After starting our real estate investing focused on fix and flips, we shifted our focus to rental properties. Fix and flips, while they can generate solid profits, are both time and capital intensive with significant market risk. Conversely, rental properties can provide consistent cash flows and long-term wealth creation.
One of the major keys to success in rental property investing is assembling a quality management team and strategy. With short-term rentals, this is even more critical, as your number of customers/guests increases exponentially (from 1 per unit/year to 50 plus).
When we decided to start investing in short-term rentals, we were overwhelmed by the abundance of property management software and management options. Currently, most traditional long-term property managers (rentals to tenants) do not participate in this landscape, so what works for a 12-month rental, likely will not for a short-term one. We quickly realized the property management options for short-term rentals could be split into two main categories: Outsourcing to a vacation rental manager or self-managed using a property management software. In this post, we will discuss the former.
Outsourcing everything to a vacation rental manager
For 90% of short-term rentals, this will be the best fit. National companies like Vacasa, TurnKey Vacation Rentals, Evolve and Pillow handle the duties from advertising, communications, pricing, maintenance and cleanings. For more local options, Google your city name and then short-term rental management (ie: “Miami short-term rental management”) as regional options tend to be more prevalent given the relative infancy of the sector. The number one downside to this option is cost, as most of these companies (local and national) will charge 15-30% of your revenue for their services. Unless you are managing at least 5 rentals (e.g. beginning to achieve scale), we would suggest this option. This is the main way you are able to not stress over the hands-on responsibilities of the unit without sacrificing revenue. It’s best to ensure that your property manager will place your rental on 5+ websites (Airbnb, Homeaway, Flipkey, Booking.com, among others) in order to maximize bookings and occupancies.
Before we hired a rental manager, we interviewed all the ones we can find, as we wanted to get comfortable with the team that would be managing our property. We spoke to references and even obtained revenue and occupancy projections. Ensure that the company and their cleaning crew can handle same day unit turnovers (guests checking out and in on the same day). We have been surprised at how many people we come across in short-term rentals that leave a 24 hour window after check-outs to prep and turnover their unit for the next guests’ arrival. If you have 50+ unit turnovers/year that translates to blocking the opportunity to earn revenue on almost 15% of the available days.
Tip – Before making a decision, don’t get fixated on the commission percentage. While one company might charge a lower commission, they might offer their cleaning services at twice the price or force a high cost insurance on your guests. While the cleaning fees are typically paid by guests, if you have a lower cleaning fee (say $100 vs $175), you can charge a higher daily rate since guests focus on the total booking cost (daily rate plus taxes plus cleaning fees all add up to money out of their pocket). Additionally, some will force their insurance onto the guests, and while this provides additional peace of mind, it is a huge profit center for the management companies and indirectly reduces your revenue potential.
Unless you are managing a large number of units, we strongly recommend this option. Even for the “do-it yourself” type, the opportunity cost of not having professional cleaning and same-day turnover could more than likely cover the cost of a outsourced management company.
The next blog post will delve into the second management category, Self-Managed using a property management software.
Thanks again for reading. If you have any questions or comments, we’d love to hear from you.