November 3, 2016
Vacation Rental Property Management Fees: Understand the Rates to Maximize Your Income
In the past couple of years, I’ve met people around the country who travel often for work or pleasure and rent out their homes while they’re gone. It’s a great way to earn a second income, but as you probably know, it can also turn into a second job.
Rental property management companies promise to alleviate rental responsibilities like cleaning and guest communication, but at a cost, often differing from company to company. How are busy professionals supposed to find extra time to research companies, look through contracts, and analyze fees and potential profits? It’s not realistic. Plus, many companies don’t make this information readily available, so you have to call, and even then, there are some things you don’t know until you get to the contract stage.
I decided we would take this on at Rented.com with the goal of bringing clarity to vacation rental property management fees. We ended up doing a complete study, looking at all types of management companies and their associated fees so you can determine if the profit you make from renting your apartment is worth hiring an outside manager.
It’s all the information you need in one place. I’m hoping this makes it easier for you to determine which type of property manager you need, helps you understand the rates and fees, and gives you an idea of what questions to ask so you can make as much money as possible—as easily as possible—from your empty home.
Gathering the Data on Vacation Rental Property Management Fees
First, let’s explain a bit about how we compiled this information. For the past four years, Rented.com collected data on property management company fees across the United States. We looked at more than 1,000 managed properties across the country of various types, sizes, and values. The properties we looked at were managed by a range of companies too, from small Airbnb managers to nationwide management companies.
Through analyzing this data, we gained a comprehensive understanding of the industry overall, and hope that by sharing our data, you can have a better idea of what types of services you need and how much you’ll realistically pay for a vacation rental property management service.
Property managers usually work on one of two fee models:
Commission model. Most property management companies work on this model, taking a commission in exchange for their services. The property manager earns money when the homeowner does, and usually has a yearly contract. This model offers flexibility to homeowners who regularly use their vacation homes because they can open up their rental calendars only for days they won’t be using the property. On open dates, the homeowner becomes dependent on the manager to produce income, and the homeowner assumes the risk and cost of paying for a property even if it doesn’t get rented.
Guarantee model. In this model, which has been recently adapted by the vacation rental management industry, the homeowner receives guaranteed rental income for the weeks he or she wishes to rent out. The property manager and homeowner agree on a fixed amount of income that the homeowner will receive each month, and the manager pays the homeowner that number every month—regardless of occupancy. This model allows the homeowner to entirely pass off the risk to a property manager. This model is useful if you want a guaranteed income each month, but are willing to accept it might be less than you could make with the commission model. The commission model allows the potential for higher-paying months, but also the risk of months where the property isn’t booked at all. With a guarantee model, you get a steady income all year long.
Many property management companies, including those on Rented.com, use both of these payment models, and the right one for a homeowner will depend on their goals for the property. For the highest possible return on investment, a homeowner may prefer to use a manager that can guarantee a certain amount. However, if you are mainly planning on using the home for vacations with family and friends, a commission model may be right for you.
Full-Service Management Fees
Most management companies cover everything from booking to cleaning to answering guest questions and handling emergency maintenance. The fees they charge are a percentage of the income made by renting out the vacation property. These are the averages found for full-service management across the United States:
Typical range. The typical range of vacation rental property management fees falls between 15-40%. While it is a wide range, it provides the answer to a commonly asked question for those seeking property management for the first time: How much do property managers charge for vacation rentals?
Average range. The average property management fee across vacation rental markets in the United States is 28%.
Urban rentals. As management fees go, vacation rentals in large cities are on the lower end, at 20-25%. Because urban rentals tend to require less maintenance than a beach or mountain home, they also usually have the lowest property management fees.
Beach rentals. If you own a home in a beach market, you can likely expect a management fee in the 25-30% range. Beach rental properties typically have lower rates than other vacation rentals because they are often closer in proximity (often within less than a mile) and thus are less costly for the manager to take on. You’ll also find this rate in more well-established vacation rental markets, such as Gatlinburg, TN, because there is plenty of competition to keep prices low.
Mountain rentals. In mountain markets, such as the ski markets in Colorado and Lake Tahoe, fees range from 30-35%. The fees for mountain or ski markets tend to be higher than those for beach and urban markets because mountain homes tend to be more spread out and require more maintenance.
In-house management. In-house property managers (typically found in condos where the company that owns the building also provides property management) can charge fees as high as 40%, a percentage that is costly to the owner. Because homeowners will often choose in-house vacation rental managers out of convenience and without comparing their options, in-house managers are able to get away with these unreasonably high fees.
Even if you prefer to manage your home without the help of a property manager, you still might want to hand over part of the job. In that case, you might want to hire a booking-only management company to handle the marketing and booking.
Because these companies do not operate locally and do not provide full-service management, they can charge a lower rate. The typical fees for these services are in the 10-15% range. Keep in mind, however, this fee only includes the marketing and booking services—not the cleaning and on-the-ground operations.
To stay competitive, some property management companies advertise low commission rates only to later tack on additional fees. These fees vary across management companies but can include fees for credit card processing, cleaning supplies, handyman services, linens, deep cleaning, and more. This can make it difficult for homeowners to accurately compare effective property management costs and project future rental earnings.
Consider the chart below, for example. It highlights the vast differences in how management companies define full-service management and the differences in seemingly identical price structures. Below you can see that for a home earning $20,000 in gross rental income, the higher, all-inclusive rate (Company 1) effectively leads to a lower cost once the competitors’ add-on fees are taken into account.
To protect yourself from hidden fees, ask for a complete list of all services provided before signing any contracts with the management company.
Avoid Fees Entirely
Like flip phones, bell-bottom jeans, and bring-your-own-bed-sheets-rentals, we at Rented.com believe management fees should be relegated to the ash heap of history.
No more risk. No more uncertainty. Relax. It’s rented.
Lead image: Flickr CC user Selamat Made