5 Steps of Short Term Vacation Rental Investing

imageforblog5stepsYou’re about to discover a new twist, thanks to technology, on the age-old concept of short term vacation renting of a house or of a condo. Not just so that you can have a vacation home, like I described in a previous training, “How to Make Your Vacation Home Dreams a Reality”. Instead, in this training, I’m going to take this concept to a whole new level and focus on short term vacation rental from an investing standpoint.

 

 

Five Steps to Short-Term Vacation Rental Investing

 

Airbnb, VRBO, HomeAway, and now to a lesser extent, TripAdvisor, have opened up an amazing way to make more money with a rental than the traditional way. I have a video called, “Three Ways to Turn a House into a Cash Flowing Machine”, where I introduced the concept of being able to produce more profits with the same house by converting it into a short-term rental vacation rental.

You don’t necessarily have to be in some far off Caribbean island or some ski resort to make this concept work, it can work in a lot of places because in a way it’s competing against hotels and motels. More and more travelers are travelling as a family and they want to have more space when they go on vacation. Now, thanks to technology, we can put this altogether and put it directly into your hands instead of using some local property manager.

Vacation rental investing is the real deal.  I personally do it so I have a tremendous amount of experience, I want to share with you that can make you a lot more money than the traditional rental.

 

1. Do Your Research

 

  • Legality: 

The idea that someone can put their house up as a short-term vacation rental is a relatively new concept in legal terms. This means that a lot of these houses are in residential neighborhoods and are zoned as a single family home. Not all communities will have laws for short-term rentals but some will put a law in place that says you cannot rent it for less than 30 days.

You need to research on the legality because that could be a big deal killer. You do not want to go ahead and turn your home into a short-term rental and secure bookings as far as a year in advance, only to be shut down by the government.

 

  • Market Research

In order to make sure your vacation rental will be profitable, you need to look into what other vacation rentals in the area are going for. Check out your competitors on HomeAway.com and AirBnb to see what their nightly rates are and then look at their calendar to see how booked up they are. You might even consider calling a local property manager.

 

  • Profit VS Cost Research

 

You can use a booking agent to look into some of your competitions profit statistics.. Look at what they’re bringing in, and most importantly their gross revenue. Gross Revenue is the actual rental money that could go to you as the owner.

Deduct Your Bills

If the gross amount is $45,000, then you need to subtract any extra costs. With a short-term vacation rental you will be paying all utilities, cable and internet. Don’t try to cut corners on the cable and internet because most travelers will want to have them available during their stay.

Other expenses include things like lawn care or possibly pool care. You’re going to need to look at what revenue the vacation home will generate.  Is it significantly more than if you did a normal rental?

 

2. Sweet Spot Property

 

What type of property is going to give you the most beds at the least amount of cost, but also has the amenities? If you’re in the Smokey Mountains it’s going to need a view, be easily accessible by car,  and maybe even be a log cabin not just some stick built home. If you’re near the water you want to be close to the beach, but you don’t necessarily have to be waterfront. Waterfront properties typically cost more but they don’t generate nearly as much revenue to compensate for the cost of purchase. You want to be close enough to where it’s not a long bike ride or a really long car ride to get to the ocean.

Try to figure out what those amenities are by going back to study what your competition is and what they putting in their ads. Really study what they’re offering to figure out and pick up on ideas on what those amenities need to be.

Another important factor is a home’s Sleep Number. The number of people that a rental sleeps is a huge determining factor on how much more money you can make. If a property has limited rooms, you can improvise by adding a pull-out couch or even bunk beds to a bonus room. The sweet spot property has the amenities, the beds, and then it has to  have a ” Wow Factor”.

 

Wow Factor

 

The “Wow Factor” is the reason why people love your property and want to take a vacation there. For instance, the Smokey Mountains, it’s got a great view or if you’re just in a major city,  it may be accessible to the subway, or have something  there that people are really, really going to like.

 

3. Renovate and Furnish

Typically there are certain things you need to accomplish in order to make a vacation rental more traveler friendly. You can win big by how you renovate and furnish your vacation home, so be sure to make it very homey and comfortable. Nice furniture, wall decor, and basic essentials a traveler would need like pots and pans, towels, and all of the little things, will help your guest feel right at home.

This is by far the biggest separator from going to a normal, traditional investing arrangement versus short-term rentals or vacation rentals. You’re going to have to pay to get it furnished, and this can be $10,000, $15,000, $20,000. This is definitely more difficult for those that are cash challenged because you can’t typically borrow money on furnishing unless you get a credit card with high  interest rates.

If you look at the math and the property is going to be very profitable then the furnishings are negligible. In fact, many of the deals that I do I can pay off the furnishings, in half a year.

Make it wonderful, make it a home and it will have a huge impact on your star ratings which makes a big deal over time, but also it makes a huge impact on the ability to get these people to come back. Ideally, you will start building a brand where people want to stay in your properties because they’re wonderful and have all of the little things that most competitors don’t have.

 

4. Booking Agents

 

Short-term rental platforms like HomeAway, Airbnb, VRBO, TripAdvisor, require you to respond in 24 hours or less. That’s not freedom. With a traditional rental you just have to pick up your rent each month, maybe pick up a phone call or two, or you can hire a property manager to do it for you. A booking agent is kind of like a property manager only they’re more suited for this particular industry. They’re the ones that are handling those inquiries that are coming in on a daily basis.

Perhaps the biggest one out there is evolvevacationrental.com. This group is  wonderful because they dont just pick up the phones, they  also going to manage your listings. If you don’t know how to set up an Airbnb or a VRBO or a HomeAway listing account very well then you’re going to be in trouble because that’s where all the bookings come from so you got to make that look good. These people have already figured that out and they’ll manage it for you.

 

Dynamic Pricing

 

This is the other big thing that they’re going to do, this one is huge, dynamic pricing. There are tools out there now that the hotel industry has been using for eons where they will dynamically price the unit based on time of year, based on if it’s a peak week or not because there’s some event coming to town, also based on what the hotels are changing, what the other competition is like out there. It’s amazing. They have it already built in to what they’re doing.

If you want to build your own Airbnb accounts and whatnot, which is what I do, I have complete control but I’ve also hired people. This was even before I new these organizations existed. I use a thing called usewheelhouse.com. Pricing is going to make or break you in this game. So often you’re going to price it too low, and once that little slot of time is booked you don’t get it back. If you have short changed yourself, you’re losing money, you’re leaving money on the table. Killed me for years on this. Usewheelhouse has been a game-changer for me because it dynamically prices.

I knew that pricing as well as my team, we knew the pricing pretty well, but when I saw what their algorithms were doing I was kind of blown away because they were pricing some of the peak weeks a lot higher than I was. Anyways, I made the adjustments, I still got the bookings, just more money. Dynamic pricing, but on a group like evolvevacationrental will do that.

 

Other Groups

 

There’s another group that’s like them called vacasa.com and I think there’s another one called redawning. The thing is I haven’t used theses services so I can’t tell you all of the potential negatives that could come with them. In general, the biggest problem you’re going to have is not responding quickly enough, not setting up your listing right and definitely not pricing it right.

They’re going to make sure that you get a price right, they’re going to make sure everything is responded to correctly, the ad is saying the right things, and so you should be able to more than make up for the 10% you have to pay them, and it create some automation in your life as well.

Again, to disclaim, I manage all of my own stuff with my staff but that’s because we’ve been doing it for awhile and all of my listings have been built up and have tons of reviews. If I switched over to them now then I would lose all of my reviews, so I have to keep what I’m doing. I could recommend to you if you’re first getting started, this might be a lot easier way to do than the hard road I went through because I didn’t have all of the information you’re getting from me right now, I didn’t have this, nobody was teaching this staff.

 

5. Bookkeeping

 

This is above and beyond the normal bookkeeping of a property management system. You now have to deal with what’s called “occupancy taxes”. This is what hotels and motels have been dealing with as long as it’s been in place. 12.5% to 13% is normal. This gets paid above and beyond what you get paid. You can charge this to the guest so it’s not going to be an expense to you, but you do have to pay the government what you collect.

There’s a service called my lodge tax that I just heard about that will do this bookkeeping for you. I already have a bookkeeper in place doing all this. One of the most frustrating things about setting up occupancy tax is setting up the licenses, and getting all these things in place, these different government organizations tax to get this done, this could take awhile. One of my property took over a day to get all of this done, we’re talking like 10 hours to get it setup just so I could pay the government. Mylodgetax.com supposedly will do this for you. I haven’t used them but they’re recommended by HomeAway so they might be pretty good.

 

Summary

 

Those are your five steps. Research, make sure you’re picking up properties that actually can make the money we’re looking at as well as being legal. Number two, the sweet spot property as being with the most beds you can get and also have those amenities that those travelers are looking for. Number three, renovate and also furnish. The better you furnish the better off you’re going to be. Number four, hire a booking agent. I also failed to mention, not only do they help with the listings and they can do the dynamic price, but they also can help coordinate with the cleaning and the maintenance. Number five, bookkeeping. It’s important to pay your taxes as well.

 

Other Benefits of Vacation Rentals

This obviously is a little bit more complicated than the normal, traditional rental, but it can make more money and there are a couple of other benefits I want to share with you real quick before we wrap up. Number one is that you don’t have to evict anyone because they are travelers, they’re coming in, they’re coming out. It’s fantastic. Evictions are non-existent. In the world of normal, traditional rentals, evictions are very common and it’s frustrating because the laws are setup mostly to protect tenants, so landlords typically get screwed.

The next thing is you get your money upfront, you’re not chasing tenants for rents. They’re paying you sometimes upwards of a year in advance, you’re always getting your rental money. I love this form of investing, but you do have to pick through right properties that are in the sweet spot and you have to have done your research right. All these things have to be in place. When you do that, this can be a magical formula. You can make a lot more money for the same property you currently have that you might be doing a traditional rental on.

Comments

  1. Thanks for all your informative and amazing Videos.

  2. Good stuffs, thanks for the eye opening video as always.

  3. Great video very good information

  4. Sonia Santos says:

    Thanks for sharing this wonderful idea of real estate investing. I learned a lot.

  5. Thank you happy Thanksgiving

  6. Christopher Berggren says:

    Thanks, Phil, for this particular video and all the others. This one in my email this morning is well-timed, as I’m moving to Florida West Coast for the winter. No more winters for this Cali turned NYer guy!! Tampa is one of the country’s highest foreclosure cities, so I am looking at nearby St. Pete, still large # of foreclosures but next to the beach. With no job, nor cash, and only fair credit, how can I get into a SFR or Multi-unit fairly quickly?

  7. Cliff Fung says:

    Thanks Phil for sharing the best vacation rental investing idea.

  8. Virgil Watson says:

    Thanks Phil for that information the best vacation renal investing idea.

  9. Good summary, and great that it comes with service links! Missing the turnaround services, though – i.e. locking-unlocking, cleaning, repairs. This can also break the business, as it can easily go bad. Unreliable cleaning person – and voila, bad reviews. Also, if there’s a problem with utilities, it must be fixed the same day, which is tougher.

  10. Cody Dayley says:

    Good stuff thanks for the info……Happy holiday’s to you and your family and your team.

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