The Recession “Rental” Solution: Why (and How) to Rent Out Your Second Home to Vacation Travelers
As Published in Business Opportunities Journal. November/December, 2008.
AUSTIN, Tex. No doubt about it: The recession is tough on vacation homeowners. On one hand, you have a sinking retirement portfolio, a rising cost of living, and a U.S. economy that keeps you up nights worrying. On the other, even though you know it’s a solid investment, your vacation home is sitting empty most of the year, costing you $2,000 a month or so in mortgage payments. Notice the hidden solution? Of course you do! Like most vacation homeowners, you’ve considered renting out your beach cottage or mountain chalet—but then dismissed it as too difficult and time-consuming.
Christine Karpinski says that’s a misconception.
“Renting out your vacation home has never been easier or more convenient than it is now,” notes Karpinski, director of Owner Community for HomeAway.com (an online vacation home rental marketplace) and author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment (Kinney Pollack Press, 2007, ISBN-10: 0-9748249-9-2, ISBN-13: 978-0-9748249-9-4, $26.00).
“If you decide to rent by owner, there are websites out there that not only attract millions of vacationers each year, they provide great homeowner support,” she adds. “And renting by owner is the absolute best way to maximize your investment.”
Indeed, says Karpinski, if you rent out your property only 17 weeks out of the year, the revenue you collect can pay your annual mortgage costs plus all other associated rental bills. Rent it more often than that—a surprisingly easy task for most HomeAway.com homeowners—and you might just find yourself turning a tidy profit.
Still feeling overwhelmed? Don’t worry. Just follow this simple plan of action—excerpted from HomeAway’s ownercommunity.com, which contains a wealth of valuable information—and before you know it you’ll be laying out the welcome mat for guests:
Make sure you’re in compliance with all regulations. Depending on where your home is located, it could be subject to any number of laws and regulations. Get familiar with state, county, and city zoning laws for short-term rentals. Determine whether you are required to obtain a business license before renting out your home. Investigate any homeowner’s association policies and regulations and familiarize yourself with any health and safety codes the market mandates. Finally, check with the sales tax office in your county about its laws regarding sales tax you are obliged to pay.
Decide whether you’ll do it yourself or choose a property management company. While Karpinski strongly suggests that you consider renting by owner, she knows it’s not for everyone. If you’re not willing or able to be a do-it-yourselfer, you’ll need to hire a property management company. Just shop around and ask plenty of questions before you sign on the dotted line. Will they oversee maintenance issues? Is advertising included? Will they interview potential guests or guarantee a certain number of bookings?
“Ask your neighbors which companies they would or would not recommend,” advises Karpinski. “And remember, property management companies can be expensive. Most of the time they’re paid by commission, typically 20-50 percent of your rental fee.”
Hire help you can depend on. Hiring a housekeeper and maintenance staff should be a top priority once you decide to rent out your vacation home. (Unless, that is, you live nearby and plan to do all the work yourself!) These are the people you will trust with the quality of service and comfort that your guests receive. Don’t make this decision lightly, urges Karpinski.
“Visit your property and introduce yourself to the staff working at the homes in your neighborhood,” she suggests. “Ask around the area for recommendations—and inquire about negative experiences as well. Once you have hired your staff, have a friend or family member stay at the property and evaluate the level of care they receive. You don’t want to find out you’ve made a bad decision through guest complaints!”
Develop a marketing plan. If you are renting your home for the first time, it can be a daunting task to approach the marketing of your property. Find your target demographic for the area. When you are visiting the area, pay attention to the people renting the properties around you. How old are they? What is their familial status? Income bracket? Education level? Once you have answered these questions, determine where your guests are from. Do they travel often? Do they travel internationally? Do they fly or drive to your destination? Finally, observe their behavior. What do they do during their leisure time? What is the reason for their travel? What is their preferred method of payment?
Once you have the basic questions answered, you can create a plan for marketing your property. Consider any demographic in your area that may be underserved. (For instance, find out if other properties allow pets or are handicap accessible.) Make a list of your amenities. Finally, set aside a budget for marketing your property and divide it between online, print, and other media for advertising. At the end of each year, evaluate which of these creates the highest return and adjust your budget accordingly.
“Most listing websites are worth their weight in gold,” says Karpinski. “They tend to be inexpensive, and if you craft your listing carefully, you may find this is all the marketing you need to do. Just remember: There is no advertising more effective than word-of-mouth. Give your guests a great experience, and they’ll spread the word.”
Get your house rental-ready. Your vacation home may suit your tastes and needs just fine, but look at it from a potential guest’s perspective before opening the door to renters. Rid the home of clutter and personal effects, and take stock of the amenities you will need for each room. For example, make sure the kitchen is stocked with dishes and cookware, and that you have plenty of linens for all of the beds. But these basics are only the beginning, says Karpinski.
“Think about your target demographic and then determine what extras would make a great selling point,” she advises. “If you are marketing to families, offer a DVD player or a stash of board games for a rainy day. If your property is near the beach, offer beach chairs and sand buckets for your guests to use. The less your guests have to bring from home, the more likely they will be to return again the next year.”
Make sure your price is right. In order to remain competitive in today’s market, you have to know what other properties in your area are charging. Look online for weekly and nightly rates offered for neighboring properties of similar size and location that offer amenities comparable to your own. Check on local hotel rates (they are your competition too!) to make sure your pricing is competitive. Research school schedules and holidays for the upcoming year to determine your peak season and adjust your rates accordingly.
“One month in the off season should rent for around the same rate as one week in the peak season,” points out Karpinski. “Set up any discount offers ahead of time to entice off-season renters. Also, plan to offer discounted rates for extended stays or for repeat visitors. People really appreciate price breaks—give them one and they’ll come back.”
Set up a system for screening potential guests. Screening your guests is a cost-free insurance policy against loss, so figure out a method you feel comfortable with. For example, it’s entirely appropriate to schedule phone conversations with potential renters to ask them questions about the length of their stay, the number of people in their party, and whether or not they will be bringing children or pets. Let (cont’d on p. 25)
(cont’d from p. 24) them know that the property is your second home so that they will feel encouraged to feel comfortable and to take good care of it during their stay.
“If you get a bad feeling from a renter, it’s your prerogative not to rent to him,” says Karpinski. “Go with your gut. Ninety-five percent of the time renters will treat your home with care. It’s the other 5 percent you need to watch out for. You can’t prevent problems in all cases, but screening at least gives you a fighting chance.”
Be prepared to handle complaints. No matter how good your intentions are and how hard you work, at some point something will go wrong. You will have to deal with a guest complaint. And just like in any other business, the customer is always right. When a problem comes up, apologize sincerely and take immediate action to rectify the problem. After all, your guests are paying for their time in your home and it’s not fair that they waste it waiting for a water heater to be fixed or a mess to be cleaned.
“Instead of offering a refund, think of other ways to compensate your guests for their trouble,” suggests Karpinski. “You might offer a discount on a future stay or let them stay on a few extra days if they are available. Or send a gift basket that includes local fare and tickets to a local attraction or a gift certificate to a nearby restaurant. With a little creativity, you can turn a bad customer experience into a win for both of you.”
Resolve to keep it clean. The number one complaint that most renters have is that a rental property is dirty and unkempt. That’s why you should make sure that cleanliness is your top priority. Establish a clear check-in policy for your guests to inspect the home upon arrival and to report any problems immediately to the housekeeping staff. Make their job easier by creating a stock of extra linens and cleaning supplies for a smooth transition between guest stays. If guests can count on a clean and comfortable place to stay, they will return to your property year after year.
Don’t just ask for feedback. Act on it. The only way to judge the success of your rental property is to ask the people who use it. Leave comment cards or a guest book in the home and encourage your guests to leave feedback on their stay. Don’t leave it open-ended. Ask specific questions: What was your favorite part of your vacation? What didn’t you enjoy? Was anything missing in the home that you needed during your stay? At the end of each season, evaluate the feedback you have received and make changes for the following year. Returning guests will be delighted by your attention to detail regarding their comfort and satisfaction.
“You can’t expect to get anything right the first time around, and having a system of checks and balances in place will create a happier home for both you and your guests,” says Karpinski.
It may help to look at your foray into renting as a trial period, she advises.
“Make up your mind that you’re going to try it for a year,” says Karpinski. “If at the end of the year you don’t like it, take your home off the market. If you’re like most people, you’ll find that not only will you quickly get the hang of renting, it’s actually fun. You’ll meet some great people along the way—and the rental income will make you feel even better about your great investment.”
Christine Karpinski is the author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment (Kinney Pollack Press, 2007, ISBN: 0-9748249-9-2, $26.00) and Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment (Kaplan, 2005, ISBN: 1-4195069-1-9, $19.95).
