Every year, millions of people pack their suitcases to catch a break from their routine. These vacationers need a place to stay, and hotels aren’t always the most suitable accommodation.
Vacation rentals are ideal for travelers looking for a cheaper alternative, more room, and amenities like a functional kitchen.
However, running a successful vacation rental business is far from a holiday. It would be in your best interest to hire a company to help, considering it requires thorough planning. That’s why we’ve put together this quick guide on how to get started in vacation rental management.
What is a Vacation Rental Business?
It’s winter break, so you and the family decide to head to the mountains for a white Christmas. Or perhaps you prefer the warmer climate on the coast? Rather than opting for an expensive hotel, you book a private house with more room and amenities.
A vacation rental business is leasing out a house, apartment, condo, or even a resort-like complex, to a tenant for a specific period. Airbnb, TripAdvisor, and Expedia are great examples of vacation rental sites that connect hosts and travelers. Although this arrangement falls under short-term rentals, it is a highly profitable business if you know the right questions to ask. Here are some things to consider before buying your first vacation rental property.
Factors to Consider before Starting a Vacation Rental Business
Location is the bedrock of success in any real estate business, especially vacation rentals. After all, your target audience is the constant flow of travelers looking for suitable lodging. Thus, if you decide to set up shop in an area without much tourist traffic, you stand to lose money. Likewise, you stand to make a lot more money closer to a major attraction. To improve your marketing strategy, add value to your tenants’ experience by investing in tourists hotspots.
If you’re looking to keep your doors open all year, you need to invest in an attractive year-round location. For example, ski resorts attract customers to go mountain climbing and bike riding without the snow during the offseason. A great marketing strategy ensures that your site adds value to your prospects.
Cost of Starting
Another factor to consider is to weigh the cost of starting the business. If you’re looking to invest in a tourist hotspot, you should know that houses in such areas don’t come cheap. After all, they offer tenants more access to the destination spots they traveled to see. Thus, you have to pull up your financial sheet and figure out if you can afford it.
Remember that you don’t have to pay cash upfront and can split payments with a loan. However, apart from paying off the interest rate, you also have to account for other expenses. Examples include utilities, repairs, and insurance.
Nevertheless, you also have to weigh the toll a new venture would take on your current real estate business if you have any. Experts usually recommend that you focus on a niche before diversifying your portfolio. Thus, you might have to second-guess your decision if it means making your other properties suffer.
Next, you need to work out how you plan to finance your latest investment. Property is always a capital-intensive purchase, and many people rarely have that kind of cash to burn. Making a downpayment and paying off your house in ten years might even be a better idea in the long run.
Either way, you need to weigh your options and decide which is the most profitable for you. Most people opt for a conventional bank loan, but it is not necessarily the best solution. For example, if you have a bad credit score, it will be harder to get approval. Thus, you might turn to a private lender with a higher interest rate. Other payment options you could use include tapping into your home equity or seller financing.
The last thing any vacationer wants to do is consult an interior decorator about renting furniture for three days. After all, vacation rentals are short-term arrangements, which would be impractical. Thus, as a landlord, you have to consider the cost of furnishing your apartment.
Hence, it would be in your best interest not to compromise on the quality of the furniture. Investing in durable pieces and appliances will save you the cost of repairs or replacement in the long run. It also looks better and can score you some more points with prospective tenants. In exchange, you can charge a higher security deposit to cover the cost of accidental damage.
Additional services are extra perks that could make your and your tenants’ lives easier. For instance, even if you don’t provide room service, tenants still expect the apartment to be clean when they arrive. Rather than trying to straighten the place up yourself, why not outsource to a cleaning company for a more professional job.
You could even take it further by establishing relationships with other businesses to give your tenants a discount. For example, cleaning, laundry, tourists, and even food delivery services might agree to provide your renters with a discount for more customers. Consequently, you could attract more people knowing they get to save money on certain services.
If you want to fill up your rentals quickly, you have to consider what marketing strategy you’re going to use. What’s the point of getting everything else right if you don’t put out the word? At this stage, you should put up listings on popular vacation rental sites. Social media can be a great place to attract tenants if you use the right hashtags. You could also check out the pages of tourist attractions and reply to people looking for accommodation in the comment section. The traditional approach to this would be to leave flyers at these destinations.
Although, you can always save yourself some of the hassles by hiring a property management company to take care of the leasing.
Vacation rentals are a home away from home for tenants. Although it can be a lucrative investment, it can also be a money pit if you don’t know what you’re doing. Thus, we hope you found this guide on how to get started in the vacation rental business useful.
Before diving into the pool, you have to consider the crucial factors, like location, starting cost, and financing. If you need more guidance, contact a professional property management company now.