Your vacation home is your happy place – a getaway from the stresses of everyday life to lay on the beach, spend time with loved ones, or simply enjoy some much needed rest and relaxation.
Whether you just bought your little piece of paradise or have owned it for ten years, you may think about renting your second home for various reasons. Maybe you don’t use it as much as you thought or maybe you would like to offset the cost of ownership with rental income. Whatever the case, the information below will help you decide if renting your vacation residence makes sense, and if so, how to choose the ideal rental alternative to you.
To Rent or Not To Rent?
You may not think of your vacation home as a possible business, but renting it to vacationers involves generating revenues and expenses as with any kind of business.
|Items to consider:||Ideal||Not Ideal|
|I want to generate revenue to offset my cost of ownership||√|
|I want to use my second home for the majority of the summer||X|
|I want to share my amazing vacation home with others||√|
|I am willing to keep my property updated to meet guest expectations||√|
|I don’t want strangers staying in my vacation home||X|
|I plan to sell my vacation rental in the near future||X|
If any of your answers above fall in the “Not Ideal” column, you may not be happy renting your vacation home.
Assuming you make the decision to rent your second home, you must decide how involved you want to be in the rental process. Renting your second home requires effort, time, and dedication to succeed.
There are two primary ways to rent your vacation home:
Ultimately, your choice to hire a Property Manager or Rent By Owner is determined by your desired level of involvement and your availability.
Here is an overview of each option to help familiarize yourself to assist in your decision.
Hiring a Property Manager
A property manager is a professional vacation rental manager who manages more than one property. Property managers alleviate the burden and stress inherent in self managing your property. Hiring a property manager allows you to get maximum enjoyment from your second home and not worry about all of the headaches of self-managing.
Property managers should handle all aspects of renting & maintaining your unit. In exchange for the services provided by a property manager, they typically receive a % commission, typically between 20% – 30% of rental revenue.
The biggest question when selecting a management company is: can the rental manager generate bookings for your property?
Items to consider when selecting a Rental Management Company
– Marketing dollars dedicated specifically to booking your vacation residence
– Understanding of guest preferences for your resort community
– Alignment of your rental goals with those of the management company
– Secondary services like housekeeping, maintenance, front desk availability and more
– Transparency for work orders and maintenance services
– Tactics to generate bookings for your vacation residence
Self-Management (Rent By Owner)
Vacation rental owners sometimes choose to self-manage their property primarily to avoid the cost of paying a management company. Self-managing is ideal for the do-it-yourself types with sufficient time to dedicate to make it successful.
Managing your vacation home is like running any other business, and carries with it the same types of overhead costs, management duties, and legal requirements. When self-managing your rental, you are the management company, the marketer, the front-desk operator, the reservation agent, and the maintenance team.
Often times vacation rental owners underestimate the time required to successfully manage a property. According to a recent report by HomeAway, an average of 8.6 hours a week is required.
Requirements for self-managing your vacation residence
|responding to rental inquiries promptly||marketing the property|
|scheduling housekeeping between stays||managing online listings|
|answering emergency maintenance calls from guests||collecting and remitting local lodging/sales tax|
|processing reservations and collecting payment from guests||creating and executing a marketing plan to maximize bookings|
|handling day-to-day maintenance issues||setting nightly rates|
Assuming that you have the time available to self-manage, the next step is to project the revenue earned for time spent.
While each owner’s situation is unique, it is generally a good idea to start by comparing the projected time required to self-manage versus the cost of hiring a management company. Don’t worry, a cheat sheet is provided to help do your comparison.
For an apples to apples comparison, assume a second home generates $40,000 annually in rental revenue for both self-managed & professionally-managed properties. Note that professional property managers likely have more experience and expertise in generating bookings than an individual vacation rental owner.
|Annual Gross Revenue||$40,000||$40,000|
|Less: Management Fee (25%)||0||(10,000)|
|Less: Marketing Expense||(2,500)||0|
|Net Rental Revenue||$37,500||$30,000|
|Additional Revenue by Self-Managing|
|Hours per week||8.36||0|
|Weeks per year||x 52||0|
|Hours per year||434.72||0|
|Revenue per hour worked||$17.25|
|($7,500 / 434.72 hours)|
One other factor to consider when deciding whether to hire a professional property management company or self-manage is quality of life. You purchased your dream vacation residence for rest and relaxation. If you self-manage, you must be prepared to answer calls from guests at inconvenient times such as during dinner or in the middle of night for emergency calls.