VRBO's are they a good way to maximize a properties returns? I have 2 very nice properties under contract. One has a main home, 3k sq ft with a 1 bedroom cottage, a 2 bedroom cottage & an efficiency apt. The other property was a renovated barn that was just featured on the fixer-upper tv show! Both properties are extremely unique but both seem perfect for short term vacation rentals thru Airbnb or VRBO website booking services. Have local friends who are doing this with their home & stay at about 90% occupancy & they are quadrupling what their mortgage expenses are every month. In fact they are looking to move out of the home permanently to keep from living with family pretty much all the time. So in trying to decide if this is a good direction for me to take on these 2 places it if there may be pitfalls I'm unaware of. I have forecasted the numbers & at 25% occupancy (at local comp rates) I cover my NOE. Would love any advise or theories about going this direction.
Specialist · Baltimore, MD · Member since 2016 · 384 posts · 318 votes
10y
Make sure you have an alternate strategy for these properties if and when laws in your area change on VRBOs. If doing VRBO is your only strategy to cash flow off these properties, it is too risky to take on.
@Jake Miller Every property management company, owner, and CPA I have talked to counts cleaning charges as revenue. And cleaning and maintenance expenses as expenses. Both in future forecasts, as well as historical financial reporting. And I don't think the IRS has a section for "bonus revenue"...nor do many people do financial forecasts with "bonus revenue" in them ;)
If we want to get pedantic we'll obviously be counting it as revenue, however, that's not the point I'm getting at, and one I would hope people would obviously understand not to focus on. The point being is, cleaning costs only arise when you're making money, it's not some sort of fixed debt that will be there when you're not getting bookings. The need only arises when your customer books the home, and that need is then paid for by that same customer. It shouldn't be cutting into your margins... In comparison to a mortgage or your utility bills or property taxes which will always be there...
"beyond having paid cash for your property"... obviously
Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes
9y
OK, well there are no cleaners around here who charge less than $20/hr... That's per person. Maybe a college kid or some teenager will charge $15, but are those people even reliable? It takes 4 hours to clean my 1,200 sq ft place, between turnovers. We don't just change sheets and scrub floors, we deep clean the kitchen and bath, wash windows, vacuum every square inch of floor, use lint rollers on our sheets, water plants, organize books, dust the blinds, wipe down all hard surfaces and couches, and more depending on how messy the guests were. Charging a guest a cleaning fee will only cover so much. It looks spotless when it is done. That's our standard. I make it look like it is ready to sell on the market before I let someone step foot in there. I don't cut corners with anything I do in my life. I also don't use illegals to clean my place, so maybe that makes a difference?
And every single lawn care and yard care company I have talked with charges by the month, and wants me on an account. I also don't have much lawn, as my property is xeriscaped with native species. I need a gardener. I only have to mow 2-5 times per summer, depending on how wet our spring is. As you see, every single property is different. Part of my property's appeal, and also why I charge a fair amount per night, is the landscaping in the summer. In the winter, the sidewalks need to be plowed after each storm... That is big bucks. We get feet of snow here, so it's a big job.
Can I minimize my costs? I'm sure I can, but it would compromise the quality I can present to my guests when they arrive, which I am not ready to do. We get return customers, and customers from word of mouth. Our place is booked all the time, so I don't mind the extra work. With 2 extra properties coming online soon, we will need to hire two more people, which is 4 of us working pretty much full time. Like I said, it is a business. Maybe we are a little different than other STR's, but there is no way someone will be making "lucrative" amounts of money in this area as a real estate investor, while contracting everything out. Just doesn't work out on paper. I'm not going to mislead anyone who wants to run STR's, and thinks it is a cake walk. It's a lot of work if you want to make the big bucks.
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
9y
Call it "pedantic" if you like, but few owners charge the exact amount per cleaning, that they pay per cleaning. So every clean changes their margins one way or the other (both a a percentage, as well as as an absolute number). Being clear that cleaning is both a revenue and a cost item, and that it can have a singificant impact on margin percentage and absolute margin dollars is important. My larger property will book around $20k in cleaning revenue per year -- to not clearly identify that as revenue, and the cleaning cost as an expense, and to not clearly understand their impact on my properties margins would seem ill advised.
Flipper · Huntington Beach, CA · Member since 2016 · 83 posts · 40 votes
9y
Originally posted by @Account Closed:
OK, well there are no cleaners around here who charge less than $20/hr... That's per person. Maybe a college kid or some teenager will charge $15, but are those people even reliable? It takes 4 hours to clean my 1,200 sq ft place, between turnovers. We don't just change sheets and scrub floors, we deep clean the kitchen and bath, wash windows, vacuum every square inch of floor, use lint rollers on our sheets, water plants, organize books, dust the blinds, wipe down all hard surfaces and couches, and more depending on how messy the guests were. Charging a guest a cleaning fee will only cover so much. It looks spotless when it is done. That's our standard. I make it look like it is ready to sell on the market before I let someone step foot in there. I don't cut corners with anything I do in my life. I also don't use illegals to clean my place, so maybe that makes a difference?
And every single lawn care and yard care company I have talked with charges by the month, and wants me on an account. I also don't have much lawn, as my property is xeriscaped with native species. I need a gardener. I only have to mow 2-5 times per summer, depending on how wet our spring is. As you see, every single property is different. Part of my property's appeal, and also why I charge a fair amount per night, is the landscaping in the summer. In the winter, the sidewalks need to be plowed after each storm... That is big bucks. We get feet of snow here, so it's a big job.
Can I minimize my costs? I'm sure I can, but it would compromise the quality I can present to my guests when they arrive, which I am not ready to do. We get return customers, and customers from word of mouth. Our place is booked all the time, so I don't mind the extra work. With 2 extra properties coming online soon, we will need to hire two more people, which is 4 of us working pretty much full time. Like I said, it is a business. Maybe we are a little different than other STR's, but there is no way someone will be making "lucrative" amounts of money in this area as a real estate investor, while contracting everything out. Just doesn't work out on paper. I'm not going to mislead anyone who wants to run STR's, and thinks it is a cake walk. It's a lot of work if you want to make the big bucks.
Yes you want a thorough clean, it should be like a hotel, however, nobody is talking about hiring illegals or only paying 20hr, but four hours for a 1,200 sqft place? With a deep clean after every guest? honestly I feel like you're throwing away money at that point, you can schedule a deep clean once a month for each room and save yourself the money, perhaps your house is out in boonies or on the beach and tracks in a lot of sand and mud but it really seems like you're throwing away money.
I use to clean my own vacation rentals before I hired it out, and if you're actually moving you should be able to get 1,200 sqft done in 2-3hours. What you charge for cleaning doesn't need to be the price of $100 bucks obviously there is different pricing for different needs, perhaps your 1,200 sqft simply has a lot of demands for attention, this is something I also keep in mind when I'm building my vacation rental, how much time will this add to my cleaning crews, and where can I help them save time.
Also it's pretty clear my comment was hyperbole, pertaining to scrub and change sheets, There is more to it, but the reality is it should be setup in a time efficient way so the most critical items of a vacation rental are attained with each turnover for example a guest will typically be much more attentive to the bathrooms and kitchen area so in my checklist I have a lot of extra things that are done in those sections of the home.. then you can book a separate deep clean for the long term dirt that accumulates over time throughout the house, once a month or once every couple of months, you'll save yourself time and money this way in my experience.
Call it "pedantic" if you like, but few owners charge the exact amount per cleaning, that they pay per cleaning. So every clean changes their margins one way or the other (both a a percentage, as well as as an absolute number). Being clear that cleaning is both a revenue and a cost item, and that it can have a singificant impact on margin percentage and absolute margin dollars is important. My larger property will book around $20k in cleaning revenue per year -- to not clearly identify that as revenue, and the cleaning cost as an expense, and to not clearly understand their impact on my properties margins would seem ill advised.
That's an interesting perspective, I would actually be curious to dig into that more as from my experience the owners I've talked to charge the same amount per cleaning as they pay, and for my own personal experience it is the same, anecdotal as it is. It would be interesting to see what percentage are taking a hit on the cleanings, I would imagine smaller spaces and overly large spaces. But then one could simply factor that into their daily rates to hide it and compensate for not charging as much of a cleaning fee.
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
9y
Another interesting note is that if you are laundering on-site, you are incurring significant cost from electric, gas, water, and wear and tear on your washer/dryer. So while you might think you are breaking even, you are probably losing money after factoring those in. I am typically using a commercial service since my properties are so large, that even with 2 or 3 sets of washers/dryers it would take forever....and while the commercial laundry charges look like a lot, I'm guessing they aren't much more then my all-in cost of laundering in house.
Another interesting note is that if you are laundering on-site, you are incurring significant cost from electric, gas, water, and wear and tear on your washer/dryer. So while you might think you are breaking even, you are probably losing money after factoring those in. I am typically using a commercial service since my properties are so large, that even with 2 or 3 sets of washers/dryers it would take forever....and while the commercial laundry charges look like a lot, I'm guessing they aren't much more then my all-in cost of laundering in house.
This is something I encountered as problem, for back to backs my cleaning crews will sometimes take the extra sheets home instead of trying to wash them all. I've pondered getting multiple washers and or dryers for the unit or just one super unit that will speed it up for them.
I've been able to make their life easier by creating a checklist and color coordinating the sheets to each room, but a choke point usually ends up being the dryer and washer itself.
Based on a google search the average cost is around 1.50cents per wash and dry for a load of laundry including the detergent, going off the average bookings I have for just one of my vacation rentals I have around 65 bookings each year, with each turnover requiring around 4 loads of laundry to be washed that's $6.00 in just electric costs, not including the dryer. Now I've been able to cut costs by buying wholesale amounts of detergent usually come in 50lb buckets, which brings the cost per load significantly down per load. But going off the average of 6.00 per flip you have an annual cost of around $390.00 for a single vacation rental that is a 4bedroom unit, obviously someone with a smaller unit will need to scale down and larger units up. This also isn't factoring in the washes they may be doing during their stay as well, and wear and tear costs of the washer and dryer, but at that point I feel like there are much bigger numbers to focus on adjusting to get better returns for ones business.