How to Rent Out Your Vacation Home
When Danielle Marquis began renting out her family’s vacation home on Tupper Lake in upstate New York last year, she didn’t bargain that the one-bathroom house would become wedding party central for eight recent college grads. “They left lots of garbage under the couch, scratched our newly painted dining room table and left a big gouge in our brand-new hardwood floors,” says Marquis. “Everything was fixable, just annoying.”
Marquis subsequently reduced the occupancy limit to four adults and added a clause to the rental agreement that failure to notify the homeowners of any damage would trigger a $20-per-incident penalty fee. “We haven’t had any problems since,” she says.
Home Sweet Rental
More vacation home owners are experiencing that learning curve. T.J. Mahony, founder of FlipKey, an online vacation home rental site featured on TripAdvisor, estimates about 15 percent of vacation home owners now rent out their homes, compared with 10 percent a year earlier. HomeAway, an amalgamation of online vacation rental sites, including the big daddy of ’em all, VRBO.com (vacation rental by owner), saw revenue from listings jump 30 percent last year to nearly $200 million. In 2012’s first quarter, listing revenue was up 20 percent from the same period a year earlier.
The itch to rent out vacation homes is hitting all price points. Laura Clark, senior underwriting manager at Chubb insurance, which caters to affluent homeowners, is seeing a lot more rental activity of luxury homes in markets such as Las Vegas and Scottsdale, Arizona, where owners can’t unload property. “We much prefer they don’t leave the home completely vacant,” says Clark.
Cash Flow Fixer
Financial concerns pushed Heather Zorzini, a retired flight attendant, to rent out her three-bed, one-bath farmhouse in Milford, Connecticut. “Renovation costs on a house built in 1835 are astronomical, and my postretirement plans didn’t include the 2008 stock market meltdown,” she says.
For Mary Russell of Highland Falls, New York, the housing market meltdown spelled buying opportunity. Last year she and her husband purchased a three-bedroom, 1,700-square-foot town home in Myrtle Beach, South Carolina, that they rent out in addition to using it for family vacations. Their rental income this year will be more than double their mortgage cost. That said, “every rental is the reward for hard work,” says Russell.
If you want to wring income out of your vacation home, here’s how to get started:
PREPARE FOR YOUR SECOND JOB. If you go with a full-service management company, the fee can be 20 percent or more of rental income. If you handle booking and marketing on your own, and hire people for specific needs such as housekeeping, be prepared to devote a lot of time to the endeavor. If you’re not willing to handle e-mail inquiries promptly -- checking e-mail at least once a day -- you’re bound to lose out to more proactive homeowners.
BE THE HOST WITH THE MOST. “It’s a mistake to think of yourself as the landlord and the renter as your tenant,” says Emily Glossbrenner, who with her husband, Alfred, runs fullybookedrentals.com. A one-bedroom cottage on the couple’s Bucks County, New Jersey, property generates $35,000 a year in rental income. “You are the host and they are your guests” is a better mindset, she says. “Guests behave more like friends, who will treat your home well and tell you if they broke anything.”
FOCUS ON MARKETING. Glossbrenner says if you’re in a competitive rental market, plan on spending up to $1,500 a year to get your home online visibility. The big websites are VRBO.com and its parent HomeAway.com. FlipKey also attracts significant traffic given its exclusive arrangement as TripAdvisor’s vacation-home rental engine. (TripAdvisor is a majority shareholder.) If there’s a strong local website that caters to vacationers, add that to your budget.
The VRBO.com site has tiered pricing that ranges from $349 to $679 a year. In competitive markets, paying for the top tier assures you more prominent positioning in searches.
ACCEPT THE ACCIDENTAL TOURIST. Accidents happen even when it’s just you at home, so expect renters to cause some dings and problems from time to time. Find out if your insurance policy covers renters. If not, you may need to amend it or shop for a new one.
In any case, your policy is for big-ticket protection. For smaller problems, the traditional arrangement is to ask for a refundable security deposit. A new trend offered through major online rental sites is damage protection provided by a third-party insurance company. The policy offered through VRBO.com (CSA Travel Protection is the provider) charges a one-time fee of $39 to $59 for $1,500 to $5,000 in coverage. Owners can insist on this policy as a condition of rental.
Mahony says half of owners using FlipKey no longer use security deposits. “I’d rather have the renter pay a one-time fee that gives me $5,000 in coverage than have to deal with handling a small security deposit that gives me less protection and requires me to collect and return the money.”
BE SPECIFIC. Think through your nightmare scenario as a guide for what you want to stipulate in your contract. Not interested in renting to a frat? OK, put a low minimum on the number of adults allowed and stipulate a minimum age. You might also spell out your policy on parties. For example, you may be thrilled with the lovely couple who want to rent your lakeside home. But the 40 nearest and dearest they intend to invite for a blowout celebration? Not so much.
Also spell out your policy on smoking, as well as pets. Marquis says allowing a dog has helped distinguish her home from other Tupper Lake rentals. To deal with extra wear and tear, she charges a $50 fee for a dog vacationer and ups the $400 security deposit to $500.
Once you have a prospective renter, take time for a chat. “There’s plenty you can hear in a phone conversation that can help you vet a client,” says FlipKey’s Mahony. If possible, meet your clients when they arrive, or hire someone to serve as your meeter-and-greeter.
Zorzini, who lives a few hours from her Milford vacation home, has a property management company be the point person for renters. She has just one gripe: “The house is so popular, if I want to stay there, I have to book in advance.”