Tips for Renting Out Your Vacation Home
7/1/2024


 
Considering turning your extra space or a second home into a vacation rental? Renting out a vacation home can yield significant financial benefits – if you do it right. Vacation rentals exploded after the pandemic, with U.S. listings increasing 46% from 2020 to 2023. According to short-term rental data provider AirDNA, it's estimated there are now 1.75 million vacation properties across the country.
 

Yet many homeowners hoping for financial gains aren't prepared for the realities of what it takes to run a successful short-term rental today. Owning a vacation home is a business. To be successful, you need certain structures and tools in place, from being able to accept credit cards as payment to paying lodging taxes to getting the home cleaned quickly and completely between guests.

It helps to have realistic expectations. Here are the top things you need to do before renting out a vacation property.

1. Check Local Regulations

The first thing you need to do before turning a property into a vacation rental is look up your local regulations regarding short-term rentals – what many people refer to in shorthand as STRs. "Regulation is the largest challenge short-term rental operators will face," says Bram Gallagher, an economist with AirDNA who is based in Atlanta.

Many cities, New York City included, have changed their laws regarding short-term vacation rentals, banning their use in several instances. Also, if you are in a homeowners association, many prohibit vacation rentals.

2. Run Your Numbers Before Renting

If you don't have any legal issues with renting your home, now determine if renting the property will be worth it. Some markets have a higher demand for vacation properties than others. If you're in a market with low demand and thus low occupancy rates, you may not get much for renting your space.

"I don't think it's a cash grab that people expect it to be," says Shealy Washington, an artist in Knoxville, Tennessee who owns and hosts the Little Mountain A-Frame in Old Fort, North Carolina. For the Washingtons, the cost of owning the home is covered by renting it on Airbnb. However, they aren't making extra money since they use the cabin frequently.

To understand how your property might do as a rental, look at nearby properties on listing websites to see the competition's condition, amenities and nightly rates. Most vacation rental properties see occupancy rates range between 20% to 80% per month and rates will fluctuate between slow and high season.

Once you assess the potential nightly rate you could charge and average occupancy, determine your expenses, which include: 

  • Mortgage cost (if any)
  • Lodging tax (usually 5% of the property price)
  • Insurance (Make sure it covers vacation rentals. This insurance is typically more expensive than traditional homeowners insurance.)
  • Property taxes
  • Property management fees if you're not self-managing
  • Cleaning fees
  • Maintenance
  • Utilities
  • HOA fees (if any)

A regular homeowners policy rarely covers a vacation rental. Ask your agent what type of policy you need for a home that is used for short-term rentals.

Don't forget to register your vacation home or get a business license. Most states, cities and municipalities collect occupancy tax. This is the same tax collected from hotels and the funds are used for tourism promotion, acquisition of tourism-related facilities or operation of tourism-related facilities.

"It's extremely important to integrate into the greater tourism ecosystem by paying local occupancy taxes," Gallagher says. The tax rate can range from 5% to 10%, which you can register for and pay for yourself or have your management company do it.

3. Self Manage or Hire a Property Manager?

Next, decide if you want to self-manage or hire a management company. While some websites provide online marketing tools, access to credit card processing, booking tools and other infrastructure, the individual owner still has to screen renters, handle check-ins and cleanings, and deal with tenant issues as they arise.

According to AirDNA data, 17% of all U.S. vacation rental listings are professionally managed. Those that are professionally managed earn about 30% of the total U.S. vacation rental revenue. "Professionally listed listings are much better at revenue management, setting prices as high as possible and not leaving money on the table," says Gallagher. However, there is a point where management quality drops when they are taking care of too many units.

Choose to self-manage only if you're passionate about hospitality and interested in providing guests with the best possible experience. Despite living four hours away round trip from the vacation rental, Washington chose to self-manage their A-frame because she wanted to be in control of the communication and the care that goes into the property. "Managing a vacation rental takes more time than I think a lot of people expect, but I enjoy self-managing it," she says.

For many homeowners, it can be a timesaver. A full-service management will handle everything from listing the property, responding to inquiries, checking guests in, dealing with questions or requests during the rental, and coordinating cleanings. Every rental management company will have its own fees, but it is common to see rates between 10% to 50% of the rental proceeds.

4. Make Your Property Stand Out

Whether it's proximity to top local attractions, property amenities or simply having an appealing home, you need a way to stand apart from the competition. Bed quality, free and fast Wi-Fi, functional furniture that can accommodate the target number of guests and overall cleanliness are some of the top things that will make your home well-reviewed and booked more often. Additional amenities like a pool, hot tub, pool table or game room can help attract a higher nightly rate or more bookings but aren't always necessary.

Washington says it's important to pick pieces that fit the space but you can easily detach from, knowing they might get damaged. "We've been lucky that we haven't had any bad guests, but vacation rentals get more wear and tear than a normal house," she says.

To make guests feel at home, the place should be free of family or personal photos, clothes and personal items. It also should have backup linens and towels, paper products and basic cleaning products, toiletries and perhaps a well-stocked kitchen.

5. Set Rules and Create a Strong Rental Agreement

Before you list your property, decide what rules you want to set. This can include pets, what type of pets, cleaning fees, the minimum number of days, the maximum number of people, smoking or the number of vehicles. Management companies and online listing platforms often have agreements you can modify. You can also find examples of such short-term rental agreements online.

It's a good idea to consult an attorney to make sure you include the required language for your city or state and have covered all the bases to protect yourself from legal issues.

6. List and Market Your Property

The easiest way to reach lots of tenants is to feature your listing. You should have a well-written description and high-quality photos that make the property stand out. Hire a professional photographer to take high-quality pictures showing the exterior, entrance, interior and general neighborhood.

7. Choose How to Welcome and Communicate with Guests

Once your property is listed, make sure you have a process for communicating with guests before, during and after the stay. There should be clear instructions on the check-in process, possibly with a digital lockbox or physical lockbox on site.

With online tools like Canva, you can create a free digital welcome package with all the important information for guests to review before arriving. You can also leave a printed book in the home or post important information on a chalkboard or whiteboard near the entrance. Things to include in the welcome packet are the Wi-Fi password, access to entertainment services, appliance operating instructions and information on local or community amenities. Restaurant recommendations and menus are also a plus.

8. Decide How to Clean the Property and Handle Tenant Turnover

If your home is popular, you may have one set of guests check out in the morning and a second set arrive that same afternoon. This makes it critical that the cleaning crew shows up on time and does a thorough job.

Cleanliness is one of the biggest complaints in vacation rental reviews and can make your home quickly become less desirable if not cleaned thoroughly. AirDNA analyzed all of Airbnb's U.S. short-term rental listing reviews through 2023. One of the biggest score differentials was cleanliness, Gallagher says.

Make sure the cleaning crew isn't overlooking things like cobwebs or dust that can accumulate in low-traffic areas. All linens should be clean and free of stains and all dishes should be clean and ready to use. It's a good idea to have sufficient linens to swap out towels and sheets with new ones while the dirty ones are being cleaned to speed up the turnover process. Basic things like vacuuming should be done between each stay and major areas like the bathroom, toilet and shower should be thoroughly scrubbed between stays.

Not every property will make sense as a short-term rental property. However, if your home is in a desirable area and you create a well-run operation, the income it generates can certainly help offset the cost of owning it or even generate extra income for you.

 
 
 
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