The growth in the vacation rental industry has created a new generation of second home buyers.
Whereas owning a vacation home was once a dream to many, the potential of renting it out and creating an income that can pay a proportion of the mortgage has made the dream a reality. And, this is true in many cases.
However, everyone has heard a story about renting out a property and myths abound about the ‘easy money’ that can be made, and that you can just sit back and wait for the money to flow.
Let’s explore some of these myths and replace them with some hard truths.
1. There’s more money in vacation rental than residential rental
Yes, and No!
Yes, because vacation rentals are charged at a nightly rate for tourist accommodation, so whereas an average monthly rental for a residential property might be $1500 per month, a vacation rental might yield the same per week.
The thought of $6000 per month makes this quite a juicy proposition, until you factor in the downside of the additional costs and the variables.
- Marketing (5% if you do it yourself)
- Housekeeping and property management (30%)
- Amenity charges (heat/cool, WiFi, cable etc)
- Guest supplies (paper products, propane for BBQ, bottled water etc)
- Tourist taxes, licensing and permits (could be up to 15%)
- Occupancy not guaranteed
Let’s say the property is rented for 30 weeks of the year (which is pretty good in a seasonal location) and yields $45000, yet the cost of managing the property takes 60% of the income, the difference becomes a little less spectacular.
Journalist and money writer Paula Pant, describes her experiment with turning a residential rental into a vacation rental property in her blog at www.affordanything.com
2. It’s easy to rent because this is a high volume tourist area
Yes, and No!
High volume tourist areas such as Orlando, Panama City Beach and Destin have a lot of visitors. They also have a lot of vacation rental condos, town houses and family homes. This is not to say the areas are saturated, but they are certainly competitive.
There may be an issue with owners who don’t really need to rent – they simply want a little income when the property would normally be empty. They offer discounted pricing and drag the rates lower than the market would expect them to be
The positive side to that is that they tend to pay less attention to the hospitality side of the business, opening it up to others with a more professional approach.
3. It’s passive income
Yes, and No!
Once a buyer has a vacation home that has income potential and can be made available to the tourism and travel market, it is possible to hand it over entirely to a rental management company and the owner can just collect the cheques.
Many investors do this and may even achieve good results, but owners need to bear in mind that property management companies are working on behalf of many clients. Their goal is to rent as many weeks as they can, but they have rarely the time or resources to focus on just one.
Yes, they can sit back passively and do nothing, but to achieve maximum occupancy an owner may need to invest a certain amount of time into their own marketing and social media management. There are also decisions to be made on upgrades furniture and furnishings so complete passive management is not easily come by.
The exception would be where a property is listed with a wholesale site such as Vacation Futures. Property managers can bid for date blocks on a property and deliver a guaranteed income to the home owner – this then becomes a completely hands-off arrangement.
4. I can provide the bare minimum in terms of amenities
No, No and NO!
The vacation rental market was unsophisticated for many years and there was a time when a hard roof and an indoor toilet was sufficient to lure the camping fraternity in from the canvas. Parents brought their children to vacation homes to get them away from TV and many happy evenings were spent playing board games and roasting smores around a campfire.
Sadly those days have all but gone, and guests have become more demanding. They want top-of-the-range appliances, the newest entertainment systems, dozens of USB ports for all the devices they bring, and of course, unlimited hi-speed internet.
If the luxuries aren’t provided as standard, guests will pay back in the reviews they leave, and since the reviews have become the lifeblood of the vacation rental world, they had better be 5*
5. Furnishing can be done on a budget
Similar to amenities, furniture and furnishings should show attention to detail, modern design and contemporary décor.
Once again, back in the old days, vacation rentals were often furnished and equipped with hand-me-downs and ‘antiques’, meaning grandma’s old mattress and crocheted throws.
As I write this I am staying in a vacation rental that has beds and mattresses that have seen better days. After several poor nights of sleep, I’m grumpy and tired. There will be no review – no five star testimonial from me. Instead, I will write to the owner and explain why I will not be leaving one, and ask that they consider future guests and supply some decent mattresses.
All amenities should be up –to-date, fresh, clean and comfortable. An owner cannot get away with sub-par furnitures and furnishings any more.
Always keep at the front of mind the fact that as soon as money changes hands for accommodation, the owner of the property has become a provider to the travel industry and should accept the responsibility that comes with that.