These are more than likely the two most important questions a potential Vacation Rental Management (VRM) business owner will have. How do I make money and how long will it take to start making money? Both fair questions, so let’s get started. How Do I Make Money in the Vacation Rental Management Business?
The most obvious answer to how you make money in the VRM business is homeowners pay you a commission when their property in your network is booked for a vacation.
A vacation rental homeowner is looking for a company to help advertise the rental of their property, manage the reservations, collect the money, handle checking guests in and out, arrange for house cleaning and light maintenance, and deal with any issues that may arise during the entire rental process. So, of course, they’re willing to pay someone, (and why not you?) to handle all these details for them.
Never think of your commission as “taking” money from the homeowners’ profits. You will have earned it fair and square by the time the guests check out.
Commission rates depend on many factors, and they can range from 13-40%. The average commission, however, is 20%.
Next question undoubtedly, 20% of how much?
The average property generates revenue of $30,000 per year. So, if the average property generates revenue of $30,000 per year and the average commission is 20%, the property manager makes an average of $6,000 per property, per year.
Those are just averages, of course, because there are several variables. We’ll talk about those in more detail in just a minute.Fees
There are more ways to make money than just commissions, which many VRMs choose to take advantage of. You can potentially make money on the margins of fees. It’s possible to charge extra for everything from booking to cleaning, to pets, to early check-in and late checkout. It may not seem like much if you’re making an extra dollar here and there, but it adds up.
Fees are tricky though. We are careful to point out to our managers that people hate being nickeled and dimed, especially guests on vacation. They may be willing to pay extra for some of the services provided, but there is a limit. We’re happy to help you sort through the fees issue when the time comes.Vendor Relationships
Another way to make money is to cultivate relationships with local vendors of goods and services. If you do this, you agree to recommend their business and even take care of bookings for a small cut of the profit. Or, you may simply add a booking fee for handling it personally.
So, for example, if your business is in a beach resort area, you can have a preferred business for beach-chair and umbrella rentals. Every time you arrange beach chairs and umbrellas for guests, or you refer them to your preferred vendor, you make a little extra money.
When you start looking around, you’ll see there could be an opportunity to make extra money in many ways. Watercraft rental and boat excursions, bicycle and scooter rentals, and even cooler rentals are possible. There are vendors in every location that would love to get business referrals from you. Everything from ski rentals to whale watching trips to spa days, gas grills, cribs, and grocery delivery can be offered to your guests.
This business arrangement with the vendor helps in three ways.
- Your guests are happy to accept your recommendations and your help arranging the conveniences they want.
- The vendors are happy because you’ve referred business to them which they might not have gotten otherwise.
- You are happy because you’ve made a little extra money with minimal effort.
It’s a win-win-win and it adds up to a sizable sum if you take advantage of all the possibilities in your area.How Long Does It Take to Start Making Money in a SkyRun Vacation Rental Management Business?
Once you realize there are multiple ways to make money in the VRM business, your next logical question is how long will it take me to break even or realize a profit? There is no set formula for this, of course, because there are a lot of variables and unknowns.Location and Property-type Variables
First of all, at SkyRun we want to assure you we don’t think of our owners as property managers as much as we think of them as Destination Owners. When you enter into a license agreement with us, you become an owner of a particular destination.
With that said, the location of your destination market, the types of properties you have in your rental pool, and where they’re located within your market are key factors that will affect how quickly you can break even.
If your Vacation Rental business is in a popular market, more bookings come in at a faster rate. In addition, property owners can charge higher rates in a desirable location, therefore paying higher commissions. For example, a luxury property on Kiawah Island or in Aspen could generate over $250,000 per year while a similar property in a more moderately-priced location will generate less.
In addition to the location of the destination, the location within the destination is a factor. A multiple-bedroom, luxury beachfront estate can charge higher rates than a 2-bedroom condo off the beach in the same market.
It’s easy to see how location and property type can create the greatest variables in the amount of money generated in a Vacation Rental business.Seasonality Variables
Part of the variable of how long it takes to make money depends on what time of year you open your doors for business. Most resort areas have a high season and a low season. So, if you launch your business in the middle of high season, it’s likely you’ll have to wait a cycle to get bookings since many people arrange their vacations several months in advance.
Likewise, in-season rates are higher, so you’ll make more money and close the gap a little sooner if your opening coincides with seasonal bookings.Property Inventory Variables
How many vacation properties you manage and how quickly you can add them to your availability pool is another factor in how long it takes to start making money. We recommend setting an initial goal of 25-30 properties. This is manageable for you and sets you up to make a nice living. The more inventory you have, the more money you’ll make in the long run.
We strongly recommend you follow our training which is designed specifically to help you quickly and efficiently accumulate inventory. Speed and quantity are two major variables in determining that magic point when you can expect to break even and start to make money as a Destination Owner. If you follow the SkyRun training principles and use our tools properly you will minimize the time this takes.Inventory Availability Variables
Your goal as a Vacation Rental Destination Owner is to be at capacity as much as possible. But variables in property types and sizes, seasonality, and location all play a factor in availability. Additionally, the homeowner will block off time for their personal use of the property. Some owners will use more time than others, often at peak times. It’s nearly impossible to keep up with.
That’s why SkyRun has an internal dynamic pricing tool (DPT) in the reservations’ software program. It helps Destination Owners manage rates and capitalize on booking trends. The DPT helps you increase and decrease your rates based on occupancy, how far out the bookings are made, and other factors you may not be able to anticipate. The Covid-19 pandemic created the perfect storm of unanticipated fluctuations in booking trends and availability. One week Florida spring breakers are all booked and ready to go, and the next week cancellations start flooding in.
Airlines are the prime example of how it works on a day-to-day basis. No doubt, you’ve experienced how an airfare you look at one day can suddenly go up in price by ten, twenty, thirty dollars the next day. Or, you can be on a flight where passengers paid different prices for seats right next to each other. That’s the dynamic pricing tool in action. SkyRun’s internal dynamic pricing tool works 24/7 to help your Vacation Rental business actively book reservations for all your inventory every day of the year.So . . . how long DOES it take to start making money?
The short answer to the question about how long it takes to break even or to begin to show a profit for most new SkyRun Destination Owners is 6 to 12 months.
Some owners have aggressively built their businesses by quickly accumulating inventory. They’ve launched at just the right time and they’ve used our tools for their marketing efforts. They’ve employed all the benefits of the software programs. They’ve followed the suggestions for making those important local vendor relationships. They’ve soaked up all the training information and materials. And some of those owners have been able to break even or make a profit in less than 6 months.
But don’t let that intimidate you. The beauty of a SkyRun business is that you can build it at your own pace. And because the capital investment to open a SkyRun business is relatively low, it takes less time to hit the breakeven point in general.
These and many other reasons are why we’re so confident and convinced SkyRun is among the best, if not the very best opportunity
, in the Vacation Rental Industry.
SkyRun is a full-service Vacation Rental Property Management company that licenses its business to individual entrepreneurs, who become Destination Owners. In 2021, RentalsUnited.com lists SkyRun as one of the top 50 global companies leading the way in Vacation Rental Property Management.