Deciding whether or not to hire a property manager for your vacation rental is a big decision. After all, how do you know your property will get the attention it deserves? What about the guest experience? Will problems get adequately fixed? And finally, the most critical questions, how much will all this cost me and what fees should I consider? The simple answer is: there are many rental management fees you need to consider. These range from the cost of the property management company, to routine maintenance fees, and local taxes.
Today we are going to demystify short term rental management fees to help you make more informed decisions about your vacation rental property. We’ve also canvassed experts in the vacation rental field to give you their insights on short term rental management fees.
There’s no fee for this ride folks!
Note: In this article, we interchange vacation rental and short-term rental. There may be a difference in the offerings each provide. However, both rely on similar processes and marketing tactics to run successfully. In general, a great vacation rental management company will be able to operate short-term rentals (and vice-versa)
Benefits of hiring a property manager
The benefits of a short term property manager are clear. A vacation rental management company can take over the day-to-day running of your property, ultimately freeing up your time and reducing stress. This can be a really transformative phase in a vacation rental owner’s life: it lets you categorize your investment as true passive income. However, the convenience of a property manager has a cost: management fees.
What are the most common property management fee structures?
There are three standard models for short term rental management fee structures: the fixed, guaranteed, and percentage models. As we’ll explore below, each type of management fee structure has its pros and cons. There isn’t necessarily a better or worse one. It basically comes down to what’s right for you and your property.
Fee structure #1: Guaranteed income
Many property managers follow a guaranteed model. With this fee structure, the property owner is guaranteed a fixed monthly income, regardless of how often the property is rented. Any income above and beyond the homeowner’s guaranteed income goes to the property management company.
This is great for property owners who want a stable and 100% passive income. High or low season, your investment will earn you the same income throughout the year. But for properties in some touristic hot spots, you could make less when compared to the commission or fixed-rate models.
Fee structure #2: Fixed-rate
There are some short term rental management companies that offer a fixed-rate fee model. The owner pays a flat fee that comes with a predefined set of services. The fee doesn’t change based on how many nights the property is booked a month. So for example, you may be charged $300 a month for handling bookings, and cleaning fees. The advantage is that during high season, or if your property has a high occupancy rate, you pocket the profits.
Seems too good to be true? Here’s the catch. Many companies charge additional short term rental management fees on top of your monthly payment for other services including check-in greetings, marketing, essential maintenance, and more. If you choose this type of fee structure, read the contract and negotiate to have additional services included in the monthly fixed-rate.
Fee structure #3: Commissions
In the commission model, a property manager will take a percentage cut of your overall monthly earnings. This is a popular fee structure since your expense is directly linked to the income generated. Slow month? No problem, you’ll pay less.
Just how much property managers charge depends on the company and the services you get as well as the vacation rental’s location. However, according to a 2016 survey, the industry average is 28 percent. In general, commissions will be lower for urban properties compared to rural, mountain or beach locations.
According to Denise Supplee, Co-Founder of Spark Rental, the fees for short term rental management is about 25-50% of the rent plus costs. Vacation rental owners who are also residential landlords probably just jumped out of their chairs seeing that figure (they’re used to seeing 6-10%). So here’s the difference: long term rentals are generally cheaper to manage because there are less turnover and involvement. On the other hand, a vacation rental requires regular cleaning and much more commitment (bookings, communicating with guests, paying attention to details).
Additional property management fees
Depending on the structure of your vacation rental’s management contract, there are a few services that may get tacked on to your monthly fee.
Many short term rental management companies pass on this fee directly to the guests. Once they take control of your property, they add the cleaning fee to the reservation. Most owners won’t see this fee in their monthly management bills. However, if the contract is set up in a way that cleaning is an added expense, you may see this as a recurring expense. Any time there is turnover at your property, a manager will arrange for cleaning to take place. Of course, this costs money and will dig into your earnings.
Cleaning fees range widely depending on the location and size of the vacation rental property. If you own a studio condo in the city, this cleaning fee might be under $100. But if you own a 5-bedroom estate in the Hamptons, you may be looking at several hundred dollars.
Steve Patterson, founder of Ur Home in Philly (UrHIP) believes there are a number of factors to consider when analyzing cleaning fee structures for your vacation rental:
- What’s included in the cleaning fees?
- How good is the cleaning?
- Is there a process and check-lists in place?
- How long does it take?
- Will you be able to clean the home between guests without losing any potential bookings?
When discussing property management fees with a potential vacation rental company, there’s a host of important questions to ask. These are some of the most critical ones as they might affect the stability of your income if they aren’t properly defined.
General maintenance and urgent repairs
There’s no doubt that one of your most significant short term rental management fees is maintenance.
It’s crucial for you, the vacation property owner, to understand how the manager structures the maintenance process. Here are a few questions you can ask:
- Do they have an in-house team or do they outsource?
- What maintenance issues can’t they fix in-house?
- What’s their turnaround time for a regular repair?
- Is there an emergency number for guests to contact?
- When are they required to consult you as the owner?
Elysia Stobbe, a nationally recognized author and property expert, believes all owners should be asking how a property management company handles their maintenance fees. Specifically, “Do they have an in-house team, how do they charge you, and do they take it out of rent or is it separate?”
Once again, before you sign up with a vacation rental manager, make sure you check if this is included in the monthly fee or if you’ll get an additional charge.
Additional short term rental management fees
Be sure to ask your potential property management company up-front what kinds of extra fees they charge for a regular booking. Some will throw in additional charges like a check-in fee which covers the cost of the property manager welcoming guests or exchanging keys.
It has also been reported that many property managers charge extra for parking, hot tub, pool, and booking management.
It may also be a surprise for you to learn that almost all short term rental management companies charge an annual or bi-annual deep cleaning. This is likely a good thing to do, but make sure you understand upfront the frequency and cost of this additional fee.
Credit card processing fees are also something to consider if bookings are made directly through your vacation rental management company. Finally, if the management company books rentals for you, as opposed to you bringing in the lead through Airbnb, HomeAway, or VRBO, they may take a higher percentage.
Final thoughts: Finding the right vacation rental property manager
Most professional vacation rental managers will be able to provide you with a complete list of their short term rental management fees and be able to explain the importance and reasoning behind each one. Stay vigilant, and know what you’re paying for.
Denise from Spark Rental sums this sentiment up best: “When you are hiring a management company, don’t just look for one and hire them. Do the digging. Because of poor management, attracting guests may be harder and keeping them happy is difficult. That is a big old loss of money. Make sure that whoever you hire has a great reputation. Read reviews on Google. Ask others in the industry about them.”