How To Start A Vacation Rental Business
A Holiday rental, also known as a Vacation Rental is a situation whereby private property is given out to travelers on a short-term basis for a rental fee. It is similar to hiring a room or more in a hotel and at the same time different from hotels because vacation rentals provide more facilities, privacy, and can offer more access to the local culture and tradition. A holiday rental is more like your own apartment because you enjoy every facility in the house such as the kitchen, garden, and privacy (only you and possibly your family or others without outside interference).
Vacation rentals came into the limelight only recently but the growth has been rapid to the extent that a lot of interest has been attracted to the business. The media at the time made us believe that it is a business anybody can do. What the media didn’t add was that anybody who is an entrepreneur, dedicated, and applies due diligence will make a success out of the vacation rental business.
So prepare your mind for a great task ahead, if you are willing and ready to take the bull by the horn and launch for yourself a vacation rental business. The truth though, is that it is a profitable business and you are encouraged to pitch your tent on the business.
Venturing into the vacation rental business for the first time is a daunting task but we are going to make life less difficult for you with the elaborate details we are going to show you to get started.
With any new business venture, there’s lots of work that needs to be done before you can stand on a sound footing. It’s an exciting business, with great opportunity to meet new people from all walks of life, particularly from foreign countries; experience new things and in the process earn a living. Negotiating and acquiring new properties, refurbishing them, and bringing them to a standard needed before renting them out is no small feat. It is likely to take your time to go through this piece, but it is worth reading through to avoid doing the wrong thing. Whatever is your level of experience in the vacation rental business, make sure you go through this guide, it is the first step to your success.
It is important also to note the good side of owning a vacation rental business and the not-so-good side of it. So at this stage, these are some of the benefits derived from this type of business:
- As an entrepreneur, you will be able to hire out decent lodging apartments to different classes of people within the same year.
- The wear and tear of vacation rentals are slower than long-term rentals with the result that maintenance costs in terms of time and money are also lower.
- With a holiday rental, you earn a regular income and during the peak period, you earn more than average revenue with back to back reservations. The extra revenue is always substantial and it is one of the reasons why managing a vacation rental outfit is a worthwhile venture.
- There is also the tax advantage of allowing you more tax breaks and flexibility in managing your taxes than the long-term rentals can offer.
With the above benefits, it becomes apparent to you that you are investing in profitable business. But on the other hand, the dark side of owning a vacation rental business can’t be overlooked. They include the following:
- It is not certain that the business is going to receive rental income during a particular period even if due diligence has been put in place.
- Regular maintenance and upgrades are necessary to keep the property in good shape, even when travelers do not use it frequently as it should be.
- The management tasks of the property can be overwhelming when no assistant has been employed.
- There is stiff competition in the vacation rental business and to remain competitive, you have to be more creative in your marketing and sales and be dedicated to providing excellent customer service.
- You may be having trouble makers as guests sometimes, and they are likely to cause you sleepless nights because of their unruly behavior and insatiable demands. You’ll get a few of them and each time they come, you will regret ever getting into the business.
Whichever way you decide to go, it is vital to realize that it will never be a bad choice to go into the vacation rental business. But note that you have to be smart to excel in this business, so be ready to display your mettle.
How To Start A Vacation Rental Business
- Create a business plan.
- Services, what will you offer?
- Choose your market segment
- Which type of property for a vacation rental?
- Location
- Managing properties on behalf of property owners
- Conclusion
This era the growth anticipated by the users of vacation rentals should be over 793 million people. It is a monumental growth and has been driven by apps and websites that simplified the listing and renting of short-term rentals of rooms, apartments, or holiday homes owned privately. With the sudden boom in this sector, a lot of players have been attracted to pitch a tent in a lucrative business.
Do you have a property that you wish to use for vacation rentals? One vital step you should take to direct your thoughts and minds towards realizing your goals is to prepare a vacation rental property business plan and follow it thoroughly.
It is no longer business as usual where property owners list their property on frequently used websites and wait for tourists to start booking for accommodation. For your business to be viable, you must take some guided steps prepared for such business – a good business plan is the key..
The simple reasons why you need a Vacation Rental Business Plan to include the following:
- What is a business plan: A business plan will identify your goals, identify your strengths and weaknesses, define your overall strategy, help you not to omit any important thing necessary for the success of your business, identify potential risks, and make it easier to secure financing from investors and lenders.
- Industry overview and strategies:
- Where you want your vacation rental to be in the next six months to one year.
- The total size of the vacation rental market
- Current market behaviour and future expectations
- Your current and future strategies for getting bookings
- The technology that is necessary to stand and grow your business and its associated costs.
- The tools you need to promote your business
- The marketing strategies required and the management tools are necessary to drive the business forward.
- Customer Analysis:The number of your bookings determines the success of your vacation rental business so you must be able to identify your potential customers and figure out how you will successfully target them. Secondly, you should understand your potential customers’ motivation to choose a particular vacation rental over another.
- Competitor Analysis: To execute programs that will address the needs of your customers, you must understand who the competitors are and why they succeed. You should address the following in your plan:
- Who are your direct competitors and what strategies do they use?
- What they currently charge and how they do the calculation.
- What amenities they provide in their vacation rentals.
- Operations plan: This outlines how you are going to manage the business in terms of the day to day activities. It will probably include the following:
- Some of the administration duties
- The hiring of employees and at what stage does the hiring starts.
- Crafting catchy name for the vacation rental and registering it.
- Opening a business account.
- Maintaining inventory at the lowest cost and still keep the customers satisfied.
- Managing guest service in terms of customer care and resolving complaints.
- Up-keep of the vacation rentals
- Maintaining financial records, filing tax returns, procuring insurance, licenses and business permits
- Your choice of the type of vacation rental you want to operate – to own a property outright, lease it, or just manage a vacation rental for other property owners.
- If you want to own a property – a single room, bungalow, or multiple properties.
- Where is the property to be located, the seaside, city centers, or in the countryside?
- .Financial plan and revenue management: In this type of business, investment is always upfront and so plans must be in place on how to settle bills. The cost of the property must be determined and arrangements made on how to pay for them such as securing funding for the property. Other incomes and expenditures must also be projected.
You must also keep records of all money received and expenses made in the course of running the business. The following should form part of the revenue management plan.
– Projected monthly income and expenses
– Employee costs
– Utility bills
Payment of taxes and licenses, renewals, and other recurrent expenses.
To rent property to travelers, you must own the unit or buy to rent or lease to rent. Each of the three options has its ups and downs, you must choose from the three options whichever that suits your plan. However, the choice you make may be influenced by the following factors:
Ability to purchase the property outright
How much knowledge and experience you have to manage a vacation rental.
Your intention to own property now and in the future
Services – What will you offer?
Buy to rent- this strategy puts the property in your hands as the owner. What you need to do is to find a good location that will draw a continuous flow of guests. It also means that you evaluate prices to ensure that you don’t get unfairly treated when receiving quotes for the property. Typically this is not a viable option unless you intend to own the property eventually.
Lease to rent – this strategy puts the property in your possession and gives you the right to manage it without letting you own it. What it boils down to is that you can rent it out for a fee but you must regularly make installment payment until the last payment, when you become the owner of the property. If you don’t intend to own the property, this is where you should be.
This strategy will reduce your investment and you will pay more attention to your monthly profits. .The terms of your lease will be determined by your resolve to sublet the property.
Managing properties on behalf of owners
If the initial funding is a problem, it makes economic sense to adopt this option. But you must be conversant with the operations of a vacation rental business to be able to convince property owners to trust you with their keys and regular income streams. Since vacation rental is largely about managing the vacation rental services we shall concentrate the greater part of this article on it. So the question is which level of service are you going to provide?
Choose your market segment
Your market segments should consist of people who have similar needs and desires and whose needs can be met by similar offerings. The available market segments can compose of the following:
- Families- comprising parents and children
- Couples – comprising of two people in courtship.
- Lone travelers – comprising of those who singly want to have a quiet time.
- Large groups or organizations – comprising of a group of people having similar needs and have come for the same purpose
- Business travelers – comprising of business people who have come for vacation.
Which type of property for a vacation rental?
There are varieties of houses that can be available for vacation rentals. These different houses serve different classes of people (family, couple, business people, etc.) and it is up to you to decide which customer group you want to serve. The properties may include the following:
- Small house – this may comprise of a bungalow or a storey building suitable for a family.
- Large house – this may comprise of many stories suitable for groups of people
- Apartment – this may suit a couple
- Private room – this may suit single person business travellers.
- Multiple properties – this may be suitable for a large group of people.
Location
Location for a vacation rental is crucial to the business if you want to see the light at the end of the tunnel. Therefore proper research must be conducted before deciding on the particular location that will provide a regular stream of income to the business. Consequently, the following factors should be considered before you make your choice of a suitable location for your vacation rental business.
- Demand:Choose a location with a flourishing tourist scene since it is likely to draw a lot of travelers. Here we are talking about the seaside, important monuments, historical places, religious shrines, etc. Ensure you are investing in these places, even though the price for the property may be high but it worth’s it in the long run.
- Seasonality: If you want a business that doesn’t keep you tied up all the year round because you are keeping other businesses, you can choose distance locations that attract travelers at certain seasons of the year. But if on the other hand, you want to set up a venture that provides you with regular income all year round no matter how small, you may have to choose an urban location or an environmentally friendly location that attracts visitors without season.
- Competition: Look at competitive activities and find out the type of vacation rentals in the area you want to operate and counter them with unique services. In other words, you are choosing a niche that are not already served in the area and provide for them what other vacation rentals entrepreneurs cannot provide for them. For instance, you can offer vacation rentals for the nudist group, friends of the earth group, families, etc.
Managing properties on behalf of property owners
There is a variety of services to be rendered in a vacation rental but the level of services to be offered depends on the nature of property used in the vacation rental. The category of services can comprise of the following:
If you decide not to own and manage vacation rentals, instead of managing it on behalf of their owners, the following are the services you are expected to sign in a contract of service.
The role you can play as a manager of the property varies and it is up to you to decide on the level of duty you want to undertake. You may undertake full-service management of the property or limit yourself to a few of the services you want to provide. But once you start taking on more travellers, you will start hiring employees for specific duties.
However, you may decide which duties you can handle; let’s run down the available services that can be handled by other VRM companies.
- Property Maintenance
Property maintenance should be a regular feature of any vacation rental. The maintenance can be done on regular basis and/or on-call maintenance. Some companies in this business prefer to outsource these maintenance services such as plumbing, electrical works, landscaping, etc. But if you decide to maintain in-house employees, you must make sure they are trained and can respond to demand.
- Housekeeping
Housekeeping is crucial when it comes to retaining customers. Whichever way you want to keep the properties clean, either by employing people on short notice or keeping them on regular basis, they must be smart enough for the job.
Don’t fail to give them specific instructions on what their duties are concerning punctuality. Though the cost of having your crews may be high, their dedication to duty is likely to be guaranteed.
- Gatekeeper Service
This is another role that is crucial to the running of a vacation rental since the gatekeeper is the first person that meets the guests. The person in this role must be responsible and well trained. So you have a friendly person who also has a sense of humor to be able to make the guests settled down quickly.
Some VRM outfits may decide to offer pick-up and drop-off services for guests coming through train stations or airports, but this is not going to pose any problem except that it is an additional cost.
- Property Augmentations
Sometimes it is necessary to enhance the property by adding installation of high-tech gadgets such as electronic locks, security systems, Wi-Fi routers, etc.. You have the option to procure these gadgets and get qualified technicians to install them or offer the job to companies that produce them.
- Rental Insurance
You might decide to procure insurance covers for the vacation rentals or outsource it to others. The job will require the services of an attorney who you will use to do a proper job if you are undertaking the job yourself. The insurance contract may be scrutinized by your guests, so make sure every relevant detail is included.
- Marketing
In virtually all the cases, you will be required to provide marketing services so that there will be a regular flow of bookings for the vacation rental. If you provide these services, your earnings will likely be productivity based, meaning that your earnings will be based on the level of bookings received.
Some of the marketing services you are likely to provide include the following:
- Online and off-line listing services on the directory (creation, editing, maintenance)
- Photographing the properties for advertisement purposes
- Booking management – making sure adequate bookings are received regularly.
- Website development cum directing traffic to the vacation rental website
- Listing / site optimization
- Brand creation and management
- Promotional campaign
- Social media advertising
If you have a single room or house available for rent, you can handle it alone, but if you have multiple properties, it is not possible to handle all the operations of the vacation rental alone. You will have to outsource some of the work to be done like housekeeping and fixing electrical faults. Or engage part-time or full-time staff who will carry out such tasks. The following areas of duty you should consider hiring assistants:
- The management of bookings & calendars
- The management of landscaping cum care of the property
- Property maintenance & upkeep
- The management of housekeeping & laundry services
- Accounting entries & filing of tax returns
- Handling of complaints and settling disputes
- Advertising and other promotional activities
Outsourcing or hiring employees for the above list of duties doesn’t mean that you are not going to handle some of the tasks, but whatever may be the case, you should ensure that important duties are performed as and when due to avoid customers are not dissatisfied and due professionalism is shown at all times.
Conclusion:
Competition for vacation rental has become intense recently with the result that there are over one million listings on HomeAway. Travelers can now be choosy than ever. Eventually, when this is translated to actual bookings, property owners who fail to invest in marketing will surely pay the price with fewer inquiries and fewer bookings.
Successful let owners don’t make costly mistakes of making minimal investments in maintenance and marketing but channel efforts and resources where they ought to be. Just be sure you search for new ways to attract new customers, and things will fall in place. Good luck!
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