As an investment property owner and founder of the VRDCollective, I often come across clients who venture into the short-term vacation rental (STVR) market, believing it to be a hands-off, passive investment. They assume they can purchase a vacation property, hire a management company, and subsequently forget about it while profits roll in. Although some might find success with this approach, our experience in the STVR market suggests that being too passive can lead to unanticipated outcomes.
Owning an STVR property can indeed be enjoyable, allowing you to use the vacation home occasionally for yourself. However, it's crucial not to lose sight of the fact that property ownership is a business venture, and an investment opportunity that can either grow as an asset or become a liability.
As with any significant investment involving time, energy, and money, monitoring your STVR's performance is critical to achieving favorable results. Here are some essential aspects to consider when managing your STR:
Business: Your rental property's profitability is ultimately determined by how well you manage its business operation.
Investment: Owning such a property enables you to benefit from its increasing value while its mortgage payments are covered throughout the process.
Asset: The property contributes to your overall net worth.
Vacation Location: Your house doubles as a holiday retreat while also providing a memorable stay for guests.
To further the point, here is a real-life example that demonstrates the importance of keeping a close eye on your STR business:
A STVR owner engaged a management company that promised to rent their vacation home at $700 per night with an expected occupancy rate of 95%. Though the company mentioned utilizing a pricing algorithm that would adjust prices if bookings were low, they assured the owner that price reductions would be minimal. After reviewing their rental income statement, the owner discovered that the average nightly rate was only $299. Some nights even went for as low as $149!
This example highlights the value of having fewer bookings at a higher rate compared to lowering your prices only to suffer from increased wear and tear. As a seasoned STVR owner and investor, I recommend setting a threshold for pricing algorithms.
To put it into perspective, let's say you rent your STVR property for $149 per night; the management company takes a cut of $52, and you spend $17 on supplies. This scenario leaves you with a gross profit of only $80.
As you can see, it is crucial for property owners to treat their STVR as a business investment and not solely as a vacation home. By being attentive and vigilant about your rental property, you will increase the likelihood of attaining a healthy profit margin and enjoying long-term success in this competitive market.
Whether you’re an interior designer just getting started in vacation rental design, an investor looking to purchase your 1st or 10th property, a host who dreams to shine amongst the competition in their area, or a Realtor looking for the perfect clients, we’ve got the answers you’ve been searching for.
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