With most of my clients either buying or selling investment cabins, chalets, or condos, I am asked many questions about the rental aspect of these properties. The top two questions are:
What is the difference in using a rental company and renting it out yourself?
What are the average management split and fees with rental companies?
Using Local Rental Companies
Majority of cabin owners are not locals, and depend on local rental companies to market their investment property. A common mistake investors make is not fully educating themselves on how rental programs work. You should invest in rental properties because it is a sound financial decision, no because it sounds like a “get rich quick” scheme. Another problem is not fully researching rental companies, but instead choosing a company simply because a cousin or good friend is using it. This is an excellent way to “throw away money”, instead of completely understanding where every dollar is going.
What to know about your rental company.
How much is the split? Rental companies charge a percentage of gross rental income as a fee for cleaning, maintenance, and marketing, with different percentages providing different services. The most common split is a 60/40 split with 60% to the investor/owner and 40% to the rental company. There are rental companies that offer a 70/30 split, but may charge fees for extra services.
What do the set fees cover? When it comes to rental companies, be aware of what exactly your split covers. Often, outside of the split, you will also be liable for items that need replacing (i.e. lightbulbs, etc.), repairs, and credit card fees. Be sure to ask if you are responsible and if so, exactly what will be charged in these cases. Don’t forget, you will be paying insurance, taxes, and HOA fees (if applicable) as well.
Marketing. One of the main reasons investors use rental companies if for the extensive marketing. But is it true? Be sure to internet search the companies you are considering. How well maintained is their website? Is it easy to use? Are they on other websites as well? How are properties presented on the website? Does each property have its own webpage? Most reservations are booked online, so the presentation of your property to potential guests is vital. Not only should you look at it as a future investor, but also as a potential guest. How easy would it be to book a reservation?
Interviews. After you research cabin rental companies, you will have a lineup of companies you might be interested in renting with. You should call and interview each one. In advance, you should make a list of these specific questions and others you may have.
What are recommended cabin rental companies? Research reviews on each one. Were the guests happy with their stay? Was the staff friendly and accommodating? Click here for local rental companies to get you started.
Renting By Owner
Some investors and owners prefer to save the money and rent it out themselves, but it will take a lot of time and commitment. There are rental websites for owners that help with advertising, but the most popular option is VRBO (Vacation Rentals By Owner). Owners create the property rental listing themselves. You have control over the listing and its bookings. This is similar to the individual property pages on rental websites, with amenities, descriptions, pictures, and reviews. You want to present your cabin to the best it possibly can be for potential guests.
Let’s go over some of the rental company points that were discussed earlier for comparison.
How much is the split? VRBO, among with other rent by owner sites, charge an annual fee instead of a split. VRBO, for example, charges an annual fee of $399*, or an 8%* commission on each booking. You keep all of the gross rental income with the exception of the annual fee or percentage commission.
What do the set fees cover? Most rent by owner websites, no matter which site you use, charges the annual fee or percentage strictly for listing the property to the website. It does not cover cleaning, maintenance, etc. that rental companies do. You will need to have a reputable cleaner (unless cleaning yourself), and you will also need a maintenance person that is available at all hours of the day and night. If a renter does not have hot water, you will need someone at the property as soon as possible, regardless of the time.
Marketing. In addition to rent by owner sites, it’s a good idea to create your own website for the property. This will generate guests on your own. I have seen cabins that only use their own website, without the help of rent by owner sites, that are book constantly due to repeat guests. A nice idea for repeat guests and is to have a “goody basket” of sorts with a magnet, business card, and pen for them to keep your cabin in mind for their next vacation!
Customer Service. Most rental companies have receptionists on hand at all hours of the day to answer calls and emails, with an emergency number for occupying guests in case of situations after hours. It is vital to the success of your rental to respond to potential guests as quickly as possible. If it takes a long period of time to get an answer from you, then that potential guests might have already booked another property with quick responses in the meantime. You will also need to give current guests an emergency number for them to reach you, should a problem arise.
What are recommended vacation rental by owner sites? You will need to research these websites as well. What websites are most commonly used by travelers? What are the fees for each company? Here’s a few popular vacation rentals by owner websites:
*VRBO fees and commission pricing as of October 2017.
Rental Companies vs VRBO
When it comes down to it, which option you choose will depend on what you think is right for you. If you don’t have a lot of spare time to upkeep the rent by owner website, you may not give your property the justice and rental potential it truly deserves. If you have any questions, or are considering purchasing an investment property, please contact me today to discuss your Smoky Mountain real estate needs.