Purchasing a rental property is a significant investment and can be the start of a scary but rewarding adventure for many of us. We purchased our first vacation rental over 15 years ago in Colorado, and we needed the rental income to afford the property. As a vacation rental owner myself and co-founder of HotSpot Tax, I have spoken with thousands of vacation rental owner across the U.S. Over the years, I have noticed several common themes and mistakes from owners about their rental experiences. The first thing to remember is that a vacation rental is a small business, and you should treat it like one.
Here are five common mistakes I’ve noticed rental property owners make and tips for what can be done to maximize rental income, minimize expenses and make the experience a positive one:
1. The wrong rental solution
Determine whether you want to take on managing the property yourself or if you want to use a property manager. If you employ a property manager, make sure you have a good one.
Last weekend, I received a call from another owner in my complex who found my property on VRBO.com. He wanted to know about my experience with managing my rental. He told me he uses the on-site management company in our complex and over the past several years has made no money. In fact, he has paid the manager more than he had received. This is absolutely crazy.
I have the same three bedroom unit as this owner, and I generate $35,000 to $40,000 per year in rent through my internet listings. I don’t do anything special, and I am not as diligent and aggressive as others — anyone can do what I do. So, apparently his solution — hiring the on-site manager — is costing him tens of thousands of dollars each year at the least.
Unfortunately, this is a common testimonial we hear from our new customers at HotSpot Tax. If your manager isn’t cost effective, it’s time to switch to another manager or rent the property yourself. Talk to other owners about their experiences, and, if you are using a manager, make sure they know what you expect from your property. Don’t be afraid to make a change or try something new.
2. Not taking credit card payments
Many of the most popular short-term rental sites facilitate online payments when completing a booking, and there are dozens of ways for owners to accept online or mobile payments. Owners no longer have an excuse not to offer it. Most guests want to pay with a credit card, and it is fast, easy and convenient for all parties involved.
The days of renters paying in cash have plummeted. And renters mailing you a check? Forget it. Some owners are hesitant to make the switch to credit card payments because of a 2.5 to 3.0 percent processing fee and fear of a “chargeback.” I believe the extra fee is worth it because of the convenience it allows, and it might lead to one or two additional bookings. The chargeback risk is not a big deal in our industry — a lot of owners are afraid of it, but in reality, it is very rare.
3. Poor photos
Potential renters have thousands of properties to choose from, and pictures are essential for helping them pick one property over another. Owners should make sure photos are current and show all aspects of the property — not just the “nice” or upgraded features. A professional photographer is an excellent option to showcase your property with high-quality photos.
In fact, many of the leading vacation rental websites have a network of vendors that will professionally shoot your property. And where pictures are essential for competing in the short-term rental market, being able to view these rentals on multiple devices is even more important. In fact, MMGY Global’s survey, 2014 Portrait of Digital Travelers, found that 38 percent of travelers use two different mobile devices (smartphones and tablets) when traveling.
4. Failing to charge lodging taxes
Just like hotels, short-term rentals need to charge sales and lodging taxes. These taxes are due to the state and local government agencies in which the rental property is located. The property owner is required to collect these taxes from the renter, and the owner is mandated by law to pay these taxes to state and local agencies.
It can be confusing because taxes can vary by city, county and state. To make it more complicated, there are often licenses that go along with these taxes to make sure owners are compliant with laws and regulations. With the rise in popularity of Airbnb, VRBO and other rental sites, state and local tax collectors are becoming aware that many short-term property owners might not be paying lodging taxes.
By taking steps to ensure a property is compliant, owners save themselves from future fines, penalties and, frankly, a big headache. In the current environment, with a growing focus on vacation rentals, it’s often not a matter of if rental owners will be targeted for compliance, but when.
5. Failing to go above and beyond
The popularity of short-term rentals is rapidly growing, and the market is extremely competitive. There are thousands of options within one city, and making your property stand out is important.
Think of it as your business, and ask yourself what will attract guests and increase your nightly rental rate. Some owners make the mistake of being penny-wise and pound foolish. The little extras build a better guest experience and contribute to increased bookings. For instance, uncluttered rooms, high-quality bedding, sheets and towels, making sure the place is clean or leaving coffee or a basket for the renter’s convenience all add to the renter’s experience.
WiFi in your property is a necessity. Investing in more comfortable, stylish furniture, flat screen/high def TVs, gaming systems and a Netflix subscription for your property can go a long way in attracting guests. Renters’ expectations for this level of service has risen along with the competition — a big, clunky TV isn’t going to cut it for long, and the coffee machine will go an incredibly long way.
These tips are things I have learned through my experiences, and I hope they help you, too.
Finance expert for the rapidly growing short-term lodging marketplace, Rob Stephens co-founded HotSpot Tax in 2002 out of his own necessity to understand and manage compliance with his rental property.