Bought a vacation rental and wondering how to maximize your income from it?
First and foremost, shift into the mindset of an entrepreneur in the hospitality industry. You’re a businessperson now, and you need to think like one. In particular, focus on creating a strong product, marketing it, and building efficient business processes.
Vacation rental properties rarely offer truly passive income. Even if you outsource the property management, you still need to manage the manager. Instead, think of your vacation rental property as a side business you operate in addition to your full-time job.
Once you start approaching your vacation rental as a hospitality business, you can start optimizing that business to earn more revenue with less labor on your part.
After purchasing the property, your first project is putting it into marketable shape as quickly as possible. That includes any needed repairs, updates, and improvements. Don’t go overboard, but look for any obvious indicators of age in the property, including anything that looks dated or unattractive.
You should also be planning out your automation processes at this point, because they may impact your property updates. For example, you may decide to install a smart lock or key code lock on the front door (more on that later).
Think about any other smart home upgrades that may improve your marketing. Would guests feel more comfortable with a smart security system in place?
As you plan out your property’s finishes, keep resiliency in mind. Aim to “tenant-proof” your property as much as possible, with scratch- and waterproof flooring such as luxury vinyl tile and door stoppers behind each door. Consider semi-gloss or glossy paint finishes to more easily wipe away scuffs, and use the same paint color throughout for easy touch-ups.
Your guests won’t be gentle with your property, so make it as indestructible as possible.
When your property repairs and updates are finished, it’s time to furnish and decorate it. You don’t need to buy furniture new; no guest expects to be the first person to have sat on the couch. But furniture needs to be tasteful and in good condition.
A word to the wise: don’t decorate blandly. You are not operating a hotel, and one of the reasons guests choose to stay in a privately owned vacation rental over a hotel is to get a more authentic experience. Tie in some local flavor and add a bit of your own personality.
Draw the line at political statements, though. I once stayed in an Airbnb filled with political posters and found them to be obnoxious and unprofessional.
2. Automate & Systematize Guests’ Stay
The less your guests must rely on you personally, the smoother their stay will be for both of you.
Find a way to automate guests’ check-in and checkout process, particularly their access to the unit. That could mean a smart door lock, a keypad lock, a lockbox, or keys left with a community office or doorman. Note that smart door locks don’t have to cost an arm and a leg: you can buy the ULTRALOQ U-Bolt Pro for under $200, or go a little lower-tech with the AmazonBasics keypad lock for under $50.
Self-entry allows guests to arrive on their own schedule, rather than wasting both of your time in coordinating entry with you present.
But systematizing your guests’ stay doesn’t end at physical entry. You also need to plan for other frequent needs, such as gaining Wi-Fi access, and make them extremely intuitive and easy for your guests.
Create a concierge document that starts with bullets for the most common issues, such as the Wi-Fi network and password. You can then direct guests to longer explanations as needed. Consider a Google Document that you can both print physically for the unit and send a link digitally to guests before they arrive.
Automate this communication with guests. Create automated messages that go out to guests 48 hours before their arrival that include details like how to access the property, Wi-Fi information, and how to use any confusing appliances. Your concierge document can also include tips for local restaurants, attractions, and other entertainment.
As you systematize your vacation rental business, create policies for every contingency. That includes lost key policies and fees, late checkout procedures, pet policies and fees, your maid or cleaning service (which can be set up quickly through Handy.com), and backup contacts for times when you aren’t available.
In addition to operating a hospitality business, you also face standard landlord headaches like property repairs. Prepare for maintenance by building a network of contractors you can contact for immediate service, to minimize the risk of bad reviews and losing Airbnb guests over maintenance issues.
3. Perfect Your Pricing
One of the most fundamental building blocks for success as an Airbnb host is pricing.
To begin, ignore what long-term rental properties charge for monthly rents. Rather, look at them, but only to run a comparative cash flow analysis to determine which leasing model would generate more profit for your property.
Your competition as a vacation rental operator doesn’t include long-term rentals, but rather hotels and other comparable vacation units. Get a sense for what hotels and similar vacation rentals charge in your immediate area. Consider aiming for around 20% less on a nightly basis than nearby hotels.
Keep in mind that your pricing can and should rise as you establish yourself and your unit. In the beginning, with few or no reviews, you’ll probably need to entice your first guests with bargain pricing. Once you establish legitimacy through reviews, you can raise your pricing to meet or slightly surpass nearby competitors. (More on building reviews shortly.)
Remember, pricing doesn’t end at your nightly rate. It also includes your cleaning fee, additional guest fees, pet fees, and any other fees you charge. By all means, charge a cleaning fee, but don’t use it as a backdoor gimmick to charge higher rates. Price it based on your actual cleaning fees, and keep your nightly rates transparent.
4. Incentivize Longer Stays
As with long-term rentals, the greatest labor and costs in managing short-term rentals come from turnovers. From cleaning to coordinating access with guests and answering their questions, it costs far more time and money to rent to 10 guests in a one-month period than to a single guest staying for an entire month.
What’s more, short bookings can actually cost you the more lucrative longer bookings. If someone rents your unit for one night, it prevents a prospective two-week guest from being able to book your unit for that block.
So, price accordingly. Charge a higher nightly rate for stays under a week, and then offer a discount for guests who stay at least seven days. Keep graduating that discount the longer they stay, up to a month.
5. Consider Pet-Friendly Policies — For a Price
Pet owners often have a hard time finding hotels and vacation rentals that accommodate their four-legged family members. That means a shortage of supply, which in turn creates an opportunity.
There’s certainly no shortage of demand. More than two-thirds of American households own a pet, according to the 2019-2020 survey by the American Pet Products Association.
Of course, pets cause more wear and tear on your rental property. That means you should charge extra for them to make it worth your while.
By accepting pets, you can not only collect more money on a nightly basis, but you can also attract more guests and achieve higher occupancy rates. And in the vacation rental business, profits come down to occupancy.
6. Take a Multipronged Approach to Marketing
Putting together the perfect vacation rental listing is both an art and a science. Start your marketing with a killer rental listing.
First, hire a professional real estate photographer to take photos. It’s less expensive than you think, and it’s a one-time marketing expense that will continue paying off for years to come.
Photos should include several shots from different angles of each important room in the home. Pay particular attention to the kitchen, living spaces, bedrooms, and bathrooms. Show the photos to someone who has never been inside your property and ask them if they can visualize the layout and space.
Feature a few exterior shots as well, including the front of the property and any outdoor living spaces.
When filling out your listing profile, tick off each amenity, and select the bed sizes for each bedroom. Then in your written description, emphasize the property’s best features, and mention the most important amenities again.
If your location is a selling point, emphasize that as well. Include highlights like “Five-minute walk to the waterfront!” or “One block from the metro station!” Mention specific landmarks and tourist attractions nearby to boost your search rankings within vacation rental platforms — more on that momentarily.
Although Airbnb is the undisputed leader in the online vacation rental space, it is not the only player. Advertise your unit for rent on multiple platforms, including VRBO, Booking.com, and Craigslist. A previous player in this industry, HomeAway, was acquired by VRBO and merged in 2020.
But don’t stop there. Research ways you can market your vacation rental on social media, such as through local tourist groups on Facebook, or even paid Facebook ads.
The better your marketing reach, the higher your occupancy rate will be, which ultimately determines your bottom line.
7. Optimize for Search Rankings
Imagine your vacation rental is one of a hundred available in its neighborhood. A prospective guest logs into Airbnb and searches for units in that neighborhood — which ones does Airbnb display first, at the top of the page rather than buried at the end of that long list?
Vacation rental platforms have their own search algorithms, just like Google does. If you want your listings to appear first, you need to take pains to optimize for those algorithms.
First, listing platforms reward responsiveness. The faster you respond to inquiries, the higher the platforms will list your unit. Make it a priority to respond as quickly as possible, and if you can’t give prospects a precise answer immediately, at least reply back with a quick “I’ll check into that and follow up with you shortly.”
As with Google, click-through rate matters. That refers to the percent of users who see your listing title who actually click on it. So, boost your click-through rate by putting thought into your listing titles to make them irresistible. Your thumbnail photo also helps your click-through rate, so make it gorgeous.
Accept instant bookings, rather than requiring prospects to wait until you’ve manually reviewed them. Listing platforms include this as a search filter, so many prospects will never even see your listings if you don’t accept instant bookings.
Keep your calendar up to date. Airbnb rewards recency — the more recently your calendar was updated, the better.
Likewise, keep your listings up to date. Every two or three months, tweak your listings, perhaps to emphasize seasonal attractions in your area. This also makes a great time to review your listing for completeness within the listing platform, which also impacts your search rank.
“Completeness” refers to the percentage of available fields and selections that you’ve filled out. Even if you filled out every field before, they don’t remain static — listing platforms constantly add new features and options, and you need to stay current with them if you want your listings to appear before alternatives.
Be sure to mention local attractions in your listing description because some prospects search specifically for easy access to famous landmarks or other attractions. You want to make sure your listing appears front and center for those who do.
And, of course, the more positive ratings and reviews you have, the more platforms reward you with higher rankings.
8. Accrue Reviews ASAP
You can put together the best listing in the world, but if you have no reviews, guests will be reluctant to book with you.
Start with a simple two-pronged approach to scoring reviews. First, price your property competitively to beat your competition if you don’t have many reviews. Second, put together a guest follow-up strategy for securing reviews.
That strategy should include asking no fewer than three times for a review. Mention it at the end of your checkout instructions message, then again in a post-checkout message thanking them for staying with you. Then leave a review for them as well, and message them to let them know you left a glowing review for them, and ask them if they would be willing to do the same if they enjoyed their stay.
Your goal is to reach 10 positive reviews as quickly as possible. When prospective guests see reviews in the double digits, they feel more confident in booking, and your occupancy rate will rise.
9. Create an Experience
As outlined above, you can and should automate your booking, check-in, and check-out processes as much as possible. Aim to make them so easy an 8-year-old could do it.
Send a series of messages out on an automated schedule. Spell out everything the guest needs to know about getting into your property and staying there comfortably.
Assemble a concierge document about how to use the various appliances in your unit, the best local restaurants, and standout local attractions. Mention both the famous nearby amenities they already know about and the insider scoop on local secrets. “Drop by the Bulldog for an iconic Amsterdam bar experience, but then walk over to Door 74, a tiny, hidden speakeasy with no signage and a Prohibition-era vibe.”
It’s those more unique experiences your guests will remember and rave about later both publicly in their reviews and privately to their friends.
Leave a bottle of wine or some other gesture that they wouldn’t receive at a hotel. You don’t need to spend much money on it, and half your guests won’t drink it anyway, but it makes a great first impression. Underneath it, leave a brief handwritten note welcoming them by name. And, of course, chocolates on the pillows don’t hurt either.
People remember the little things, the small touches that remind them why they chose an alternative to bland corporate hotels.
10. Explore Co-Hosting
If you manage your own vacation rental, and other nearby units also serve as vacation rentals, start networking with the other neighboring owners. You can co-host for each other, or simply have one owner co-host for all the neighborhood units as a side hustle.
Co-hosts share property management responsibilities, such as communicating with guests, managing check-ins and checkouts, coordinating repairs, and more. See Airbnb’s explanation for a full list of responsibilities that co-hosts can perform. In compensation, the primary host can pay co-hosts a percentage of the nightly rate, a percentage of the cleaning fee, or both.
They can make an affordable and convenient way to outsource management, whether temporarily — for example, while you’re on vacation — or permanently. Or, if you live near the units yourself, co-hosting for neighboring vacation rentals offers an easy side gig to earn some extra money on other people’s properties.
11. Protect Yourself & Your Property
One way to protect your property is to physically make it damage-resistant, as mentioned above. But protection doesn’t end there.
Think carefully about the security deposit you charge. Charge as much as you think you can without scaring off guests.
Platforms such as Airbnb include some protections for hosts, and you should familiarize yourself with them. If you don’t use a platform and rent independently, look into other ways you can protect against damage, such as preauthorizing the guest’s card for an additional damage deposit, but not running the charge unless they cause damage.
But your guests aren’t the only people you need to worry about. If you buy the property with a family member, friend, or other partners, it inevitably causes conflict to one degree or another.
The most common disputes involve one partner wanting to use the property more often than the others, financial disputes over expenses, and disputes when one owner wants to sell and the others can’t afford to buy them out. I’ve seen all of these disputes play out in my own family, and can attest firsthand to how vicious they can get — vicious enough to permanently poison relationships, even close family relationships. Protect yourself by signing an agreement with your partners upon buying a property detailing exactly how you’ll split revenue, responsibilities, and access to the property, and spelling out the process you’ll follow if one partner wants to sell while others don’t. A little foresight today can save a lot of stress and infighting tomorrow.
Further protect yourself with contingency plans in the event that laws or market conditions change. Local regulation presents a real threat to vacation rental owners — cities like New York, San Francisco, and Santa Monica all but outlaw private properties being offered to short-term guests. Your city could change its regulations at any time, and you need a backup plan to protect against such seismic shifts.
Run the numbers to calculate how your property would create cash flow as a long-term rental, as one contingency plan. As another, look into leasing your property as a furnished corporate rental, for example, to travel nurses.
As a last resort, you can always sell the property, but it typically takes a few years for properties to appreciate enough to cover the closing costs from both the initial purchase and the eventual sale. But always have contingency plans in place, to protect against losses if conditions change.
12. Optimize Your Taxes
Vacation rental owners can benefit from both investment property tax breaks and small business tax breaks.
As a business owner, you can deduct expenses that you might otherwise have to itemize in order to take, allowing you to take the standard deduction while still deducting specific expenses. For example, you could potentially deduct for travel, home office, and charitable donations from your business, all while still taking the standard deduction. Just be careful not to get carried away and trigger an audit with the IRS.
Meanwhile, real estate investors get their own tax benefits. You can deduct costs from property management to maintenance, utilities to depreciation.
Beware, however, that a few cities — such as Santa Monica — require vacation rental owners to pay additional taxes. Make sure you include that expense when you run the cash flow numbers, before you invest in a vacation rental in one of those cities.
It’s a fun idea to own a vacation rental you can occasionally use yourself, while earning some extra income. But in many markets, it remains a competitive industry, and often property owners find themselves losing money at the end of the year without enough occupancy, particularly during slow seasons.
Always run conservative numbers when you calculate cash flow, and never lose sight of the fact that the property is an investment. Don’t get attached to any given property, or even to the idea. In real estate as well as stocks, emotion is the enemy of investing.
Even if the cash flow numbers work for a prospective vacation rental, run them for contingency plans such as using the property as a long-term rental. You never know when market conditions will change; look no further than the collapse of the travel industry in 2020 during the coronavirus pandemic.
Do you own a vacation rental? How do you plan to boost your returns on it, and what have you had success with in the past?