All products, services, or links mentioned on my website are for products and services that I have personally used and/or recommend. Some of the links are affiliate links. This means if you click on an affiliate link and purchase an item, I may receive an affiliate commission at no extra cost to you. All opinions remain my own.
Do you consider yourself a business person? No? Well, you’re not alone. Many overnight rental hosts are just trying to offset some of their expenses. They don’t really consider their rentals as being a business. In this article, I want to help dispel the fear of thinking about your overnight rental as a business.
Any decent financial advisor will tell you that you need a solid business plan. But that sounds so formal (and honestly, scary) when you’re just looking to make a few extra bucks by renting out your shared space or you’re sharing a second home with your family and friends to help with the expenses.
In this article, I’ll help you start easing into thinking about your overnight rental more as a sustainable source of income – a business. You can learn how to turn your property into a vacation rental success story – and it’s really not too difficult.
Come along with me as we plan out your Roadmap for Vacation Rental Success using a travel analogy. I will help you visualize each step for taking your overnight rental to the next level of sustainable income. Once you start imagining your rental in terms of a business – then, you can begin to create a model that reaches beyond just offsetting your expenses.
Start with the end in mind. You’re planning a trip, so you’ll want to determine a destination. Where do you want to go?
What would be your ideal goal for the next year? Maybe it’s making enough rental income to offset all of your property expenses. Or perhaps you’d like to generate enough income for a down payment on a new rental property. What if you could create a full-time income? Don’t be afraid to set some goals.
Success comes when we allow ourselves the freedom to step outside our comfort zone and use our positive mindset to reach beyond what we imagined. ~ Connie Johnston
By starting with the end in mind, you’ll have a more definite plan for moving your business forward. Every decision you make relating to your overnight rental should focus on your destination. Ask yourself, will this decision help me reach my goal? Sometimes the answer may be no, and that’s okay. Just be sure to have a plan for getting back on track.
Once you’ve determined your destination, how are you going to get there? Which routes can you take to reach your annual business goal? Will you take the Interstates or the backroads? Do you want to sit back and let someone else do the driving? Or would you rather put in a little bit of work, have a better view, and have more control over how you get to your destination?
Think of it this way…
The Interstates make it easier to travel. On Interstates, we can travel quicker, signs mark the routes, exits, gas stations, and restaurants. We can put our car on cruise control.
Online travel agencies (OTAs), such as Vrbo and Airbnb, are your Interstates. They have well-defined systems that make it easy to start and traverse the vacation rental landscape. Most everything you need for running your vacation rental is included – a website, booking/management software, payment processors, and marketing.
Keep in mind, the OTAs have some significant limitations.
You can put your vehicle on cruise control, but the OTAs are in the driver’s seat.
OTAs have control of refunds, guest vetting, and what you can/cannot say on your website or in your guest messages. They also determine when you receive your funds and guest contact information.
Watch out for speeding tickets on the highways! OTAs will penalize your listing for having too many cancellations or booking declines.
The back roads aren’t as easy to navigate. You’ll need a good map. The roads aren’t as clearly marked, and there aren’t as many signs directing you to the gas stations, restrooms, and restaurants.
Even though it’s a little harder to navigate, there are a lot of benefits to taking the backroads. You’re in the driver’s seat. Taking the backroads offers a better view of the landscape. It’s a more laid back approach to the travel experience where you’ll have the opportunity to enjoy the sights and learn more about the countryside.
Taking the backroads is the best way to see, learn, and enjoy the route.
Outside of the big OTAs, there are other places to list your property where the overreach isn’t so debilitating. More and more “back road” companies are popping up. Sites such as HomeEscape, Houfy, SMBYO, and other regional listing sites are available and are doing reasonably well.
These newer sites understand the constraints placed on hosts by the larger OTAs. They have built systems that give back more control to the owners. More control typically equals more effort – meaning, the tradeoff for having more control of your business is that you have to do a little more work.
When you expand your reach to other listing sites, build a website, or start doing some of your own marketing, you’ll learn so much more about the vacation rental industry.
With all this additional knowledge and control, you’ll be more in tune with providing a better experience for your guests. Besides, you’ll learn new ways of producing additional income by filling booking gaps and getting repeat renters. It’s up to you to determine which route is best for achieving vacation rental success.
On any trip, there will be some unexpected events that slow you down. There will also be some setbacks that could have been avoided through better research and planning.
These setbacks could lead to lost time and revenue. Here we will take a look at how you can avoid some detours and speed bumps in your vacation rental business.
Plan ahead. Repairs and maintenance issues are just part of the deal that comes with vacation rental ownership.
Just like keeping the oil changed in your car, preventive maintenance can save you hundreds, or even thousands, of dollars. Getting ahead of any maintenance problems can also avoid the hassles that come with guest complaints and bad reviews. Download this Routine Maintenance Checklist – Keep your 5 Star Reviews
Be sure you have a list of reliable repairmen you can call when (not if) an issue arises. At a minimum, have someone in mind for the following:
Maybe you clean your rental yourself, or you may have the best cleaning crew in town. Emergencies happen. Someone gets sick or has to go out of town unexpectedly. You have guests checking out and another guest checking in the same day. What will you do if your regular cleaner can’t make it?
Or what if your last guest completely trashed the place? Do you have someone who can help out to get the property ready by the next check-in?
Having a backup plan for when something breaks is essential. Don’t make decisions on the fly – have a plan.
What does your rental agreement say about refunds for broken appliances?
Being a successful business person means being prepared to handle the unknown professionally. How you handle the problem is more important than how you solve the problem.
In some ways, your rental agreement is like your purchase agreement and your car warranty.
The rental agreement contains the details of who is renting your property and when. It also determines the processes for when something goes wrong and who is responsible for payment or refund.
Your rental agreement is your warranty and your guide for handling detours and speed bumps that happen with your guests.
Don’t be afraid to stand behind the agreement you and your guest made during the booking process.
You wouldn’t take off on a big trip without having some idea of how much money you would need. Why would you take off on a business venture without that same knowledge?
Budgeting doesn’t need to be nerve-wracking. A budget is merely a tool for estimating income and expenses over a period of time. Yes, estimating. So, if you’re just beginning to consider your overnight rental as a real business, don’t fear the “b” word.
Create a cash budget for the upcoming year. A “cash budget” means estimating the money you expect to receive and the money you expect to spend on expenses (cash flow budgeting). A “cash budget” does not take depreciation or other, more complicated accounting methods into consideration.
Start your budget by estimating your income.
Based on the answers to these questions, estimate your income for the upcoming year.
Once you have established a budget for your income, estimate your expenses for the upcoming year. Use the IRS Schedule E as a guide.
List your expenses:
Be sure you are meeting the reporting requirements for the IRS. To maximize the allowed deductions for expenses, you’ll want to become familiar with IRS Schedule E – Supplemental Income and Loss and IRS Publication 527 – Residential Rental Property (Including Rental of Vacation Homes). These two documents will be help answer some of your more complicated questions about your vacation rental income and expenses.
Compare your estimated income to your estimated expenses from your budget. More income than expenses? Great! Determine if you’ll be investing some of the extra revenue back into your property, using it for personal use, or spending it another way. Are expenses more than your income? You’ll need to either increase your rental income, decrease your costs, or have another means of supplementing the expenses from another income source.
This section is a fundamental overview of tips on creating a budget for your vacation rental business. It is advisable to consult with an income tax advisor or Certified Public Accountant who can assist you with detailed financial planning and advise you on the rules and regulations that pertain to your particular financial situation.
Once you’ve established a budget, consider putting some organization methods into place. Organizing your income and expenses will save you time and headaches when it comes to tax time. Look over this article for timesaving tips.
Check out my Trendy Hospitality Vacation Rental Business Toolkit.
The toolkit is a downloadable printable planner that includes several useful pages for vacation rental hosts. Some of the pages include tracking income, expenses, inventory, repairs and maintenance, updates/construction projects, checklists, and planning worksheets.
To finish out the trip planning analogy, think of your vacation rental as your vehicle that gets you where you want to go. Trip planning includes getting your vehicle fine-tuned and packing all the necessary items needed for a safe and successful trip.
I have a few articles to help give your vacation rental a tune-up and pack it with all the essentials. Keeping your vacation rental property in tip-top shape is one of the best ways to reach your goals for vacation rental success.
Spring Clean your Vacation Rental Listing in 4 Easy Steps
Easy Fall Decorating Tips for Vacation Rentals
Seasonal Listing Updates – Tips for Airbnb and VRBO Hosts
5 Painting Hacks & Tips for Vacation Rentals
5 Essential Amenities for Your Winter Guests
It’s time to start putting your plan into action.
Leave a message in the comments below or email me with your questions. connie@trendyhospitality.com
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Would you like to take Direct Bookings for your vacation rental, but you don’t know where to start? Evaluate where you are and what steps you need to take to gain back control of your vacation rental business. It’s not as hard as you might think.
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