How To Start a Vacation Rental Business: Complete Guide

TABLE OF CONTENTS

The Basics About Vacation Rentals
How do I set up a vacation rental property? (Step-by-Step)
Vacation Rental Startup Checklist
The Future of Vacation Rental Business
References

Vacation Rentals - what are they? And how can you turn it into a business and make money off of it?

This article gives a complete and thorough guide on everything you need to know to start a vacation rental business and make the most out of it.

The Basics About Vacation Rentals

Before you even decide a hundred percent that you want to start a Vacation Rental business, there are some basics that you should educate yourself on.

We hear about a vacation rental and instantly start thinking about luxury locations like the Caribbean or Hawaii but, the business is so much more about location and aesthetics even though granted those are two big parts of it.

What Is a Vacation Rental Business?

By definition, Vacation rentals refer to private properties that are rented out to travelers on a short-term basis. A vacation rental defers from a hotel in the sense that they generally offer more facilities like kitchens where a guest can cook, exclusive privacy, and access to local culture.

A vacation rental business entails all the processes involved in acquiring, maintaining, marketing, and renting out these vacation rental properties to travelers.

Are Vacation Rentals Profitable?

One of the first questions those considering getting into this business ask is “Are vacation rentals profitable?” Oftentimes people see vacation rentals as a means for a little extra passive income but, in reality, a vacation rental business can be even more profitable than that.

Sure, thanks to the pandemic people weren’t traveling around much and vacation rental businesses like many others in the hospitality industry felt the impact of the lockdown negatively.

However, in spite of this, The US vacation rental industry’s total revenue was estimated to reach $13.3 billion in 2021. With a roughly 10% year-over-year vacation rental market growth rate, the industry will be close to $20 billion in 2025 . The global vacation rental industry will grow even faster in the coming years.

Investing in vacation rentals is an excellent way to earn some of that real estate money as long as you take the key factors we will be highlighting in this article and run with them. Some of these factors include securing the right location, finetuning internal operations, and, utilizing proper marketing strategies.

How much money do you need to start a rental business?

We’ve all heard the saying - you need money to make money and that goes for starting a vacation rental business as well. According to vacation rental homeowners, there are two major routes you can use to build your vacation rental business.

The first and perhaps more expensive option is to invest in buying property. You can rent it out on a short-term basis and also use it as a second home if you desire. Before buying a property, thorough research is required to determine which locations will draw a steady flow of guests.

The second and more affordable option is something called a ‘rental arbitrage’ which refers to when you rent a property long-term and then re-rent it to travelers short-term with the permission of the landlord.

Through the rental arbitrage method, you can earn money without having to spend so much on buying the property, but you will ultimately be subject to your landlord and have no autonomy in decisions regarding the building.

There's also a build-to-rent (BTR) option available for a much lower cost to get into the property rental business. These are homes built for long-term renting purposes, and you can choose to invest via a real estate investment trust (REIT). Learn more about built-to-rent homes.

Asides from securing a property and perhaps furnishing it will your desired amenities and decor, you’ll need to list your vacation rental properties on channels like Airbnb, Booking.com, and Vrbo which also costs money.

In addition to the expenses and fees associated with owning and operating a rental property, more expenses may arise from the following:

Insurance costs
Utility costs
Marketing fees

Where should I base my rental business?

So we’ve already mentioned location so many times above and it’s finally time to get into it in detail. No, your vacation rental home doesn’t have to be in the Bahamas or Maldives. It can be anywhere once you consider these three location factors –

Demand

Your target market as a vacation rental owner is travelers and so It is critical to choose a location that draws in lots of travelers. Travelers are to tourist attractions as bees are to honey so the best location for your vacation rental is most likely somewhere with ample attractions and a flourishing tourist scene.

Supply

Here’s the reality check - most tourist-heavy locations will be swarming with vacation properties and the competition will be intense. This means you have to take note of the volume of existing short-term rental options in the area before choosing to secure your property there.

You can zero on in types of rentals that are less common (like villas or apartments) and try to identify ways to differentiate yourself from the existing offering or you can target surrounding areas, urban locations,s or an evergreen vacation resort that are less expensive and give your property an upper hand by providing high-quality service.

Seasonality

This matters especially if you home the vacation rental and use it as a second home sometimes. You can consider remote locations that have more appeal during certain times of the year. This way, during slower months you can catch your breath and work on business strategy while enjoying your second home.

However, If you want a business capable of yielding consistent profit all year round, you’re going to want to open your doors in a location that draws guests at all times of the year irrespective of seasonal changes.

How do I set up a vacation rental property? (Step-by-Step)

Create a Vacation Rental Business Plan

Sit back, relax and write out your detailed business plan. Before you get your vacation rental business started, it’s important to know what you’re going to do and how you’re going to get there.

One of the most common mistakes beginner real estate investors do is to jump in and get in over their heads. In addition, one reason that they fail is that they don’t treat their investment like a business.

A vacation home investment is more than just listing your rental property on Airbnb and waiting for the money to roll in. It’s a business and, just like any other business, you can’t expect to succeed without a business plan.

Therefore, the first step to starting a vacation rental business is putting together a real estate business plan that outlines your goals and keeps you on track.

Find or Buy a Property

If you don’t already own a vacation rental property, once you’ve gotten your preferred location in mind and made a decision on whether to buy or rent, you should take the next step in searching for one.

While searching for your ideal property, don’t forget to take into consideration important factors like:

How much does it cost to rent other similar properties?
What are the busiest tourist times of the year for that area?
Are there any notable attractions or destinations nearby?
Will there be enough demand to make your investment worth it?

Once you’ve identified a property that fits your preferences, it’s time to negotiate a purchase, or in the case of rental arbitrage; it’s time to come to a reasonable agreement with your landlord.

Consider Financing Options

When starting a vacation rental business from scratch, expenses can build up and there are a variety of options available to finance your business conveniently. Some options to consider include:

Cash-out refinancing
Reverse mortgage
Home equity line of credit
A business line of credit
Traditional bank loans
401(k) loans

Furnish Your Vacation Rental

Furnishing your vacation rental property depends on various factors like your needs, budget, target guests, and personal preferences. Here is a simple list of things to take into consideration for furnishing your property:

Take stock of what you have: Take the furniture you already have into consideration before purchasing new items. By doing so, you can avoid making unnecessary purchases.
Focus on lighting: Lighting is essential for determining the mood, ambiance, and functionality of your business. Decide what ambiance you want your property to give off and get the appropriate to go with it.
Don’t forget storage: You must provide ample storage options for your guests to keep their belongings organized during their stay and can help to make them feel at home.
Remove personal items: Remember one of the reasons your guests opt for a vacation rental is privacy and to get the feeling of home. It isn’t your personal living space so be sure to remove any personal items such as jewelry, family photos, or other personal items. Not only does this help your guests make the place their own, but it also reduces the risk of you losing your items.
Buy furniture that is built to last: It’s important to invest in quality and sturdy furniture that is built to last. Several people will come and go on your property and there's bound to be wear in your furniture. This way you won’t have to worry about buying replacements often or fear of furniture breaking during a guest’s stay.

Staff for my property management

Your staff can be the one thing that makes or breaks your business so you have to get it right. There are two options when it comes to staff for tasks like cleaning and maintenance. You can either outsource operations or hire in-house staff for these.

Hygiene and sanitation are of utmost importance in your vacation rental especially due to the coronavirus. Ignoring housekeeping can result in dirt, and damage amassing over time, and failure to stay on top of it can lead to less guest satisfaction.

In cases where you hire in-house cleaning staff, an easy way to ensure your employees stay in check especially when you are far away is by using an employee management app .

Another important task is managerial responsibility. You can hire an experienced manager, assemble a capable team, or even handle management on your own but, one thing is always for sure - certain tools make management a breeze and will come in handy whatever management route you take. What are the tools? You may wonder, check out the next step.

Software for vacation rental management

Gone are the days when a property manager had to be on-site most days and handle things in person. With multiple properties or travel restrictions, it can be quite a challenge to manage a vacation rental business. Because of this many people, management has to be done remotely.

Thanks to automation, you can be sure that even if you’re far from your properties, your business is under control.

With vacation rental software like Booking Ninjas, you’ll be able to monitor and manage your operations, bookings, automate messages and home devices and enable your guests to get quality service and experiences.

Especially in an era of rising expectations of guests coupled with the increasingly complex operations to give your guests a seamless experience from booking to check-in and check-out. The role of a vacation rental property management system makes implementing technological solutions into your business easy.

However, there is no rush to get software - try a discovery call to determine what PMS will be best for your vacation rental and, ensure to try a demo of whatever software you decide to use before making a purchase.

Set an Acceptable Price

Finding the right rental rate can prove to be tasking especially because choosing the wrong figures can be the downfall of your business. If you charge too high, it’ll scare guests away. If charge too low and you may lose money on your bookings or attract the wrong crowd. So how can you get the price that’s just right?

Vacation rental homeowners recommend that what you should do is to check the prices of similar properties in your area to find a competitive price that guests will pay and that will make you a profit.

There are also various calculators like the Airbnb Profitability Calculator that you can use to get good estimates for your short-term rental.

listing your property on relevant channels

So your business is up now and you have your team in place and software to back you up, how do you get the word out everywhere that your vacation rental is now in operation?

Just like in the case of hotels, to ensure that you are generating the most reservations you should be listed on all the major OTAs and metasearch engines - or at least create a strategy that adds channels incrementally.

The more the channels, the larger the audience and the potential increase in revenue. Managing all of these channels can become challenging, especially as your business grows.

Luckily for you, if you invest in Property management software (PMS) as suggested earlier, they can help with direct connections and connect you to each channel error-free without middleman channel managers.

Invest in Vacation Rental Supplies

As you start to get guests, you’d have an idea of the kind of rental supplies that is mostly required. Essentials like Bathroom accessories, kitchen supplies, drinking glasses, and dinnerware are supplies that you can get before you even secure your first guests.

The more guests you receive, you can create simple surveys to find out what extra supplies the crowd you attract would be interested in.

For example, if the crowd your property usually attracts is families then supplies for kids or pets will boost their experience and if it’s young adults your property usually attracts then supplies like a pool, lounge areas, or expressive artworks will get them recommending your spot to all their friends.

Advertise Your Vacation Rental

Advertising your vacation rental goes beyond listing it on listing sites or OTAs. To get the word out about your vacation home rental, you should incorporate social media into your marketing strategy.

According to multiple surveys , half of the teens and young adults (54%) get news at least a few times a week from social media platforms such as Instagram, Facebook, and Twitter and 50% get news from YouTube.

The first thing you need is to take outstanding photos. Next, up to advertising your vacation home rental, you need to take outstanding photos. According to Lodgify, a vacation rental software solution, guests typically click through 2-3 images before deciding to move on to another property listing. Some don’t even look at a property if there are less than 10 photos. So the more, the better.

You might be tempted to take the photos yourself but, the best route is to use a professional to capture the best features with the best lighting. For social media, engaging influencers can also be beneficial to getting the word out there.

On various platforms, when you upload your property, you’d have to write a property description. Now is the time to be creative and highlight what makes your property desirable. Also talk about the neighborhood, nearby facilities, and fun activities to do in the area.

Write the description with your guests in mind and sell the experience through your words. Some PMS like Booking Ninjas offers writing services when uploading your business on channels and it could be an option especially if you have multiple properties.

Manage Bookings and Inquiries

Once the bookings and inquiries start coming in, you’d realize that updating your calendar and keeping everything under control can be rather frustrating and mistakes are unavoidable.

However, today’s property managers have a lot of tools at their disposal to make management smoother and free of headaches. There are several vacation rental software that allows you to automate all aspects of your real estate business from listings, bookings, management, payment, etc.

Vacation Rental Startup Checklist

Starting any business can be quite overwhelming and the vacation rental business isn’t left out. Luckily, one thing most business owners swear by is utilizing a checklist to ensure that all the boxes are checked and everything is in place.

You can check out this thorough vacation rental startup checklist to serve as a concise guide as you embark on your vacation rental business journey.

The Future of Vacation Rental Business

The impact of covid indeed played a significant role in the hospitality industry as a whole including vacation rentals. While the pandemic is not over yet, the hospitality industry and the world at large have found ways to carry on with its activities while staying safe and avoiding the further spread of the virus.

2021 was a year of an interesting turnaround for the vacation rental industry. There were some big wins, like a 10% increase in demand from 2019 and 40% more revenue due to an increase in ADR levels.

This means that the future of the Vacation Rental business and the hospitality industry as a whole is still hopeful to be in line with the positive predictions from 2019.

Here are some of the 2022 vacation rental industry predictions from industry experts:

Acquisitions, Mergers, and Funding Will Likely Continue Rising
Optimizing Revenue Will Be More Important Than Ever
Property managers will need to continue to set themselves up for success with a strong marketing strategy, the latest technologies, communication, and flexible pricing optimized for the specific market and time of year.

All in all, the future is bright for the vacation rental industry and if you’re about to start one now or are already in the business, you can be sure you’d make some good profit.