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With the explosion in popularity of services like Airbnb, enabling anyone to become a vacation rental provider, increasing numbers of landlords are starting to wonder “Should I convert my investment property into a vacation rental?” In tourist-friendly areas, the temptation of sharply higher per diem (per nocti?) rental income is hard to ignore.
What would it take to try?
Well, a lot actually, in terms of up-front costs. First the property must be furnished, no small expense in itself, although landlords with sharp eyes for style and a little imagination can certainly work wonders with well-selected secondhand furniture. Even secondhand furniture adds up however, when furnishing an entire living space attractively and cohesively.
Furnishing a vacation property does not end with furniture, however. Art and decorations, linens, silverware, dishes, cookware, basic kitchen appliances (toaster, blender, microwave, etc) are a good start. And what about a television or two? Additionally, there are countless small details needed for everyday living, such as trash cans in the kitchen and bathrooms, door mats to minimize the dirt tracked into the unit, hangers in the closets and so on. Guests will also expect personal amenities, like hair dryers, clothes irons and ironing boards.
Beyond the up-front costs, there are ongoing expenses. Consider consumer disposables, such as toilet paper, paper towels, dish soap and the like, and cleaning supplies, from Windex to Swiffer pads to brooms and dustpans. Next, remember that utilities will come out of the bottom line, from electric and gas bills, water bills, cable televion, internet and any other expenses necessary. Outdoor maintenance will also fall on the landlord, including cutting the grass, trimming hedges, etc.
By now the financial cost should be starting to crystallize, in an imposing way. The next set of costs is equally daunting: the time commitment in managing a unit that potentially turns over every day or two. Linens must be washed between each tenancy, and the unit must be cleaned from top to bottom. And then there is the glaring fact that these short tenancies mean a lot of work to constantly find new tenants, book reservations, keep a calendar of availability and generally be in communication with tenants. Vacation lease agreements must be signed, deposits collected (and usually reimbursed), rent payments must be collected, sometimes in several installments. If the tenants are dissatisfied with the accommodations, they will be calling, and sometimes at odd hours of the day. Don’t forget the extra accounting work, the potential for having to charge and pay local sales and/or occupancy taxes. A professional and intriguing rental listing, with professional-looking photographs, must be created and posted permanently online, ideally on several websites. Check-in and check-out procedures must be invented, then followed, for a smooth transition. The tenants will need to be given the keys, and must return them.
If that sounds like a lot of work, it is. This work can of course be outsourced to a manager, but then some of the profits will be outsourced, too.
So what will determine profitability? In a word, the vacancy rate (all right, two words). If the unit can be filled 75% of the time, at twice the per diem amount of rent, that still means a 50% increase in revenue, which may be enough to justify the start-up costs, extra work and extra ongoing expenses.
A last word of caution: if there is one group of occupants who can be even less mindful to take care of a rental property than long-term tenants, it is transient vacation tenants, who will never come back and are only passing through town for two days. Having twenty people stay at a rental property in a month can cause more wear and tear on the property than a few people who continually live there.
For an amusing case study of one landlord who is trying this experiment herself, see Paula Pant’s blog post “The AirBnb Experiment: How I Impulsively Started a Vacation Rental Business.”
