Getting Started With Your VR: How to Successfully Run A Short Term Rental Business
Every week we're going to cover the real life story of how I'm helping my parents set up their beach vacation home to be a vacation rental property. Dave and Lee my awesome parents have a property in Sargent Beach, Texas and we're about to turn it from a personal vacation home to a vacation rental ready for guests!
I'll be helping them navigate the sometimes not so simple but complex world of starting a vacation rental. Asking the question - how do you start a vacation rental?
What could I make if I rented out my home as a vacation rental?
The average amount that a vacation rental makes per year. This is the same question that many second home owners or even primary homeowners ask. I was curious too so I simply went to VRBO and put in my address for my apartment in Dallas, TX. VRBO says I could make $13,710 per year! Plug your potential property in too and see what it says!
Where do you start to turn your house into a Vacation Rental?
First welcome to the adventure! You have to look at this adventure not just as a hobby but a professional business. You've had a full time job before so realize that this is something that needs to be treated the same way. People are choosing your home as a place to stay much like a hotel.
Now the best place to start might be to pick a date that you want your first rental. For my parents it is after April 15th when summer starts to officially hit Texas. So we're quickly working to get everything done but 6 months is probably a better, more realistic timeframe to get a home prepared.
How to start your vacation rental business
Because remember it's a business :) These are all recommendations based on following my parent's story and industry advice. This is only part 1 of a series we'll keep releasing and check out our full checklist to help you manage all the to do's for getting your property vacation rental ready!
As Hostfully states in one of their articles about starting your VR “you want to have good cash flow, avoid tax penalties, stay organized, have a great presentation, minimize risk and ensure your customers are satisfied.
(1) Research about Vacation Rentals in your specific area
Two parts: Competition (aka other owners who will become your friends) and Regulation
Just like when starting NoiseAware we looked at what others were offering in our industry, other smart home tech (Nest, Canary, Ring), all to gain information on how we should position ourselves in the market. Some yes are competition but we still have a great relationship with them and exchange best practices.
Do the same 6 months out from that rental date. Find out who is in your area look at their listings, their pricing, see exactly how they're communicating about their property. It's probably best to look at the ones that surface the most in your searches in your area because they have 5 star reviews, they have great titles for their listings and have probably been doing it for a while.
We did a search on Seaside since we were talking to another homeowner who was starting her vacation rental there. Things from a quick search on VRBO:
How could you get to premier partner status? How could you offer discounts when you want to gain bookings?
Mentioning a popular spot to be in Seaside in the title
Showcasing how many it sleeps so it stands out
Lastly showcasing “family friendly” is perfect for a beach town, as well as, amenities people might be quickly looking for.
This is a great place to also start reading through some of the reviews of rentals that you would “aspire to be” see what they're doing right, what they could be doing better and use that as knowledge for what you can do with your rental.
Another insight here is pricing but we can go into a deeper post about that later on.
You should try to take a few weeks in month 6 to research others in the area. Although in this industry they may seem like your “competition” we really think of people in the area as friends so find a community or ask on any of the popular Facebook Groups who else is renting in your area and ask questions about things you need to know before setting up your listing specific to only your area.
Vacation rentals in the past have been largely unregulated but multiple local and state governments have been pushing for restrictions and specific regulations for short-term rentals. Before you start listing you should be aware of the rules, regulations and tax requirements specific to your area. There are not many listings in Sargent, TX so we're using another homeowner's example for Seaside. Doing a quick online search specific to the county followed by “short-term rental regulation” (another one to use is vacation rental regulation) will help in providing whatever regulation is current.
You should find information on any of the following:
- Taxes that the city collects
- Permits Required
- Specific rules and regulations that are for your area
This part is so important for the industry as a whole you have to make sure that you are complying with local regulation and that you are managing a professional business (with your rental).
Now for Seaside and that homeowner we were able to find the information for a registration form so that she can submit taxes. A lot of times you have to do some digging and clicking on a few google links to get here.
Every city and county are different so to verify that you are properly renting out your rental head to City Hall and ask!
And remember those people that you made friends with earlier who are also owners of vacation rentals in your community - ask them!
If there is not already you could also form an Advocacy Group that works with the local government and other entities to advocate positively for short term rentals, educate folks on how to rent their properties under the right rules and regulations and support one another for when regulation conversations are brought up at City Hall.
There's no better time to set up an Advocacy Group then right now, when you know and have researched that there is already not one.
(2) Insurance + Taxes
Hostfully wrote up a great post here that has some essentials and some great advice they talked about when thinking about to LLC or not is:
Doesn't seem necessary to have an LLC with only one home like my parents but with more than one home this might be beneficial. Regardless of what you choose (sole proprietorship or LLC) it is important that you have at least a $1 million liability insurance on your property.
Tip: Another tip here with the LLC or sole proprietorship is that you can separate your business into it's own checking which Hostfully state's can help you properly record and report your income and expenses. That has great tax advantages.
This can effect your taxes which we talk about next but just making sure that you in some way register as a business is something to discuss with a legal advisor or tax advisor.
However, you're renting out to people who are in your house and who can become a liability for you.
Insurance helps protect you, your property and the guests.
Here are the different options you might come across but for my parents were looking for liability + homeowner's coverage.
These are from the popular listing platforms. You can always read more about what insurance to select here. For my parents, they're looking at choosing Proper Insurance.
They're all-inclusive and they are specific to short term rentals. There are many options though when it comes to insurance so you can do your research!
When do you need to get insurance for your vacation rental?
We spoke with Proper and here's some advice we gained in our research process:
- They have what's calling “binding authority” so they can actually help provide you with same day coverage if it's needed.
- If it's a new purchase - you will need insurance at the time of closing if you have a mortgage. They recommend getting the coverage a few days before closing so you can have the document “evidence of insurance (EPI)” at time of closing and there is NO STRESS!
- If it's not a new purchase - and you are simply converting it to a vacation rental then they recommend having coverage in place the day your online listing goes live (Airbnb, VRBO, Booking.com, HomeAway, etc). The reason being, as soon as you start advertising as a vacation rental, you are a vacation rental in the eyes of the insurance world and industry. This means you need to be an insured vacation rental.
How do I figure out taxes?
As you saw earlier with regulation if my parents were in Seaside like the other homeowner in this example then they would be required to pay taxes to the county. Vacation rentals are usually subject to the transient occupancy tax (TOT) much like hotels.
In many cases you can file it yearly like you do with your taxes at the state and federal level.
You may assume that HomeAway or Airbnb would collect these on your behalf however, in many cases and in multiple locations they are not. They may not have a specific collection process with the city, state or local government.
The ownership falls to you. Get with MyLodgeTax to look into how simple it can be for you to be compliant and explore this now so you don't have to deal with the headache later.
(3) Rental Agreement
You really need a rental agreement that should reiterate the expectation and details of the booking with your guests. It also outlines what is expected of you and your renters.
There are a bunch of samples that you can find online like Lodgify's Free Vacation Rental Agreement Template but here's a list of everything you should cover:
- Check In / Check Out Dates
- Guest Information
- Rental Rates and Payment
- Maximum Occupancy
- Cancellation Policies
- Damage Policy
- House Rules
- Things like:
- Neighbor / Community Rules - Quiet Hours
- No Parties
- No Pets Allowed
- Use of items in the house
- Things like:
- Use of Security Cameras or “Surveillance Devices”
This is a great place to potentially get consult from a lawyer on what the write info is to put here. Obviously we are not professionals so we can only recommend but not authorize what you end up using.
When you're ready to add this VRBO listing go here to learn how: https://help.vrbo.com/articles/How-to-upload-my-rental-agreement
In the next part of my parent's journey we'll cover:
- Getting your property ready
- What type of host you want to be?
- Sample inquiry responses, arrival information for guests, welcome letter and checkout policy templates, etc.
- Where to list and the cost of listing
*NoiseAware in no way can state that any advice in this article that is legal or tax specific is best for you and your business. This is all advice from other homeowners, industry experts and Christine's journey navigating this with her family's vacation rental. Please do not take this as legal advice.
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