You're about to discover 7 very powerful, advanced vacation rental investing tips. The setting for this video is from a new vacation rental investment one of my Apprentice Program Graduates, Bryce & Julianne, just recently purchased, up in the mountains. Recall that a few years back, I provided the training 5 Steps to Short Term Vacation Rental Investing and those lessons are just as applicable to today as they were when I put that together in 2016. These new 7 advanced tips will simply add to those foundational principles and will help take your vacation rentals to a whole new level.
I was recently visiting with two graduates of my program Bryce and Julianne at their vacation rental in the mountains. As graduates they've made over a half million dollars in Creative Real Estate. Now they're taking those profits and buying some vacation rentals. We were discussing 7 advanced vacation rental investing tips and want to share them with you.
7 Advance Vacation Rental Investing Tips
1. Go Big on Furnishings:
Julianne has a centre piece on a nice dining table. It is some bears on local driftwood that she purchased at a store nearby. I know nothing about interior design or home furnishings. Now Bryce might, I didn't even ask him if he did, but this is typically a female thing. They see something like this centrepiece, they think it's cute and would be perfect for the space. Gentlemen, you must let them buy it. I know that sounds crazy but let them go crazy with furnishings on a vacation rental.
It makes all the difference in the world for three reasons:
- It's the female that normally makes the decision on which cabin or house they're going to rent.
- They're the ones that are most likely to give a positive review.
- It covers a whole lot of deficiencies your property might have, like not a great view or great location.
It's tough for us guys because we make decisions mathematically. We're doubting that we need to spend a couple of hundred dollars on what looks like some bears climbing on a piece of wood. However, you do need to go big on furnishings. In the beginning that was my assumption and having tested it over many years have found it to be true. The better the furnishings, the better you're going to do. It also means taking a deep breath and saying yes when the creative one in your group decides that they wants to buy that crazy looking lamp. People love it and they'll give you reviews like, "I absolutely love the centerpiece". They'll ask you where you bought it. Go for it and go big.
2. The More bedrooms the Better:
In Bryce and Julianne’s rental property they have a little loft and they were creative enough to find a futon that not only fits the space nicely but also doubles as a bed. This is so important. You want to sleep as many people as possible. There is a war going on right now between the hotel industry and vacation rentals. The hotel industry is really upset with the way things have disrupted their machine. As a result, they are trying to get governments involved. They want to use the land use laws to try to shut vacation rental owners down in areas where the laws are ambiguous. Now in Bryce and Julianne’s area, that's not a problem, but the idea is, the more bedrooms, the more likely you can distance yourself and compete with hotels. Remember hotels have restaurants and cleaning facilities, and guests can call guest services anytime.
You're a vacation rental and you don't have some of those benefits. How do you compete against the hotels? More sleeping capacity. You win with the ability for people to all stay together as a family. That makes all the difference in the world for you. Not only today, but three or five years from now. In Bryce and Julianne’s case they were creative making a three bedroom into a four bedroom. I have a seven bedroom property that is very profitable, and I've worked with several other people that do great as well.
3. You Need to be on Solid Legal Footing
If you're not, it can be a real nightmare to deal with. I've been toe to toe with the land use and the zoning and had to sell some of my properties because of it. That said, when you get an area where other properties might be illegal but yours is legal, it can be a complete home run.
- I have a vacation rental that I paid $130,000 for.
- I put $100,000 into the furnishings and the rehabs, so I'm in it about $230.
- I'm bringing in a net of $4,000 a month, $48,000 a year.
So, when you do it right, it can be a complete home run.
Now in certain areas, it's not a problem at all. You can just do vacation rentals and there's no concerns. However, that is changing. Hotels are going to war. I was reading the land use and the zoning rules in one of my areas in Florida, it was over 650 pages. I'm going through each one and looking at the pages and highlighting, and I found the loophole. Find the loophole and it can make all the difference in the world.
Don’t just rely on what you read online or when talking to a zoning or a land use person at the county office. Go into the actual code, do some reading. You must be on solid legal footing because if you're not, you can and will be shut down. I know from experience and it's not fun.
4. You Need to Stay in Your Properties
Or a close friend or a family member needs to stay in there at least once a year, if not twice a year. You might be thinking, "Phil, if I get a vacation rental in this beautiful place, I'm going to stay in there all the time." In the beginning, you will. Then over time you're going to stay there less and less. The thing is, only you know your property best. You'll know the little things that nobody else knows. By going there you'll notice people will steal your pots and pans, they'll steal your utensils. You'll see when things are missing better than even if you had a list for your cleaning company. So, you need to stay there and stay up to date.
I have a lot of properties, so how do I do it? Well, I bonus my employees and I ask, "Hey, can you stay there for free with you and your family?" As part of the exchange they need to make sure they do a thorough review of the property for me to see what's going on. They won't know exactly everything that might be missing, but at least they'll get a good look at it. It will be done from the perspective that it's important for me to know what's going on. Make sure you are staying in those properties at least once if not twice a year.
5. You want most of your bookings from HomeAway and supplement with TripAdvisor, rather than with Airbnb:
In other words, you want to be very selective. What happens is this. When you have a problem with a guest, HomeAway is very pro owner and is VRBO as well. They are going to side with you in most cases, whereas Airbnb will side with the tenant. In the beginning that may not be a big deal, but over time this stuff will stack up. You can lose quite a bit of money from Airbnb in the way that they treat you as an owner. They literally treat you like second class citizens, whereas HomeAway, which is VRBO, will treat you very differently. They think you're the king and that makes it a lot better from an owner perspective.
Less is more, meaning I try to get all my bookings from HomeAway. I try to do the same pricing on TripAdvisor as I do for HomeAway, because TripAdvisor is comparable to HomeAway in the way they treat you as an owner. In some cases, I still have an Airbnb listing, and then I usually jack up the price a little bit to deal with the hassles that the platform puts us through. This has come from years of experience. Going through this and repeatedly hearing my property managers say, "I hate Airbnb". This may vary with different kinds of properties, but if you're renting large properties, three, four, five bedrooms, HomeAway is your key. And you know what? If you optimize your listing correctly, you really can get most of your bookings just from HomeAway VRBO.They're huge and a much better platform to work with.
6. You Need Dynamic Pricing:
I've talked about this in previous posts. You want to tie your pricing to a dynamic pricing tool. The difference is in my older post I talked about using Wheelhouse. They’re still great but only good for TripAdvisor and Airbnb. They don't work with HomeAway anymore, therefore I use Beyond Pricing for HomeAway and then I use Wheelhouse for TripAdvisor and Airbnb. By making sure I keep up with the Beyond Pricing settings, I know I'm maximizing my pricing.
If you are using a service like Evolve, they're going to take care of all this. They'll take care of everything that I'm addressing in tip five and six. I started doing this before I knew about Evolve. I have great reviews on my listings, and Airbnb and HomeAway won't let you transfer the listing to Evolve. I want to keep that status, so I trained a property manager, but you don't have to mess with this if you have Evolve. If you don't and you are more manual like myself or my property manager, make sure you're hooked up on these dynamic pricing tools. They will ensure you maximize your profit and that can be the difference between making the profit margins you want and not.
7. Go High on Your Cleaning Fee:
This is an insider tip I learned the hard way, no one taught me this. This is something I just tested, and it worked great.
- First, your cleaning fee comes out as they're in the process of checking out. You can go higher on that fee, no one is going to balk at it.
- Secondly, if you go higher, you have more money to pay for the best cleaners. Great cleaners make all the difference in the world. I've talked about them in other videos.
- Lastly, raising the cleaning fee allows me not to charge a deposit or any other damage protection policy. As a result, the client can just make the booking without paying a deposit or damage fee. A lot of times they think they've kind of won one over on me.
You might be thinking, "But Phil, if you don't get a damage deposit, what happens if they ruin the place?" Some of them are going to be irresponsible and mess the place up. However, if instead of charging $120 for the cleaning fee you're charging $190, that's an extra $70. If you have 50 guests in a year, that's a significant increase. It turns out I've been able to always stay ahead.
A Higher Cleaning Fee Covers Theft
People are going to steal some of your stuff, for example your pots and pans. But when you have an extra two, three, $4,000 coming in because you increased your cleaning fee, you have enough money to cover the cost of theft. It's worked for me now for five years and I've got a ton of vacation rentals. I don't charge a deposit; I don't charge any extra or require a damage policy, yet my stuff stays dialed in and I actually do better.
If I have to break the $200 mark for the cleaning fee, over time due to inflation, that's going to be interesting. I've never hit the $200 mark for cleaning fee, but when I do, I still think I'm going to be okay. Ultimately people are less likely to balk at a cleaning fee than they are at your overall price. With all this in mind, make sure that when it comes to the cleaning fee, you jack that thing up and you use that extra money to cover all the problems that can come up.
Bonus Vacation Rental Investing Tip:
Bryce and Julianne recently purchased their property. Their rehabbers came in and did some things to it, and of course they're getting all the furnishings in. I was noticing that they still had an old school thermostat, which they are in the process of replacing. Make sure you always get a Wi-Fi-enabled thermostat. This allows you have more control and you know what's going on. You can go with Nest, that's the big one. However, the problem with Nest is it's optimized if you live in the property. Whereas Ecobee gives you a cool little feature.
What's going to happen invariably is they're going to come up to the thermostat and if it's summer they're going to drop the thing down to about 62, which is going to cost you a fortune. Then of course if it's winter, they're going to bring it up to 85. Ecobee allows you to program it so you can block their range. That's what you want to do because you need to control these things, because it can get way out of hand sometimes and it can make all the difference in the world of profitability.
Be a Successful Creative Real Estate Investor
Bryce and Julianne participated in my apprenticeship program when they were still in graduate school and they've made a whole bunch of money. Now they're at a point where not only are they very successful Creative Real Estate investors, but they're also taking some of those profits and putting those into long-term investments. It's not just this property, they have another one that they just purchased as well with 20% down. These are big chunks of money and they're going to have huge cash on cash returns. So, they can still creative invest, but also be bringing in more money.
If you want to learn how to do that, consider my apprentice program where my team and I work with our people. In fact, Bryce and Julianne help with a little bit of part time coaching as well. You can learn exactly what to do and how to do it.