Guaranteed Vacation Rental Income With No Work? Here’s How!

By: Mickey Kropf

The vacation rental industry is on fire. This is an industry that has seen tremendous growth for more than a decade – nearly doubling in size from 1999-2011.

This growth has been spurred by the rise of listing sites, such as HomeAway and its affiliate websites, which have improved visibility of and access to this lodging option. But there has been an inverse correlation between the growth of these sites and the number of professionally managed vacation properties, with the percentage of professionally managed properties dropping from nearly 100% 10-20 years ago to approximately 40% today. Every year, vacation homeowners are faced with the same dilemma: should the property be managed by a professional property manager, or should I manage it myself with the help of advanced online tools?

There are pros and cons to both approaches, and until recently, these were the only two options for owners who wanted to generate income from their vacation properties. But this is now a false dichotomy thanks to the advent of a third option that allows homeowners to receive guaranteed income from a property manager with just a tiny fraction of the time investment of self-management. Let us examine the three options in detail.

PROPERTY MANAGERS

Placing a property with a vacation rental manager is a fairly straightforward process: offload all management responsibilities to a licensed, third party expert in exchange for a commission on all rentals. In a traditional management agreement, the manager will take care of marketing, reservations, cleaning, maintenance, and more. The homeowner can still use the property, and if it rents, the owner will receive his share of income after expenses and management fees (often 20%-50% of rental income) have been deducted.

But there are at least two major issues with this approach:

No Guarantee - there is no guarantee of ANY income, only a guarantee that 20%-50% of any income generated will go to the manager

Lack of Investment - the manager has little invested in any given property. Incentives are aligned with owners in general (i.e. if a property under management rents, the manager receives income), but not on any single property in particular

This lack of investment can manifest itself adversely in the forms of tenant screening and property repairs because managers only earn income if properties rent, so they may be less discerning with guests than an owner would be, especially if the manager is not responsible for the cost of any damages caused by poorly screened tenants. Moreover, the manager may even

charge the owner a margin on repairs made to bring the property back to form.

Rental By Owner

The second vacation rental management solution, rental by owner, now comprises the majority of U.S. vacation rental supply. The internet is increasingly empowering homeowners to handle vacation rentals by themselves. In terms of benefits, the advertised value proposition is clear: do all the work and keep 100% of the income.

This approach also affords owners the opportunity to maintain control over their properties, from tenant screening, to owner usage, to repairs, and everything in between.

But there are major disadvantages to this approach too:

No Guarantee - there is still no guarantee of income

Time - owners have effectively taken on a second job - HomeAway research states that vacation owners spend an average of 8.6 hours per week marketing, booking, providing customer service, hiring and managing contractors for cleaning, maintenance, and capital improvements, accounting, and handling any other issues that may arise at any time of day

Competition - increasing competition from other owners within the rent by owner community and versus professional managers who have better online distribution for their rentals as well as lower cost bases for management compared to their amateur counterparts

Renting by owner is a great solution for some, including those who simply do not trust third parties to manage their properties, and those for whom there is no more lucrative or otherwise enjoyable use of their time. But the income generated can still vary from one year to the next, thereby making it difficult to count on the income to cover property costs or living expenses. Though U.S. vacation rental managers manage less than half the supply of rental properties, they account for more than half of the vacation rental market’s total revenue. While rent-by-owner websites may advertise that homeowners need only pay a small yearly fee to list their properties, the truth is that additional marketing investments are often necessary to match the number of bookings brought in by a property manager.

Included in this group is the so-called “hybrid” arrangement, which includes various forms of shared management between owners and professional managers. Ultimately, this arrangement can make both parties worse off. Owners spend their precious time performing management duties often to lesser standards than their professional counterparts, and managers earn less income and have even less invested in such a property.

A Better Way

What if there were a better way - one in which a homeowner could count on rental income no

matter what occurred with the economy, weather, or other external factors while receiving professional property management services from a management company that was co-invested in the property and responsible for maintaining the property’s condition at its expense?

There is, and it can be achieved by selling a property’s rental rights for a discrete period of time to a vacation rental manager, in other words, a guaranteed contract.

Major advantages:

Guaranteed Income - guaranteed income, whether the property rents or not

Time - save all the time and hassle of renting and managing the property

Co-investment - manager co-invests in the property’s performance and condition, and is typically responsible for maintaining the property’s condition at its expense (except for capital expense items such as roof repairs) throughout the term of the agreement

Not all managers enter into guaranteed contracts, and those that do have inventory preferences that may or may not fit a given homeowner’s vacation property. Furthermore, soliciting a single management company for an offer would mean that an owner would have little assurance that the guaranteed contract amount was fair market value.

Enter VacationFutures, the only online marketplace that allows homeowners to receive guaranteed contract offers from professional property managers who compete against one another for the right to manage properties. This service is completely free for vacation rental owners, and there is no obligation to accept any offer.

For example, a homeowner may use her property four weeks every year, leaving 48 weeks available to rent. She can list those 48 available weeks (for free) with VacationFutures and receive offers from professional vacation rental managers. The top offer may look like this:

Total contract amount: $50,000

Management duties/expenses: marketing, booking, cleaning, linens, minor maintenance, all local occupancy taxes

Owner duties/expenses: utilities, capital expense items, preventive maintenance, property taxes, HOA, mortgage, property insurance

Terms: 5% paid at closing; remainder paid in equal monthly installments

Term: 48 weeks beginning August 1, 2014

In the example above, the property manager would likely expect the property to gross approximately $70,000-$75,000, thereby providing enough in revenues to cover the guaranteed contract payment to the owner, the agreed upon expenses, and a return on its investment.

If the offer does not meet the homeowner’s expectations, she can simply decline the offer and carry on with her normal rental activities. If the homeowner likes the offer, she can move to due diligence with the manager, during which time she can interview the manager, review references, and close the deal in person or on the website.

Through this example, it is easy to see how the guaranteed contract approach can make vacation rental owners and managers better off, and that the VacationFutures online marketplace is designed to create true “win-win” scenarios for owners and managers.

If you are interested in receiving a free, no obligation quote for your property’s rental weeks, visit VacationFutures or email mickey.kropf@vacationfutures.com today.