If you're getting started in real estate investing, you might be thinking about renting out vacation properties. In many areas, it's a great way to make money from your investment. People are often willing to pay more rent for a vacation getaway than a typical residence, and the fact that you can rent it out a week at a time makes it very attractive.
However, taking care of your rental properties — especially in a remote or exotic location — can be a huge challenge. That's why professional vacation rental management can be a good idea.
Of course, it costs money. How do you make sure that the fees are worth the services you're getting? Take a look at these tips.
Understand Vacation Rental Management
What is it that you're paying for when you hire a vacation rental management company? Many of them simply say, “We do it all,” but not all services are equal.
The basics of what you're paying for are marketing, coordination of booking, maintenance, and cleaning. This can save you an enormous amount of time and make your vacation rental investment much more passive in nature.
Trying to take care of promotion, fielding questions, vetting guests, and juggling your cleaning and maintenance services can be extremely time-consuming. Hiring a management firm can save you a lot of time if you find the right company for the right price.
How Much Do Rental Management Companies Charge?
How much can you expect to pay your management company? It will vary widely, and there are two models available.
Commission vs. Guarantee
Management companies generally charge a percentage of the booking prices your customers pay. The amount you see charged can vary enormously, from as low as 10% to as much as 50%. As you can imagine, it's better to pay less as long as you're getting the services you need.
Sometimes, you can find a company that uses a guarantee model. This is where the property management company and property owner agree on a monthly income for the owner. The management company pays that each month, regardless of occupancy.
If the company can improve occupancy and rates, they keep the difference. If not, the owner gets a guaranteed income anyway. The owner may make less than the commission model, but the risk of the investment is transferred to the management company.
Some companies offer both options, allowing you to choose which is best for you.
Average Commission Rates
As we mentioned, you can pay anywhere from 10%-50% in commission fees. The average is 28%, and vary partly based on the location of the rental and partly on the services offered.
Urban rentals in large cities tend to charge a lower commission, while mountain rentals are the highest. Mountain homes, which draw in skiers and sightseers, are more spread out and tend to require more upkeep to stay in good shape.
If you own and rent out a condo in a building, you may be offered in-house management from the condo building. The fees for this will be extremely high, and you can almost always get a better deal with an external management company.
A La Carte Pricing
In order to be (or appear) more competitive, some management companies offer a la carte pricing. The idea is that an owner can choose the exact services they want and save money. However, this is sometimes a way to add a lot of extra fees to what appears to be an affordable rate.
You can sometimes get booking-only assistance for 10–15% fees, but that doesn't include any cleaning or maintenance. If you already have those services covered, however, it can be a great way to get the booking off your plate.
You might also see what you think is a competitive price, but then realize there are additional fees for processing credit cards, stocking cleaning supplies, having repair services, linens, deep cleaning, and other services.
Be sure you get a complete list of all services and their costs before you commit to a vacation rental management company.
Be Sure to Check Reputation Before You Choose a Company
Unfortunately, the price alone isn't much of an indicator of what you'll get. The lowest advertised price may be the most expensive once fees are added. Or, you may find an affordable service only to discover they don't follow through with their commitment.
Be sure you check the reputation of the company carefully. Look at online reviews but also talk to current and former clients. Don't rely on the company's reference list alone — ask around and find out who has worked with them and what they thought.
Most of all, be sure you have the help you need when you buy your investment property. It's not always easy to figure out on your own what properties will rent the best. An experienced realtor like a Clever Partner Agent can make all the difference in getting the right property at the right price.
Whether you have one property or multiple investments, let us help you buy the next one. Simply fill out our online form and we'll set up a no-obligation consultation with an experienced agent in your area.