Owning Vacation Rental Property: Expert Tips
11/28/2017 Kristin Demshki
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Do you have childhood lake house memories or dreams of beachside retirement? Not sure how you can afford to purchase a vacation home of your own? Sharing your second home with others as a vacation rental is a path that can lead to great investment returns and maybe even a few new friends. We talked to vacation property gurus to get their top tips and advice for rental owner rookies.
Investing in Vacation Rental Property
With platforms like Airbnb and Homeaway being used by more and more people each day, investing in vacation rental property has become a goal for many, whether they plan to eventually use it themselves, or simply want to diversify their real estate investment portfolio.
The first step in buying a vacation rental property is to pick the right place. Andrew McConnell writes about vacation rentals and the sharing economy, and is the Co-Founder and CEO of Rented.com, the world's largest marketplace for vacant rental weeks. He advises that vacation home buyers be honest about their goals and use those goals to guide their choices.
The first thing to ask when buying a vacation property is: Is this an investment or a vacation home? If you are really intending it to be a vacation home, many of your design decisions will be based on your own personal tastes, which may not align with what will actually maximize rental income, i.e. guests don't always have the same tastes as you. – Andrew McConnell
If you want [your vacation property] to be as good of an investment as possible, your own desires for the home are secondary to those of the guest. There are tradeoffs with each. In one you get the vacation home of your dreams. In the other, you get outsized returns. It is often difficult to get both.
When shopping for a vacation home with a focus on renting it, Margot Schmorak, co-founder and CEO of Hostfully, advises buyers to do plenty of research.
When buying a vacation rental property, you need to ensure it’s just that: vacation-worthy. You need a great location that is close to tourist attractions like a beach, sightseeing, hiking, etc. It’s [important] to first check out the vacation rental market in your area. You can hop on Airbnb or VRBO to see what’s already listed. – Margot Schmorak
Vacationers are looking for authentic local experiences. Be sure to provide local recommendations and advice to your guests so that they can experience what your home’s area is like.
Not ready to plunk down your investment quite yet? Check out some specific advice and tips on buying rental properties.
Prepping Your Vacation Rental and Welcoming Your Guests
Now that you have selected a great home in an even better location, it’s time to get it ready for guests. All of the options and details can be overwhelming, so where should you focus your efforts? Wendy Purvey has years of traditional real estate expertise, and now works in the luxury vacation home rental industry as the CMO of InvitedHome . She offers these tips for impressing guests when preparing your home to be a vacation rental.
Adding a hot tub or pool could mean dozens more bookings per year, especially in a mountain or beach destination. Updating your kitchen and stocking it with extra goodies like a crock pot, blender, Keurig or stand mixer can really make a difference for guests looking for a home in which to celebrate a birthday or family reunion. – Wendy Purvey
Kid-friendly bonuses like board games or a game console can help make a home more appealing to families, as can a game room with a pool table, foosball and/or ping pong. A variety of bed options will make your home more appealing across different genres of guests—for example, twin beds that can be pushed into a king will apply to families with kids as well as couples.
Tyann Marcink is the co-creator of the VR Mastered Vacation Rental Boot Camp. Having hosted over 10,000 guests in 10 years at her three vacation rental properties in Missouri, she reminds vacation rental owners to pay attention to presentation and personalization.
It’s all in presentation and the details. A well-made bed with crisp linens and towels folded neatly makes a huge impact compared to arriving to a hastily made bed and towels thrown over the towel bar. – Tyann Marcink
Being cognizant of your guests’ reasons for coming to your area and focusing on those details will also make an impactful impression. I regularly host guests coming to the area with their dogs for national dog competitions. The details I take care with include a dog care box with towels to wipe their dog’s feet and poo bags to help keep the yard clean. For the extra impact, I also handwrite a good luck note with a bag of dog treats.
Melissa Levis is the Marketing Director of the Wilburton Inn, which has been run by her family for over 30 years. With many years of hospitality experience behind her, she advises vacation rental owners to strike a balance between professionalism and friendliness when preparing for guests.
It's important to be in open communication with your guest. Check in with them before they arrive and send them info about the house and check in procedures: what to bring, what the house is stocked with, [and whether] should they bring a bathing suit and pool towels. – Melissa Levis
Leave a gift basket with wine, crackers, and cookies. Clean them very well—homes aren't as institutional as hotels, but guests want to feel that it's a professionally cleaned place. It's ideal to remove most of your private photos and knick knacks. Have it be beautiful, serene, and clutter free.
Once guests arrive, it’s very nice to check in on them. Come by and say ‘hi!’ Offer to take their group photo. We have a family bakery so I love dropping by on Saturday morning with a loaf of freshly baked bread. Our guests frequently become repeat customers and it's a pleasure to rent your house and make friends.
Maximizing (and Managing) Rental Home Profits
Decorating is fun and making friends is fabulous but most vacation rental owners also want to make money. In order to maximize your ROI (return on investment), you will need to consider different rates for different seasons and different lengths of stay. When you open your new vacation rental to guests, one of the first decisions you will need to make is whether or not you will require a minimum stay. Wendy Purvey points out that renting your vacation home on a short-term basis (less than one month) has many benefits.
With short-term leasing, owners have the option of using their homes in between guest stays— something that’s impossible when renting monthly or seasonally. There is also generally lower demand for monthly and seasonal rentals; therefore, the price typically needs to be lower. If a ski resort has a week of amazing snow coming up, for example, a short-term rental is able to capitalize on the higher demand and raise the price accordingly. – Wendy Purvey
Having a more dynamic revenue management strategy, like what InvitedHome uses, offers the opportunity to potentially book the home for shorter stays at a higher nightly rate, offering a higher ROI—lower wear and tear relating to the amount of revenue generated.
Now that you have happy guests and numerous bookings, you will need to make sure that you are following local licensing rules, and paying any required taxes or fees correctly. Rob Stephens, finance expert in the rapidly growing short-term lodging space, co-founded Avalara MyLodgeTax, a provider of tax compliance solutions for the vacation rental and travel industries. He has unique advice for new or aspiring vacation rental owners.
“The popularity of short-term rental websites such as VRBO and Airbnb have enabled millions of people to easily participate in the short-term rental market. However, most of these participants have never dealt with occupancy taxes and are unfamiliar with the requirements. There are now millions of individuals faced with managing a class of taxes that were designed for businesses, which is a challenge for our industry.
Operating a vacation rental (renting a single-family home or condo) legally is like operating a mini hotel and running a small business. The rules vary by city, county and state, but generally, the basic requirements for operating a short-term rental are as follows:
- Occupancy taxes: The owner or host is required to collect occupancy taxes (just like a hotel) from the guest. These taxes typically range between 10% to 15%+ and are usually a combination of city, county and state taxes. These taxes are charged to the guest as a percentage of the total amount paid.
- Licensing: Operating a vacation rental or Airbnb often requires you to obtain a business license or rental permit with the city, or other county and state agencies. In the last couple years there has been increased scrutiny on the short-term rental industry and many locales are increasing regulatory and licensing requirements. Obtaining licenses requires completing application forms with the correct agency, and usually payment of a license fee." – Rob Stephens
If you’re considering investment in rental properties, but you aren’t sure if you can handle all of the managerial details yourself, you should look into hiring a property management company.
Fund Your Future with a Vacation Rental
Thanks to the many new tools and resources available, investing in and managing vacation rental property is easier than ever before. If you want to be successful in this growing industry, be sure to do your research, and treat both your property and your guests with care. Owning vacation rental properties can be a path to both financial freedom, and a lot of fun for you and your loved ones.
Ready to turn your dreams of investing in vacation properties into reality? Take the first step toward buying your own rental property and contact a PennyMac Loan Officer today.
The views, information, or opinions expressed in this blog do not necessarily represent those of PennyMac Loan Services, LLC and its employees.