How To Make Money With Vacation Rentals (FREE Tutorial)

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How To Make Money With Vacation Rentals (FREE Tutorial)
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Introduction



I first came across this real estate strategy from a wealthy and very successful couple who are great friends of mine. I have known them for a long time and was aware that they had multiple businesses / several streams of income – but I was not aware of this one until recently…

Depending on location, a property may be well suited to vacation rental – which offers a tremendous opportunity to the owner, because vacation rental rates can often be much higher than the “standard” amount that the property could be rented out for if it were a long term lease. Homeowners are able to charge these prices because vacation rentals are typically charged per week or even per night, as opposed to the monthly rates of “ordinary” rentals. Their “per night” rates are still “cheaper than a hotel”, which is often the top selling point to the holidaymaker. Many holidaymakers also like the homely atmosphere, privacy and personal touches of being in a nice home rather than a hotel.

Another of the benefits for property owners of these short-term holiday rentals for owners, is that there is less potential for some of the headaches associated with long term tenants.

In the past, there was a big obstacle to vacation rentals; namely that an owner would find it difficult to manage and organize short-term rentals “by remote control”. However, this obstacle has ostensibly been overcome by the internet, which has created the opportunity for homeowners and renters to find each other, book stays and manage listings through a number of online marketplaces. Top examples include:

www.airbnb.com (perhaps the biggest – reported to have around 650,000 hosts across the globe)
www.homeaway.com (which claims 325,000 properties on their books)
www.tripadvisor.com (275,000)
www.vrbo.org (190,000)– a web site which allows owners to list their properties and renters to book online.
www.flipkey.com (160,000 – owned by TripAdvisor).
www.cyberrentals.com (170,000)
www.vacationrentals.com, (35,000)
www.rentini.com

To what extent these sites “cross over” and contain the same properties I do not know, but this is a business that has clearly come of age.



My friends use www.vrbo.org and claim that their system is working beautifully for them; they are delighted with the “turnkey” way in which their property bookings are organized. They live in the USA and own two properties in the south of France – which is very popular indeed with tourists. One of the properties is rented through VRBO and provides “more than enough income” to pay for the mortgage payments and upkeep on both properties! Rather than renting out both, they have opted to keep one as a “free” holiday home that they visit four times per year. They utilize a local property management company in Europe who provide the liason with the tenants – giving them the keys, cleaning and performing maintenance tasks. The system is virtually hands free and requires little in the way of work from the owners except perhaps a friendly few minutes interacting with the holidaymakers.

Considerations, Details And Costs

The vacation rental web sites typically charge a commission (i.e. rentini charges 1%, AirBnB charges 3%) or a subscription fee (i.e. vrbo.com which charges between $349 and $999 per year, depending on the level of “exposure” on their web site). Compare these prices, together with property management expenses, with the 15-20% charged by a rental agency.

Another of the beauties of the online marketplace for the property owner is that the opportunity to perform relevant market research is right there on the web site – as one can see prices plus a calendar of how “booked up” the properties are. Together with a few other information sources, you should be able to access the information you need in order to prepare a profit / loss estimate or a feasibility study for an investor.

One important thing to observe is that rentals are typically highly seasonal – with prices being higher in the summer and lower in the off-season. Also, one can see from the schedules that many of the properties are booked solidly throughout the summer (May through September), perhaps for an additional week or two at times of local festivity (for example “spring break” in the USA), and for a couple of weeks at Christmas, and are very often empty during the off-season (unless the property is close to skiing or other winter sports venues, which will give an additional “season”). So you will need to factor this into your profitability calculations. At a glance one can see the “market price” that properties are being rented for at the various times of year – and so one can gain an idea of the typical gross revenue that can be gained from the system.

Properties rented through Airbnb and the rest are subject to a review system – with guests star-rating the property and giving a write-up according to the quality of their experience. It can easily be seen that getting glowing reviews is quintessential to success.

It is also easy to see what the things are that matter most to the holidaymakers.

One needs to make sure that the logistics are handled smoothly, that the place is in very good condition, clean, charming and so on. This is important: People pin a lot of emotion on their “holiday hopes” – meaning that if they have a good experience, they will tend to shower you with praise and gratitude, and if they have a bad experience, their disappointment will be greater also.



There are several specific points of detail that should be attended to in order to ensure that the vacation rental experience is welcoming, safe and comfortable for the tenants. Fortunately, very many if not all of these details can be observed by reading existing reviews on vrbo.org and it is worth reading a number of these reviews in order to create a checklist of the criteria which renters expect, seek and appreciate.

In general, the property will need to be kept in tip-top condition: Fully functional, and free from stains, mold and other issues. This may mean redecorating and fixing minor “party damage” more often than such work is done on your own home. Regular cleaning and routine tasks can be handled by the property management company.

Every so often there will of course be significant “unforeseen” expenses – perhaps a new carpet, stove, fridge or washing machine – and these will need to be factored in. I would suggest keeping appliances on the slightly “simple but robust” side. The more indestructible they are, the better!

If the house has a swimming pool (typically a good selling point) it will need to be kept clean and this may be an additional maintenance cost unless covered by the property management agency. There will also be additional small expenses such as replacing bedclothes, linens and draperies and perhaps small appliances such as toasters or coffee makers that break, or things like cups that invariably ‘disappear’. Others have recommended factoring an additional few hundred dollars per year towards “minor” replacements and repairs.

Empty periods during the off-season are the time to schedule routine maintenance, redecoration and repairs.

I would recommend spending a little extra on details: Treat your guests as friends; put a little extra attention into helping them have a magical vacation. A few simple touches such as a welcome note addressed in person, fresh flowers, a list of “local tips” on arrival and a personal phone number go a long way towards getting top reviews, which are of great value in the long run.

On the financial side of things – be sure to acquaint yourself with all legal and financial requirements for property owners in the region. In certain regions you may need a license for short term lets and you may need to pay additional taxes so acquaint yourself with the particulars and how these will apply to your vacation rental business. You should seek professional consultation on this.

A final detail not to forget: insurance. An insurance provider will be happy to make recommendations and it is advisable to shop around. One should carry an appropriate “umbrella” insurance policy for general liability etc. but there may be specific policies required for renting out your home.

Subletting Arbitrage

Here is a method of making money with property that doesn’t require any form of ownership!
The basic concept is simple – you find a room or property for rent which permits subletting and then sub-let it on a nightly basis for more money than you are paying for it on a monthly basis.
I have a friend who is currently renting several properties simultaneously and running subletting arbitrage. I realized it must be working – she is currently spending several months traveling around the world; her exotic lifestyle entirely funded by her subletting arbitrage! How’s that for style? Suitably impressed (and hoping to glean some secrets for you, dear reader) I contacted her, hoping to “pick her brains” for some anecdotes and tips for this chapter.
To my surprise she refused to give away any secrets at all and declined my request! A good indicator if ever there was one that this is a potential gold mine! Here is the exact email I received back:
“Greetings from Byron Bay! [Australia]
Subletting Arbitrage has potential for great success, and in my case, is a win-win. However, I generally like to keep it under-wraps, as I’ve finally found an edgy niche that I absolutely love and hope to keep without too much competition. Wish you could be here for the eclipse! xoxox”

First things first: – you will need some skills and knowledge in the arena of property rentals. This is not something to go into with no experience or knowledge of tenancy agreements.

There are some risks involved in this method – notably that it needs landlord approval. Make sure that the rental agreement does not prohibit you from subletting, otherwise you would be breaking your own contract with your landlord. Next, be sure that your own contract with your tenants protects you from any damage or other problems they might cause! There is plenty of potential here – as there are millions of properties available for rent at any given time.
Please also see the links at the end of this chapter for more important tips on legality and safety.

Looks Matter With Vacation Rentals

As with other arbitrage methods, one of the keys is to find rentals that are underpriced – bearing in mind once again that the money is made on the buy, not the sell. One good tip for success – add value. Find rental property that is perhaps in need of a little love (nothing too complex) and improve it in some way. Many places have issues that are “cheap fixes” – perhaps not having and a really good “deep clean” for a while. Others are simply tastelessly or poorly furnished. Having visited my aforementioned friend at one of her apartments in the past, I discovered one of her strategies: She is a “natural” at interior design. She can take a normal looking room, make the clutter disappear completely, and with what seems to be a few lights, fabrics and well chosen furnishings, give it a touch of style that immediately raises the value.
Start a “swipe file” of good looking interiors, and research for tips on how to improve interiors quickly, simply and easily. This can have a dramatic effect on the price you can rent a place for if done well. You will also want to get some great photos as these make a real difference to the success of a listing. People love the “wow” factor when considering vacations.
Bonus points if you already have a storage unit full of nice furniture – you could rent a place unfurnished, kit it out in style, save money on the storage unit and sublet the property as a furnished rental for more money.
Another possibility for those with gardening or landscaping experience – find somewhere where the exterior (garden etc) is in need of some love. A garden makeover could be inexpensive and instantly add value to a rental price. Plus, your landlord will love you!

Using Subletting Arbitrage To Fund A Holiday Home / Second Home Abroad

Another example: I have a friend in Bali, Indonesia who is using AirBnB.com to sublet her house to tourists at a considerable markup over the rent she pays. In Bali, properties rented through the normal avenues are typically rented for an entire year (paid in advance) – and the differences between these prices and the holiday rental prices are considerable. There is also the opportunity to hire staff locally and offer catering and other services to the guests. If you like to travel to Bali, for example, there is opportunity to rent a house for a year and sublet it during the time that you are not there for a higher price (be sure that it is ok in your rental agreement to do so!)

Be aware that Bali has some unusual local customs (such as the house blessing ceremony) and it is advisable to respect and participate in the culture and customs in order not to be treated as an “outsider”.

FURTHER READING:

http://www.streetdirectory.com/travel_guide/76794/property_tips/3_tips_for_making_money_from_vacation_rentals.html

http://www.streetdirectory.com/travel_guide/488/business_and_finance/is_vacation_rental_ownership_your_business_opportunity.html

http://www.smartmoney.com/spend/travel/10-things-vacationrental-sites-wont-say-1323712196480/

http://forum.freeadvice.com/landlord-tenant-issues-42/sublet-tenant-re-sublet-my-apartment-without-my-knowledge-made-profit-525380.html

http://answers.yahoo.com/question/index?qid=20100625120657AAQoh0v

http://www.nytimes.com/2000/07/23/realestate/subletting-from-stopgap-to-cash-cow.html?pagewanted=all&src=pm

http://liveweb.archive.org/http://learn.lawline.com/video/are-there-any-clauses-concerning-profit-on-subletting-or-assignment-part-ii

http://ask.metafilter.com/92278/Is-it-ethical-to-make-money-from-subleasing-an-apartment

http://www.gaebler.com/Sub-Leasing-Your-Space.htm

http://www.moneysmartsblog.com/real-estate-arbitrage/

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How To Make Money With Vacation Rentals (FREE Tutorial)
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