If you are planning to turn your property into a vacation rental, then you need to make sure to have a solid vacation rental business plan. There are various factors that you need to take into consideration while devising a strategy. The key lies in defining your goals and mission clearly. If you are just starting out, you may find it difficult to define a clear strategy to make your business profitable.
There are plenty of resources that you can use to get it right. Here are some flaws that you need to avoid if you want your business to do well. Whether you are just starting out or are facing losses in your rental business, avoiding these mistakes will prove to be beneficial.
The quicker you find out the flaws, the faster you can rectify them; so browse through the below slides for most common mistakes of a VR business:
- Poor market knowledge
- Targeting everyone
- Inability to recognize the competition
- Wrong distribution plan
- Underestimating costs and overestimating revenues
- Not considering emergencies in a vacation rental business plan
- Underpricing and overpricing
- Skimping on supplies and amenities
- Under insuring
- Not specifying the terms and conditions accurately
- Failing to appreciate that you belong to the ever-growing tourism industry
Poor market knowledge
Beginners overlook the importance of having a well-defined vacation rental business plan. A market analysis is a must before starting out. You need to first identify if there is any market for a rental property in the intended location. You need to clearly understand the demography and culture of the property you are planning to convert into a rental.
If the location of your investment property gets only a few tourists or visitors, then there may be no point in investing in a vacation rental. Not researching enough or not having sufficient data can prove to be disastrous in the long run for your vacation rental business.
Look through existing business and their business structures. Structuring your business format is another crucial factor. You have to decide whether to go for LLC or corporation or other business formats. When you figure out the business structure it will ease up the process of your business plan creation.
The most common flaw noted in a vacation rental business plan is poor market segmentation. Rather than relying on basic demographic characteristics, you need to go the extra mile by creating customer profiles ranging from their age, income, and their purchasing habits.
The more data you have, the more insights you can draw for marketing your rental property. Poor targeting of customers will typically not bring you the desired results. Moreover, you might receive complaints from unsatisfied customers as you failed to understand what their expectations were in the first place.
Inability to recognize the competition
If you believe your property is in an excellent location that would appeal to certain guests, then the next thing you need to check is how unique it really is. Performing competitor analysis is one of the next crucial elements of a vacation rental business plan.
Poor analysis of competitors will not let your property stand out amongst the rest. You need to study your competitors well and benefit from their weaknesses while learning about their strengths. You’ll want to clearly define your unique value proposition.
You can begin by searching the rental properties of your competitors on various platforms. Check their listing, website, reviews, and also their branding and home décor design strategies. Study how much rent they charge per night, their credentials, clientele, experience, strengths, and weaknesses to devise a strategic plan to improve your business. Consider subscribing to AIRDNA, which is an online analysis tool that proves invaluable in this area. See our journal article called “How to research and price your Vacation Rental using the AirDNA tool”.
Wrong distribution plan
Despite having a great overall marketing plan, following an incorrect distribution plan will make your job difficult. Your customers simply wouldn’t be able to find your business if you don’t make use of efficient channels for marketing.
The best thing you can do is employ multi-channel strategies for reaching your prospective customers. A multi-channel strategy involves relying on more than one kind of distribution channel. For example, you can rely on platforms such as Rentaltrader.com for listing your property which will ensure better visibility and will attract more travelers to your vacation rental. Other recommended platforms: your own website, social media, word of mouth, blog posting, and partnering with other local businesses.
Underestimating costs and overestimating revenues
One major flaw noted in a business plan can be poor management of revenue. Failing to analyze the numbers will result in underestimating your costs and overestimating your revenue. Without some targets, you’ll have a difficult time predicting how long it will take to make money in the business.
Avoid overestimating rental income by not taking into account expenses and rental costs. You have to clearly define your rental rate per night and should also consider the taxes that you pay to the government and the amount you spend on utility bills as well as on marketing. Do not forget to consider the costs of maintenance.
You can plan your budget effectively by setting a monthly target income on your rental property along with low estimates and high estimates. Going through this exercise will help you adjust the rental rate initially and also enable you to adjust it as bookings are made or as you have booking gaps.
Not considering emergencies in a vacation rental business plan
It is crucial not to underestimate emergencies that you may have to face while hosting a guest on your property. You may have to deal with a dripping faucet or expensive issues with air conditioning systems during the summer.
You’ll need to be sure that all appliances work well at all times or you may face severe repercussions if you end up disappointing your guests and getting negative reviews. Quick resolution is also the key which can make a bad situation into a positive review.
Underpricing and overpricing
Instead of charging way too much or less for your property, you need to spend some time evaluating the competition. Look carefully at how you advertise your property on the listing sites. Evaluate all the features that you are offering in comparison to your competitors and then decide a reasonable price for your vacation rental.
Skimping on supplies and amenities
As a vacation rental business owner, the key to receiving positive reviews and ratings from guests is to provide a great experience. You need to go above and beyond what your competitors are doing. If you are providing the least in terms of facilities and features, then your guests may not be satisfied and would turn to your competitors. They will obviously end up complaining on social media and on pages where you have listed your property.
Expectations of travelers have risen significantly in recent years. What was considered to be a luxury a few years ago is now considered to be the new standard. You need to consider providing a toiletries kit, high-quality kitchen equipment, modern entertainment systems, smart TV’s, spices, sugar, plenty of towels and wash cloths, toilet paper, paper towels, and a lot more for their convenience. If you are not providing any of these, then be sure to inform your guests beforehand so that they aren’t surprised after checking into the property.
The vacation rental tourism industry is consumer-driven and is rapidly transitioning towards mainstream status especially due to COVID-19. It is crucial to provide the best possible experience in order to retain the guests and to compel them to come back to you for more.
Are you insured and if so, what does the insurance cover? If something goes wrong, having the right insurance can keep you in business since a large unexpected expense that can’t be met can render you unable to rent your home.
Not specifying the terms and conditions accurately
While developing your vacation rental business plan, focus on developing the terms and conditions appropriately but make them fair and not too strict. You should post House Rules clearly whenever listing your property on any platform. Be clear about the consequences a guest will face if they fail to comply with the House Rules. Your policy should briefly cover pets, additional guests, the way you manage refund requests, kitchen usage rules, and a lot more. You can get ideas by reading House Rules from your competition but make sure they apply to your rental and business plan.
Everything including guest check-in and check-out times, limits surrounding occupancy quantities and any other requests must be managed with care. This will prevent misunderstandings later. You’ll want to send an email clearly stating House Rules whenever somebody makes a booking or you could face hassles in the form of rebate requests, refunds, cancellation issues, and over-occupancy issues.
Failing to appreciate that you belong to the ever-growing tourism industry
Once you have decided to delve into a vacation rental business, you need to understand that you are becoming an integral part of the travel industry. This implies that you need to do all you can in displaying a high level of hospitality at every step.
Self-management is an option as long as you’re able to keep up with its’ demands or you should consider hiring a property manager which will give you peace of mind knowing that all of the details are being managed by a professional staff.
If you want to expand your reach, reduce expenses and increase income, then you need to have a well-devised vacation rental business plan. Advertise your business on various reliable platforms such as Rentaltrader.com which will help you reach a wider audience and use the tips mentioned above to develop and refine over time, a solid business plan.