to keep everything in-house, it’s quite common for management companies to essentially function as contractors.
The benefit of this is that you get access to established, experienced businesses who are well-equipped and can scale with you. Depending on the size of your business, you may only need a few independent contractors to begin – particularly when it comes to maintenance. Cleaning, however, is a more frequent requirement.
Regardless of your initial intentions, it’s thoroughly recommended that you do some research and make a rolodex of local businesses to contract to. Ensure your current client agreements will sufficiently cover the expenses of either model. That way there will be no losses or need for re-negotiation with current clients when you decide to make some changes to facilitate growth.
Legal Documents, Liabilities, and Certifications
In order to ensure your business is protected, it’s recommended that legal counsel be sought when drafting client contracts. You need to limit your liabilities as much as possible when assuming control over someone else’s private property. Both your client contracts and rental contracts (for guests) should be drafted by a professional to achieve this.
It’s worth the investment to protect yourself.
Another legal matter to take care of: some US states require a property management certification in order to operate. This applies to vacation rentals as well. Make sure you look into this before offering your services.
The viability of your business is dependent on your ability to properly assess a property’s value as a short-term rental. Especially if you’re going to be offering a guaranteed contract model.
First, you need to be certain the areas you wish to service have enough tourism / vacation traffic to support your business. There’s not much to it – check on Airbnb, Booking.com, and other channels to get an idea of how well the local VR industry is doing. How many properties are available? Are their booking schedules filled up? Does your area have hotels already? Does your area have any major attractions nearby?
If you can’t see the traffic you’re looking for to warrant your services, expanding your area of operation may be the best solution.
Individual Property Research
By now, you’ve established your area of operation and have a functional business model on paper. You’ll just need to arm yourself with your secret weapon before you can start taking clients: a reliable property valuation technique.
Performing accurate property research has two purposes. Firstly, it’ll allow you to draft a fair client contract that’s profitable for both parties. Secondly, having accurate statistics and projections laid out is an excellent marketing tool as well.
Clients will want to know how you’ve arrived on the numbers you present to them. Saying you’ve got a good feeling about it isn’t going to get you very far.
So how do we go about getting these numbers? You need some tools.
AirDNA’s Market Minder analytics tool is by far the most valuable all-in-one option. They provide cursory area data for free, but more in-depth analysis requires a paid account. Fortunately, they’re extremely affordable – between just $20 and $80 (depending on your area).
Another great option is the Eliot Airbnb research tool. It’s 100% free and will give you property-specific projections based on Airbnb’s local data. Think of it as Market Minder Lite.
Hopefully, you have a pretty good plan laid out for building your vacation rental management company. Of course, the work is only just beginning – you’re going to need a lot more help. Fortunately, we’ve compiled some great resources to help you along the way!
A great resource for finding housekeeping, maintenance, and other VRM services is Airhosta. They function as a directory for managers and property owners to connect with local help.
Here’s a few great housekeeping options recommended by locale:
|Lazy Susan’s||New York City|
|GuestPrep||DC, Austin TX, Denver CO|
|No More Chores||Canada|