Property ManagementThought LeadershipVacation Rental Tech 19 mins read

Is a Vacation Rental Franchise Worth It for You? Everything you need to know.

By August 15, 2022 No Comments
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Getting started as a multi-property vacation rental manager can be daunting—from setting up all the processes to navigating unfamiliar terms and software. Luckily, when setting out on this journey, you have a few options to consider, such as joining a vacation rental franchise or deciding to do it alone. While joining a short-term rental property management franchise program can have many benefits, it does involve making certain sacrifices. Either way, you need to know your options to make a fully informed decision.

What is a vacation rental franchise?

A franchise is an entity that gives a person (franchisee) the legal ability to use another businesses’ (franchisor) name, proprietary knowledge, structure, business system and processes, and trademarks, so that the franchisee can sell the same product or services under the franchisor’s brand. Buying into a franchise is a low-risk way to enter any market, especially when you lack expertise in certain areas.

In the case of a vacation rental franchise, a franchisor grants a franchisee the right to utilize its business resources and use its name in exchange for a franchise investment fee. This works well for all involved as the franchisee has a fully tried and true business to operate and the franchisor gets to scale their business and increase revenue without having to do the extra work.

The franchise model has proven to be an effective profit-making model to expand markets in many industries from fast food to restaurants and hotels. It has long been a stable method of entering a market, and can be very profitable for the franchisee (you).  

Franchises in the hotel and hospitality industry

Familiar names like Hilton, Marriott, and Hyatt are franchisors within the hotel industry. They’re the ones issuing franchises and controlling the overall direction of the brand. Investing in a hotel franchise offers franchisees a strong brand portfolio right away and a higher chance of business success. Over the past ten years, hotels have turned over ownership to franchisees, and now over 80% are running as franchised operations. Franchises can serve as a win-win business model if both the franchisor and franchisee work in tandem toward success.

The vacation rental franchise model – how does it work?

With the property management market in the United States currently worth a reported $96 billion, vacation rental property owners are taking a page from hotel franchisors’ playbooks. In recent years, a few sophisticated vacation rental franchises have popped up. All of them offer a package of branding, marketing, and software tools that’ll jumpstart your chances of success. In this competitive landscape, hosts are weighing the benefits of vacation rental franchises to ensure their rental property doesn’t get overlooked.

As a franchise owner, a franchisee gets full support and training from the franchisor. With this training, franchisees get access to proven strategies that work for the business, including automated and streamlined processes, technologies, marketing channels, and other resources familiar to the brand. The franchisee literally has everything they need to start their business. In exchange for paying the franchise investment fee and ongoing royalties, they have a business that is already well known and has a customer base.

The franchisee is also responsible for maintaining the physical upkeep of the business. They are responsible for the ground operations of the business, meaning the cleaning, maintenance, check-in process, hiring of staff, etc.

By joining a vacation rental franchise program, you can increase your property management business under a well-established brand name, benefitting from both long-term prospects and short-term profits. The fact is, starting a vacation rental property business from the ground up is no easy feat, and owning a vacation rental franchise could be the best way to kickstart your vacation rental property lifestyle.

What makes a franchise model different from running your own business?

Starting a business from scratch can be difficult. Not only is it a lot of hard work, but the operating costs to build a business from the ground up can be astronomical. It’s likely you will never meet a successful business owner that will say their journey was ever easy. It’s a lot of blood, sweat and tears, money and time to create a profitable business.

And there lies the difference between a franchise model and running your own business. To simplify it, here are the five major differences:

Best practices

Through blood, sweat and tears, the franchisor has spent years developing strategies and systems to make a profitable business. The franchisee doesn’t have to spend time doing that because the best practices have already been sorted out. All the franchisee has to do is follow the proven system.

Funding the venture

Since all the kinks have been worked out and a proven system that earns a profit has been realized, it will be easier for a franchisee to start a business. Rather than bear the burden of struggling to maintain the costs of operating a business that may take five or more years to prove profitable, the banks know you already have a proven system that works, so they’ll be more eager to work with you to start your franchise. They may even have a franchise advisor on hand to help discuss financing options, as some franchisees are able to pay through installments.

Well-known brand

One of the great things about buying into a franchise is that it’s already a known brand. All the franchisee has to do is take the existing branding elements and incorporate them into all of its marketing to get started. People already know what you offer and how you can help them. Once you start marketing your new business, you’re sure to have customers. Sure, the franchisee may have to pay royalties to have all of this, but consider the net worth.

Training model

As a franchisee, you could be coming into this business fresh with little knowledge of the industry. One of the cool things about buying into a franchise is that you also get ongoing support and training that you need to run your business. It’s smart for a franchisee to take full advantage of the wealth of knowledge and experience the franchisor gives since after all, they did create a popular brand.

Legalities

Remember, when buying into a franchise you are using someone else’s brand. With that comes certain obligations and rules that have to be adhered to. A franchisor didn’t work to get to this point to have someone else make a mockery of their brand. So, be sure to adhere to the terms of the franchise contract going forward. If you don’t, it could likely cost you your business.

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Pros of Joining a Vacation Rental Franchise

Guests look for different things while on vacation—some want a cozy, homelike experience others care more about cleanliness and location. Whatever your property’s specific strengths, building a healthy vacation rental business will always require skills in operations, marketing, sales, and guest management. To know how you’re doing so far, a Airbnb business health check is one way to determine if your business needs an extra boost or a new approach.

Joining a vacation rental franchise gives you a surefire method to take care of these essentials. You follow the franchisor’s playbook, use the tools provided to you, and hopefully watch bookings roll in. That means you have more time to focus on developing unique selling points of your business that matter to you (such as offsetting your vacation rental carbon emissions).

Let’s take a look at a few pros joining a franchise program:

 

  • Flexibility: How awesome is it to own a business you can work when you want from wherever you want? You’re not tied down to a 9 to 5, where you have to be in an office all day. Work your vacation rental franchise business from anywhere anytime you want.
  • Scale as you need: You don’t have to start off with a huge team. In the beginning, you may not need a team at all. As your business grows and over time, you can add to your team as needed.
  • Software: Vacation rental property management platforms (PMPs) are an effective way to grow and scale your business. Fully developed solutions like these are part of vacation rental franchises, and you will be given the training necessary to use this technology to provide 5-star hospitality. Vacation rental franchisors will have this tool available for you. It may be custom-built software tailored to the franchise’s unique structure or may be based on one of the popular PMPs you’re used to.
  • Clients: In the vacation rental market, word of mouth and who you know are vital for business. Renters can lead to referrals, and repeat stays, or they may even seek out your vacation rental franchise to find a location for their next trip. A big advantage of vacation rental franchises is that the franchisor will already have its own list of internal clients. So right from the start, your properties will get advertised to an established and loyal group of motivated and quality guests.
  • Resources: Most vacation rental franchises will have a methodology for success or a training program for you. This is probably where you get the biggest bang for the buck. You’ll save the painful steps many vacation rental managers had to live (and suffer) through to get to where they’re now. The franchise’s resources also mean that you’ll skip many of the business maturity phases. You’ll go from starter to established in one step instead of five.

Cons of a vacation rental franchise

It goes without saying that franchising is an investment. You are buying into a brand that grants you access to a well-known name and its quality services. You can expect to pay an upfront fee and an annual licensing fee when you join a vacation rental franchise. This is not an easy decision to make and much of it depends on your own confidence in the brand and whether the affiliation will bring enough new business to offset the costs.

Hidden costs of vacation rental franchises

Apart from the initial investment, there are a couple of hidden costs to take into account when joining a vacation rental franchise.

  • Additional Fees. In addition to the cost of investing in the franchise and the licensing fee, there are other fees associated with being a franchisee. Some contracts require you to pay marketing fees. No doubt, you will also still be doing your own marketing for the vacation rental, which is additional marketing fees. You will also need to pay royalties to the franchisor to have the authority to market their brand.
  • You relinquish control of your vacation rental property. Because you are joining a brand, you have to commit to their style of business. Beyond profitability, make sure you personally believe in the brand and are happy to be associated with it.
  • It’s all or nothing. They have countless perks, but if you decide to branch out alone, you lose those resources in one fell swoop. And because you haven’t grown your business on your own, it may take some time to build your own professional relationships if one day you decide to leave the franchise. The disruptive effect of switching software and business processes while active reservations are still ongoing cannot be understated.
  • Contracts can lock you in. It’s possible that when you join, you’ll have to sign a contract for a certain number of years. If you’re only joining a franchise to gain vital business expertise, this may be too much of a commitment.

Examples of top vacation rental franchise programs

There are a few key players in the industry, each offering distinct advantages :

  • Book by Owner—Based in the United States, this company offers its franchisees access to their software, training programs, processes, and more. They look for local property owners and seek to build lasting relationships.
  • Direct Booker—More than half of their 7,000 properties are managed by franchisees across Europe. Direct Booker is based in Croatia and is perfect for agencies and entrepreneurs alike. To start your vacation rental franchise with Direct Booker, you’ll need about $3,000. Unlike many franchises, this one-time fee includes everything you’ll need. No other fees are required.
  • Happy Holiday Homes—Located in Switzerland, Happy Holiday Homes has rentals all over Europe. They’ve been successfully using the vacation rental franchise model for over seven years.
  • iTrip Vacation Rental Franchise—iTrip is one of the top property management companies worldwide. With over 2,500 properties, they provide international distribution, training, and software to their franchisees. To start your vacation rental franchise with iTrip, you’ll need about $55,000. You’ll also have to pay a 5% royalty fee and a $540 monthly SaaS fee.
  • Pass the Keys—This full-service company is based in London and has grown immensely since its franchise model was introduced. Pass the Keys is perfect for new vacation rental property franchisees.
  • Casago—With thousands of properties throughout the United States and Mexico, Casago has been leading the vacation rental industry for over 20 years. Casago provides its franchisees with exclusive tools to support owner acquisition, revenue management, and streamlining operations on a localized level.
  • Property Management Inc—Entrepreneur Magazine labeled Property Management Inc as, “The fastest-growing property management franchise in the United States.” The company is founded on four pillars of real estate management and provides excellent service options. To start your vacation rental franchise with Property Management, Inc., you’ll need between $21,000 to just over $100,000. The franchise fee can be as little as $15,000 or as much as $62,900.
  • SkyRun Vacation Rentals – SkyRun assists local entrepreneurs in starting their vacation property management business or expanding their existing business. They provide entrepreneurs with access to a back office that has all the tools and resources they need and a network of wholesalers. To start your vacation rental franchise with SkyRun Vacation Rentals, you’ll need about $75,000 – $100,000. You’ll also have to pay a 4.5% royalty fee and 1% national marketing.

Alternatives to joining a franchise

Many people think about joining a franchise because they lack business expertise, but find the added commitments may not make the collaboration worthwhile. In these cases, investing in training may be a better option. Start with a short-term rental accelerator course or check out Mark Simpon’s Boostly for tips on how to increase your direct bookings. Also, be sure to subscribe to VRMB for insight from Matt Landau, and join industry-related groups on LinkedIn or Facebook.

If you already have a property and haven’t invested in software, the time is now. It’s critical to use a property management platform (PMP) that includes a direct booking site to maximize on rentals; a dynamic pricing app that integrates with your PMS; and an integrated cleaning and turnover app.

To run a smooth operation, it’s imperative to check all your blind spots. Once you map out your current operating processes, you will be able to eliminate bottlenecks and move full speed ahead.

Starting your own vacation rental franchise

Joining a franchise may not be the right move for you. Maybe you feel your business is in a good place. It’s well established and you’ve already done so much of the hard work that you’d like to see it fully scaled. If that’s the case, you may be looking to expand your business. For you, that could mean starting your own vacation rental franchise.

Why should you start your own franchise?

You’ve started your vacation rental business and it’s been going well. You’re impressed with your sales and profits and are wondering what you could possibly do to make it any better. If you’re ready to take your business to the next level, one of the ways to do that is to start a franchise. Starting a franchise isn’t an easy task. It should only be considered by someone who is on a driven path to fully grow their business. That means, they’re also willing to commit to the extra work that comes with it.

Also, if you love helping others, starting a franchise is a great way to help other entrepreneurs build their businesses. When franchisees invest in your franchise opportunity, they look to you as their coach and mentor and will be expecting to be a “mini you” as they move forward in their business endeavors. That means you will put time into helping them succeed.

If this sounds like you, then maybe you should start your own franchise.

Do you need experience to succeed as a vacation rental franchise?

The truth is, you already know how to succeed in this business. As a franchisor, you will have other people just like you repeating the proven process you achieved. As a franchisor, it will be necessary to find entrepreneurs like yourself who want to succeed in the business. Since you already have the business aspect, you’ll just need a coaching mentality to help them become successful in the business.

As a franchise, what would be your responsibilities?

As a franchisor, it will be your responsibility to continue to oversee the success of your brand. With that being said, you will want to:

Optimize the process

The core of the franchise business is the business model you created that others will be using. It will be important to continue to follow that process. You may need to adapt some things as you go to keep business operations efficient. That could involve changing some processes along the way. Whatever you do, make sure these are all strategies that are proven to work. You will also need to ensure that all franchisees are aware of any changes to the model and ensure they receive the training and support to implement them.

Remember to stand out

Remember that it will always be important for customers to know what it is about the brand that makes you stand out from the rest. Why do customers choose your vacation rental every year? What keeps them coming back? That will be important to know and maintain and ensure that your franchisees are functioning in that same way.

Look for new opportunities

The whole point of the franchise model is to scale and expand your business. Always be on the lookout for new opportunities. In doing so, you may even want to consider property owners that you feel would be a good fit for your franchise and invite them in. Always be on the lookout for opportunities that will expand your franchise. You may even want to connect with other vacation rental franchisors to get ideas and tips from them for growing your business.

Don’t be afraid to delegate

As a franchisor, your responsibility just got a little heavier as you’re trying to manage your franchise. It’s okay to delegate smaller tasks to people you trust so you can handle more important things. Trusting others with your vision is necessary if you intend to grow your business.

What do you need to launch your own franchise?

The two most important things you’ll need to launch your franchise are a business model and legal consultation.

The first thing you’ll want to have in place as a franchisor is a proven business model for others to follow. The business model includes the framework for which vacations are set and how to operate the business. This model should be proven to work well and is profitable and scalable for the future. In essence, you will be sharing the processes you use to operate your vacation rental franchise with others so they can use the same strategies as you, as well as everything else connected to your brand.

Since the franchise model involves the exchange of fees and contracts, it would also be wise to have an attorney draw up the contracts you would need franchisees to sign. A good lawyer will know everything to include in the contract so you can get everything deserving of being a franchisor, including royalty fees.

The franchise agreement will provide explicit details about the relationship between the franchisee and franchisor and will spell out the expectations for both. Most franchise agreements will include:

  • Location. Where the franchisee will operate the business.
  • Operations. This will explain how the franchisee will operate their business.
  • Training and support. This will explain how the franchisor will provide training and support to the franchisee.
  • Duration. This will provide how long the agreement will be in place.
  • Investment Fee. The franchisee will need to pay a fee to have access to the franchisor’s trademark, business model, and brand. Those costs will be explained here.
  • Royalties. Most franchisees are expected to pay a percentage of their monthly sales. That language will be detailed here.
  • Trademark/Patent. This section of the agreement will explain to the franchisee how they can use the franchisor’s trademark and brand name.
  • Advertising/Marketing. If there are special fees associated with marketing costs that the franchisee will need to pay, it will be explained in this section.
  • Cancellation/Renewal. This section will explain how the franchisee can renew or terminate the contract.
  • Exit Strategy. Should the franchisee ever want to sell their franchise to someone else, this section will detail what that process should look like.

 

What’s next?

Starting out is always a challenge, but with the right tools and information, you have all the resources necessary to devise a plan and begin on your journey. Whether you choose to take part in a vacation rental franchise or decide to go your own way, it’s important to choose the right path for you. Reach out today to see how we can help.