Seasonal Vacation Rentals & 28% Management Fees

41 Replies

I'm working on purchasing a vacation rental in my hometown that is very seasonal, approximately 9 weeks of solid summer bookings and intermittent bookings throughout the shoulder spring/fall months. One of the companies I've looked at using as a property management is called Vacasa. 

Is anyone familiar with the company? They're fees are 28% but seem to be extremely thorough with their operations, marketing, and management of guests and the unit. I'm curious if anyone has used them and finds the value and revenue they bring to offset the high management fee. 

Financially, I understand that the purchase price and all in monthly expenses should account for that % fee if we choose to go that route, but one thing that was communicated that rubbed me an interesting way was "Owning a vacation rental unit is not a get rich quick scheme. Your objective may be to come as close to breaking even as possible. Even if you a say $2000 in the red at the end of the year - thats okay, especially if you had the opportunity to enjoy the place yourself." Anyone have thoughts on the statement of going in with the expectation you may be "$2000 in the red"?

A couple of questions I would ask. 

How much higher is their fee then everyone elses you have talked to? 

Does this group deliver higher occupancy then other PM companies? Another words do the majority of bookings for the area go through them. We looked at condos at one point where the majority of bookings were through one agency. You could rent privately but your exposure to the market was less.  Can this vendor provide occupancy stats for their units?  How many units do they manage? what is their average occupancy by season?  

Are there any services they offer that other companies do not?  Do you need those services? 

That last statement would turn me off. Some STR are not real money makers but that sounds like they are saying outright you are going to pay $2000 for the opportunity to use it yourself and you should be happy to do so... Its okay to outline a risk but that is overstepping I think.

Run the numbers yourself based on your anticipated occupancy. 

Those are good questions @Colleen F. Their fee is definitely higher than what I've seen from other local PMs. Others are from 14% - 22%. Most of bookings in the area are either local PMs, self ran airbnbs, or vacasa/turnkey. I asked from locals aboout their experience with vacasa and all are good things but the numbers are unknown from their persepctives. 

The question of do i need the services they're providing is a great question. My answer is yes because I live out of state and that's a comfort thing. I do have family there but don't expect to rely solely on them. I have asked a few question of the regional manager to learn more and hopefully counter. 

@Mark H. Porter . is that 6% with a local PM company? I wouldn't expect less than 10% for full services that include cleaning, guest management, etc. 

Originally posted by @Brian Tustin : ..."Owning a vacation rental unit is not a get rich quick scheme. Your objective may be to come as close to breaking even as possible. Even if you a say $2000 in the red at the end of the year - thats okay, especially if you had the opportunity to enjoy the place yourself." Anyone have thoughts on the statement of going in with the expectation you may be "$2000 in the red"?

So, sounds like you are buying a timeshare, as far as expectations. Is it at least a house that can be counted on to appreciate and offer a long term return, instead?

And 28% is ridiculous, unless it also includes all maintenance and cleaning costs.

I'd spend the $2K going on vacation somewhere you want to visit (a different one each year) and invest your money elsewhere, personally.
 

Brian, the 6% is the for the rent service  maintenance is handled separately.  The company is a local rental company that handles hundreds of these vacation rentals.  Cleaning is included in the charge to the weekly renters.

Originally posted by @Karen O. :
Originally posted by @Brian Tustin: ..."Owning a vacation rental unit is not a get rich quick scheme. Your objective may be to come as close to breaking even as possible. Even if you a say $2000 in the red at the end of the year - thats okay, especially if you had the opportunity to enjoy the place yourself." Anyone have thoughts on the statement of going in with the expectation you may be "$2000 in the red"?

So, sounds like you are buying a timeshare, as far as expectations. Is it at least a house that can be counted on to appreciate and offer a long term return, instead?

And 28% is ridiculous, unless it also includes all maintenance and cleaning costs.

I'd spend the $2K going on vacation somewhere you want to visit (a different one each year) and invest your money elsewhere, personally.
 

It's not a timeshare. It's a condo that will appreciate. HOA fees for building and common area maintenance. It'll appreciate and have a long term return. The 28% covers year round cleaning costs, minor maintenance, guest management, bookings, and marketing.

I pay 30% in management fees for my STR in Branson, MO. It's worth it to me and they do a great job getting it rented and cleaned fast between guests coming and going on the same day during the busy times. I could probably save a buck and do some of this myself, but I don't want to deal with all the headaches when guests need to be displaced on a weekend night due to the AC going out. Or squirrels in the attic chewing up electrical wires shutting things down. Both of those have happened twice to me. They did a great job handling it and almost all my reviews are outstanding.

Originally posted by @John Morgan :

I pay 30% in management fees for my STR in Branson, MO. It's worth it to me and they do a great job getting it rented and cleaned fast between guests coming and going on the same day during the busy times. I could probably save a buck and do some of this myself, but I don't want to deal with all the headaches when guests need to be displaced on a weekend night due to the AC going out. Or squirrels in the attic chewing up electrical wires shutting things down. Both of those have happened twice to me. They did a great job handling it and almost all my reviews are outstanding.

That's great feedback , I appreciate that input and reminder of those points. Do you use a company other than vacasa or have a recommendation?  Do you still cash flow with the 30% fee? Or do you have the perspective that it's okay to be in the red because you don't have the headache, and in theory, you're gaining equity each year? 

 

@Brian Tustin

I originally paid cash for this property five years ago and made about 8% after all my expenses including the 30% management fees. We use it a few times a year so that's nice too being able to vacation in our cabin for free. We just flew in today for a four day weekend to use it actually. However, I did a cash out 15 year refi on it last summer to buy another property to BRRRR. So with my loan payment I'm only breaking even. But that's ok, I used this cash out refi money to buy three more properties so it was a win. Good luck with what you decide.

Guys, I'M sorry but this sounds crazy. I have my LTR in a college town where there's high demand and STR in a coastal vacation area with +20 weeks of rental with a peak of $12k per week in the summer.


For 6% on both, I get the canvassing and advertising, collection, scheduling of maintenance with contractor of my choice, cleaning, monthly quality control of the property, and a check by the 15th of the folding month. For the STR, I get the electric, cable, tax, trash, water, and pool bills.


Please do a simple search in the area for vacation rentals and see who pops up that is managing that for that specific area.  Most likely their reservation people live nearby and can talk firsthand to visitors.  Shop around like I did and negotiate.

Buying a short term rental is a greater risk than traditional rental. If the local tourist economy weakens, and you have to downgrade to traditional tenant, you are losing major money every month.

it is for that reason I'd expect at least 20k profit per year for a 200 - 300k STR. And go up from there. It sounds like insanity to maybe lose 2k per year. Put your money in many other investment options with less of a gamble. This is not a cash flowing asset like Rich Dad preaches! At the drop of a hat it could lose equity and cash flow.

Speculative investors win sometimes. Calculated, gradual investors win in the long run.

Originally posted by @Brian Tustin :
Originally posted by @Karen O.:
Originally posted by @Brian Tustin: ..."Owning a vacation rental unit is not a get rich quick scheme. Your objective may be to come as close to breaking even as possible. Even if you a say $2000 in the red at the end of the year - thats okay, especially if you had the opportunity to enjoy the place yourself." Anyone have thoughts on the statement of going in with the expectation you may be "$2000 in the red"?

So, sounds like you are buying a timeshare, as far as expectations. Is it at least a house that can be counted on to appreciate and offer a long term return, instead?

And 28% is ridiculous, unless it also includes all maintenance and cleaning costs.

I'd spend the $2K going on vacation somewhere you want to visit (a different one each year) and invest your money elsewhere, personally.
 

It's not a timeshare. It's a condo that will appreciate. HOA fees for building and common area maintenance. It'll appreciate and have a long term return. The 28% covers year round cleaning costs, minor maintenance, guest management, bookings, and marketing.

Sounds like a timeshare deal with better marketing. They are selling you an apartment, you let them rent it out to offset the costs and plan on using it yourself a week or two a year - at a cost of $2k. If things go well and it stays rented, I assume.

They say it will appreciate, but I heard the same from timeshare companies in the 80s. Presumably with this deal, you are only on the hook for a 30 year mortgage, not forever like a timeshare, but HOA fees can eat you up just like the timeshare did.

Any deal pitched as you get to use it and it ONLY costs you the same as a vacation somewhere you might want to go a few times, but not every year for 30 years, I'd recommend you run.

You should be making a profit of some kind, esp. after interest and depreciation, not funding their company (which is raking it in in fees, according to the lawsuits, which is probably why their "owners" are losing money each year).

@Brian Tustin

I run a Vacation Rental Management Company in Big Sky, Montana and charge a 30% commission on full operation of STR services.

Personally I would hunt out a local management company over a larger corporate enterprise like Vacasa. But that’s just me wanting to support the local guys versus big national brands.

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I agree with @Corey Meyer you might want to go with a larger local company rather then a national company. Especially after reading the BBB info.  A larger local company should have ties to the community which means they are invested in the area. This can have advantages when local legislation or issues come up. Also the local office is the face of the company. 

In any case if someone won't give you numbers on what you might expect for occupancy to me that is your answer. You aren't asking for your unit, you are asking for their units in this complex when are you going to be at 0 occupancy vs 100%.  Also how many units do they manage in your complex? If they don't manage most of the units you have a choice.  

One other thought is inclusive cleaning may not be a plus if you can bill cleaning to the renter, then it is off your tab. That is what we have done when we do STR. However depends on what is customary in your area.

@Brian Tustin

28% is high. They also charge guest facing fees that get charged to guest that you do not get any part of so that really makes it more like 40-45% worth of fees. They say these are only charged to guest and they do not take off rent but in reality guest are looking at total cost to book not what the rate for the day is. I actually had my condo in Panama City beach managed by vacasa for a year after I purchased it. I was worried that I couldn’t do it myself but it is so easy to self manage. I actually have 2 vacation rentals out of state that I self manage remotely. Find a good cleaner and handyman. Download the Airbnb app and Vrbo app and answer a few questions here and there. Download TurnoverBnB app and get your cleaners set up on it and you do not even need to coordinate times they need to clean. Maybe takes 20 - 30minutes a week of work. if I really measured the time. Don’t be afraid to try to do it yourself. So many people with vacation rentals seem to think it can not be done as I thought originally as well.

What does the 28% include?  Are cleaning fees built into the rental price or are they separate?  I think 28% is high if all they do is check on the property.  Access can all be done remotely and often there are cleaning fees paid by the guests.

I sourced my own cleaners and manage them through turnoverbnb. @Avery Carl gave this tip on the BP podcast which helped me out a lot. I set my cleaning fee to just over what I pay the cleaners so I actually generate a little extra revenue from hiring it out. And I also manage my own listings - it’s really just picking up your phone to message guests through the app. For me that is very easy and takes very little time, it is just important to be responsive. 

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