NEW YORK (MainStreet) – As Memorial Day draws near, the summer vacation rental season is becoming an increasingly immediate reality for vacation home owners.
But is it better to play it safe and keep that house to yourself, or make some money off of your idle property by renting it out?
As online vacation rental services have become more sophisticated and the resources available to property owners have grown more vast, there's an argument to be made for opening up your calendar to vacation rentals if you haven't already. If you already have guests who call your vacation house or condo their home for a few weeks during the summer, ski season or autumn leaf-peeping stretches, there are always ways to improve the experience and get more value out of each rental.
Is it safe? Can you really make a vacation rental property pay for itself? Will you need more help managing a vacation rental property than you have on hand? To answer all of these questions and a few others, we called in some of the biggest names in the vacation rental industry to make their pitches. With help from Carl Shepherd, co-founder and chief development officer for HomeAway, and Matt Moretti, senior content and media analyst for TripAdvisor-owned rental service FlipKey, we figured out how vacation home owners should approach the rental process and keep it simple through the summer of 2015 and beyond.
When a property owner is on the fence about making their home a vacation rental property, what advice does HomeAway offer to ease their mind a bit?
Shepherd: First, we’d advise people to assess just how much they want to use the home for their family. An honest assessment of personal use is meaningful input to the decision to create a vacation rental. Then the family should think about how much effort they’re prepared to dedicate to managing the home. While many people choose to manage the rental themselves, others prefer to give that responsibility to a professional manager. Renting your vacation home is an incredibly effective way to offset the cost of ownership and provide a significant revenue stream for the owner.
The average vacation rental owner on HomeAway grosses $28,000 per year in rental income from only 18 weeks rented. There are year-round markets — like Hawaii and Florida in the U.S., and seasonal markets, like northern Michigan. Understanding how many weeks per year you could rent is an important part of making the decision to rent.
For those considering the rental of their vacation home but would like to test the market first, HomeAway offers a commission-based, pay-per-booking option to advertise a vacation home. The owner only pays for the listing when the home books, and if they find themselves renting more and more, we’d recommend they invest in a subscription listing and rent as much as they like.
Moretti: For those wondering if it really is worth the time, money, or commitment – there’s no set contract or time frame. On FlipKey you’re paying “per booking” and not a yearly fee. So you aren’t locked in. Try it out for a few months and see how many bookings you receive and how the stays go. If you don’t like it or feel like it is too much work to put in, then no big deal, you can stop renting. I think many first-time owners will find they really enjoy it.
Are there valid concerns that a property owner should have about damage and theft, and how should an owner shield themselves against rough treatment of their property?
Shepherd: Instances of property damage to a vacation rental are few and far between, but there are options to protect your home against this. We encourage owners to take action to protect their home and you should not assume that your existing insurance policies will cover the act of renting short term. The homeowner should be properly insured for their vacation rental, protecting not only against property damage, but for third-party liability coverage and income disruption coverage, should the home be deemed unable to rent due to damage or disaster. HomeAway, in partnership with CBIZ Insurance Services, offers HomeAway Assure, a vacation rental-specific insurance policy which meets these criteria.
On a smaller scale, HomeAway also offers damage protection, which allows for owners to financially safeguard against minor damage to their home by a renter for up to $5,000 covered per trip (costing $49 to $89 per trip and paid by the traveler). Damage protection can mitigate the need for insurance claims. Some owners require security deposits to cover minor damage such as a broken microwave, small carpet stain, etc.
Moretti: For those worried about property insurance and some of the more common concerns about renting to strangers, the truth is that instances of wrongdoing or destruction by travelers are few and far between. The vast majority of vacation rental stays go extremely smoothly and all parties are satisfied.
Anyone thinking of becoming an active owner should purchase appropriate insurances, and of course protect valuable items by either locking them up or removing them from the property completely. Overall though, we find any reports of theft or damage to be very rare.
Is a property manager always recommended? If not, what are some of the pros and cons a property owner should consider before hiring a manager or management company?
Moretti: Using a property manager is not required, and really up to the owner’s discretion. The pros, of course, are varied and many. Say you live in Massachusetts and your vacation rental is in Florida. It seems using a property management company might be your only option. Even if you don’t live far from your rental, using a property manager helps with cleaning, check-in, check-out, marketing and paperwork. As an owner, using a property manager cuts into your bottom line, but it also keeps you stress free. Those who choose to forgo a property manager will need to put in more effort, but their profits will offset the additional work.
Shepherd: HomeAway heavily supports both sides of the rental business. On our sites, about 60% of listings are rent-by-owner and 40% of listings are rent-by-manager.
Each owner should decide for themselves if they have the time and commitment to run their vacation rental just like a business, emphasizing strong communication with their prospective and current guests and adopting a customer service-like attitude. Most of the owners renting vacation homes have day jobs and do indeed provide the proper attention to their business, but many simply choose not to be involved in the management of their rental. That said, HomeAway does provide nearly every tool an owner needs to operate their business from a mobile device, so tasks such as responding to reservation inquiries and scheduling a cleaning service are all accessible from your pocket.
Property managers are a great resource for owners, and have historically been the backbone of the vacation rental industry. Managers help owners with the marketing and management of a vacation rental, coordinate all arrivals and departures, cleaning, maintenance and tax compliance. A strong consideration when choosing whether to use a property manager is the commission that will be charged for their services. HomeAway encourages owners to consider the use of a property manager and employs a professional referral network, which presents local property managers to owners at their request.
Is vacation rental a recommended means of paying down a mortgage on a vacation property? If so, is there a certain percentage or price point that an owner should shoot for when listing their property?
Shepherd: On average, renting a vacation home is an excellent means to help pay down the mortgage on a property. In fact, more than half (54%) of owners on HomeAway are able to pay down 75% or more of their mortgage from renting. As far as setting rental rates to net this much income, the average weekly rental on HomeAway is only about $1,500 per week, and homes typically rent out 18 weeks per year to meet this mark of success. A vacation rental does not have to be a million-dollar estate to garner strong traveler demand and revenue and in fact, the value proposition of a vacation rental to a traveler is the strongest draw to rent a home.
Moretti: When listing a property, owners should do competitive research on what price points other rentals in their area are listed at. Be competitive with others, but also be fair to yourself. You have total ownership on what you charge, so feel free to experiment! Change up rates based on peak seasons, nightly vs. weekly stays, major events in the area, or if special requests are made.
Depending how much you charge, how often you rent the unit out, or how well you do as an owner, you can pay off your mortgage, help pay for education, have some extra spending cash, buy season tickets or whatever else some extra funds might help you with.
If this is still a property that the owner plans on using for their own vacations, what advice do you recommend for scheduling and peak dates? Is it better to sacrifice your summer holidays for a winter of free skiing?
Moretti: I think this question is up to the owner’s discretion. What are your priorities? If you’re just renting it out for a little help on the mortgage or to cut costs on season tickets to your favorite NBA team, then by all means enjoy the peak times yourself and try to rent around the shoulder season or off-peak. For those who are really looking to pay that mortgage on the property every month, and they want to even turn a significant profit, it is much better to rent out the home (probably with much higher rates) for peak times. Also, if there is a popular event happening (say the Boston Marathon or the Olympics) you can make a lot of money in a short amount of time.
Shepherd: The great thing about vacation rental ownership is the freedom to use the home personally. There are certainly many opinions as to whether one should retain a “peak week” for personal use. Obviously peak seasons are the highest-grossing times for a vacation rental, but they also may correlate with when the owner’s family can travel, so the owner must weigh whether he or she minds missing out on some rental revenue during that trip. Another option, though, is to use the revenue from the vacation rental business to fund a vacation to another fun destination.
How important is establishing a rapport with regular renters? Does repeat business make for an overall better home rental experience?
Shepherd: Repeat renters are common for a vacation rental. HomeAway provides tools to help owners keep in touch with previous renters. But in our opinion, it’s the reviews repeat renters leave that help drive future rentals, so it is often a good idea to give a slight discount or incentive to repeat renters, helping ensure their return. Not only are repeat renters dependable business an owner can rely on, but they will more than likely give the home strong referrals to their friends and family.
Moretti: It is always easier, and cheaper, to retain customers than to find new ones. That’s a general business principle and I do think that applies to vacation rentals as well. If you have a family that loves your property and stays one week per year, that is refreshing and helps you plan out your calendar and profits. If you really work at establishing yourself as a premium vacation rental owner, you’ll start seeing repeat customers, and many friends and family recommendations from past guests as well.
— Written by Jason Notte in Portland, Ore., for MainStreet
To follow the writer on Twitter, go to http://twitter.com/notteham