Starting a Vacation Rental Business: 101 Guide

Are you thinking about starting a vacation rental business? It can be a great way to make money and meet new people. However, before you jump in, you need to ensure that you understand the industry and all its operations.

If you're unsure where to begin, read this guide, which covers the basics. We'll guide you through the process and share some essential tips for achieving success in vacation rentals.

Starting a Vacation Rental Business: Key Things to Consider

So, what is a vacation rental business? Vacation rentals are private properties that are rented out on a short-term basis (from a few days to a few months) to travelers as an alternative to hotels. Such properties are fully furnished, and their main advantage is that they offer more facilities (such as kitchens, private outdoor areas, and appliances), as well as privacy and access to local culture.

Vacation rental properties are not limited to traditional-style homes; they also include villas, cabins, cottages, beach houses, condos, apartments, and more. They can also range from affordable apartments to luxurious villas located in the world's best tourist destinations.

Renting vacation rental properties is widely popular among travelers seeking a comfortable and immersive experience. Additionally, websites like Airbnb, Booking.com, Vrbo, and Agoda simplify the process of operating a vacation home rental, making it a stress-free experience.

Is starting a vacation rental business worth it?

Investing in vacation rentals is an excellent way to earn some passive income. Can you make a good income with a vacation rental property? Essentially, vacation rentals can be profitable because they are popular with people renting properties for a short period, such as travelers, business professionals, and digital nomads.

The primary factor that affects profitability is location. Why? Profitability is primarily based on occupancy level, demand, competition, and rate, so the more attractive the location, the higher the probability that the vacation rental will be profitable.

Additionally, short-term vacation rentals can outperform long-term rental properties in terms of potential rental income. That's why a vacation rental is a good investment for those who want to start investing in real estate.

Choose your business model

So, how can you make money on a vacation rental property? There are several primary approaches you can take when building a vacation rental business.

You can invest in buying a property, which you can also use as your second home. This path requires thorough market research to determine which locations will attract a steady flow of guests and identify a property that will yield a steady cash flow and high ROI.

Another business model is rental arbitrage, where you rent a property long-term and then re-rent it to travelers on a short-term basis with the landlord's permission. This path enables you to earn money from vacation rentals without owning the property.

The third option is becoming a property manager for one or multiple owners. This model enables you to rent and manage a vacation rental property without requiring an investment in the property itself.

You'll need to list your vacation rental properties on platforms like Airbnb, Booking.com, and Vrbo and do your best to ensure a seamless and perfect guest experience. This means keeping your place tidy and well-equipped with the necessary amenities to ensure a comfortable stay, as well as having flawless check-in and check-out processes. You also need to ensure perfect communication with your guests via messages to provide them with all the necessary information about your place and neighborhood at the right time.

Being available to your guests 24/7 can be challenging, but you can automate the guest communication process with the help of AI using vacation rental software like Hospitable. You can get started with automated messaging in just minutes using our pre-built message templates. You may schedule your messages before and after specific stages of the guest's journey or based on the day of the week.

You can also utilize AI tools in your Hospitable Inbox when you want to create a personalized message for your guests manually. Click the "Suggest with AI" button, and Hospitable will draft a response to the last message from your guest based on booking details, past replies, and any information that you uploaded to the Knowledge Hub. Then, you can edit the draft before sending it to your guest. You can also provide some bullet points as guidance and select the Improve with AI feature to rewrite your message.

Starting a Vacation Rental Business: Essential Steps

If you decide to rent out your property, starting a vacation rental business involves several essential steps.

Acquire a property

Start with the right vacation property that can earn you a profit. Location is the most important factor you should consider. Conduct your research and select a location that consistently attracts a steady stream of travelers. Homes with immediate access to a nearby attraction (the city center, the beach, the ski slopes, a theme park) are the best choice for an investment property. Properties near primary transportation links also tend to perform better.

It's also important to consider the number of existing vacation rental options in the area. Although popular tourist locations are swarming with STR properties, you can differentiate your rental from the current offerings. For example, you can invest in less common types of rentals, such as apartments or villas.

Another essential step is to check local STR laws and regulations, which vary from city to city and are constantly changing. Visit your local government website to determine the necessary steps to ensure compliance.

Prepare your property for guests

Invest in comfortable mattresses and high-quality bedding, so your guests can have a good night's sleep after a long day of exploring your area. Decorate and furnish your home to create a beautiful space for your guests. If you impress your guests with the appearance of your home, they may even post it on Instagram. And that's immediate free marketing for you!

Equip your rental with amenities that cater to the types of guests you want to attract, ensuring you meet their needs. Check out local listings to see what kinds of amenities they provide. Yet it is always a good idea to offer WiFi and a good coffee maker.

You should also consider purchasing a washer, a dryer, a hot tub, and a Smart TV, as well as providing functioning appliances in the kitchen and welcoming pets, among other things. Install a smart lock to offer your guests a self-check-in option.  

Remember that people want to get the most out of their vacation. The more amenities you offer to your guests, the more likely they are to stay at your place. Don't miss a thing with our host checklist.

Design your place with efficiency in mind. Your objective is to make your vacation rental place cozy and durable at the same time. Download our guide on how to prepare your place for STR business and reduce your long-term operational costs.

Create a stellar listing

Use your listing to showcase what your vacation rental offers and attract potential guests. Invest in professional photography to give your guests a crystal-clear picture of what it's going to be like to stay at your property. It's best to arrange photos in a sequence to create a visual tour of your vacation rental.

Write short, accurate, scannable descriptions to highlight unique features and amenities that your property offers, location benefits, and other attributes that are hard to capture in a photograph. Be creative and focus on aspects that make your property unique and appealing to guests.

It's also important to be transparent about your listing's strengths and limitations. This way, you'll set the right expectations and encourage positive experiences for your guests from the start, which will lead to excellent reviews that can help you win more bookings.

Hire a cleaning service

Cleanliness is a top priority for guests, so it's essential to maintain a spotless property. Vacation rental cleaning requires more attention to detail than regular cleaning of your own home and is far more extensive. So, it's better to outsource this important task to professional vacation rental cleaners who are trained to do this job quickly and efficiently.

Hiring a professional cleaning service is an ideal option for hosts who manage larger rentals or multiple properties. Make sure you provide your cleaners with a comprehensive cleaning checklist for each room that they must follow during each turnover to maintain consistency in cleaning standards. This can help ensure that you provide a consistently clean, welcoming, and comfortable experience for every guest who walks through the door.

Decide on the right rate

Setting the right nightly rates is crucial for ensuring that you can maximize your profit from your vacation rental business while attracting the right guests. If you set your rate too high, it'll scare guests away. If you set it too low, you may attract guests who don't respect your property, leading to potential damage, or you may lose money on your bookings.

Ensure that your rates cover the expenses, are competitive with similar properties in your area, and will generate a profit. You will need to conduct research to understand the local demand and ensure that your property is priced correctly for your location, taking into account the amenities and guest services you offer. Our guide on pricing strategy will help you get started.

The easiest way to get your pricing right is to automate the process using a dynamic pricing tool. Hospitable users can take advantage of our built-in Dynamic Pricing solution, which automatically optimizes your listing's rates based on market demand, seasonality, and other factors to help maximize revenue and occupancy.

Select a pricing strategy that aligns with your revenue goals (conservative, recommended, or aggressive), and then set the minimum and maximum price thresholds. The best thing is that Hospitable's Dynamic Pricing feature is included in Host, Professional, and Mogul subscription plans at no additional cost.

List your home on top booking sites

While Airbnb is the most popular booking platform, relying on a single channel isn't the best strategy for building a successful vacation rental business. To reach as many prospective guests as possible, you should place your listings on several major booking platforms, including Booking.com, Vrbo, and Agoda. 

The multi-channel strategy will allow you to increase your visibility, get more bookings, and diversify your income streams. You'll also protect yourself against the whims of a single platform's algorithm and maintain a steady flow of bookings and revenue.

When listing on multiple platforms, it's essential to keep your calendars organized to prevent double bookings. Managing listings across multiple platforms can feel like juggling too many balls at once, but with the right software that features channel management functionality, you can streamline the process and maximize your vacation rental property's potential. For example, Hospitable can sync your bookings, pricing, availability, and minimum-night stay to help you manage multiple channels simultaneously.

Accept direct bookings

It's not enough to rely only on OTAs if you want to maximize your revenue. You need to secure bookings from a diverse range of distribution channels and establish a direct booking strategy that enables you to build your brand and reduce your dependence on online travel agencies (OTAs).

With Hospitable, you can easily build a fully functional direct booking website using our professional site templates to drive repeat direct bookings and increase your profit and occupancy. We'll also list your Hospitable Direct property on Google Vacation Rentals, so travelers using Google to search for a place to stay during their trips will be able to discover it.

If travelers who land on your Google Vacation Rentals listing decide to book your place, they will be redirected to your Hospitable Direct website. Since Google services are free, you can secure direct bookings without incurring high third-party fees.

How to Run a Vacation Rental

Managing vacation rentals is not the same as managing traditional long-term rentals. To operate a vacation rental effectively, you need to maintain high occupancy and nightly rates, which enable high returns.

It's essential to run your vacation rental like a business. This requires thorough processes and timely actions from a committed team, which means your cleaners and maintenance staff will need guidance and regular communication.

Running a short-term rental involves numerous responsibilities and can be quite time-consuming, so you need to determine how you'll handle the day-to-day management tasks.

You can hire a property management company that would deal with all the routine on your behalf. The obvious drawback is that they won't do it free of charge. Before you build a network of short-term rental properties, this approach would drain your profits.

Another approach is to self-manage your vacation rental and rely on property management software to automate the hosting routine. It will allow you to stay in control of your business and get rid of the routine at a reasonable cost. For example, you can take advantage of Hospitable's solution for self-managers, which can help you save 25+ hours per month with AI automation.

Our STR super app offers a comprehensive set of features to streamline your operations, helping you run your business on autopilot. With Hospitable, you can manage your vacation rental property efficiently, provide a memorable experience for your guests, and scale your business faster.

Conclusion

As you see, starting a vacation rental business isn't all that different from just about every other entrepreneurial endeavor. And it's not simple.

From researching local short-term rental laws and selecting the right property to maintaining high cleanliness standards and effective marketing, every step is crucial for making your vacation rental property profitable. It requires careful planning and a focus on guest satisfaction. You also need a great team and the right tools to streamline your operations.

Starting your own business entails numerous responsibilities. However, if you take the time to do it right, you'll likely find that the reward is well worth the effort. By prioritizing excellent service, competitive pricing, and effective marketing, you can build a thriving vacation rental business and differentiate yourself from your competitors.