Vacation Rental Property Management Fees: What’s Hidden Inside Them?
3/29/18 | Christopher D. Davis
$167.9 billion.
That’s the projected worth of the global vacation rental market by the end of 2019, which was valued at $100B as recently as 2016. As of 2017, user penetration into the market stood at 6.2 percent, and by 2021, this figure is expected to hit 7.4 percent.
Suffice it to say, vacation rental management companies are rushing to cash in on this opportunity. More and more are popping up, venture capital and private equity are pouring in, and in a bid to attract the most homeowners, commission rates are falling fast. By 2017, many property managers were in the midst of a race to the bottom.
But when it comes to care and attention of your second most valuable asset, is a race to the bottom really a good thing? For example, one major national company touts itself as the Southwest Airlines of property managers. Many of our homeowners prefer our own cross-industry comparison of InvitedHome: The Tesla of vacation rentals.
A 25% commission for professional vacation rental management services is extremely shiny. An 18% commission is downright alluring. But how can these companies pay for operations, labor, rent, materials, marketing, and everything else that’s required of a successful business at such low commission rates? In many cases, they can’t.
Enter the abominable “hidden fees.”
Hidden Fees in Vacation Rentals
To keep revenue streams high, many vacation rental management companies have introduced several fees in addition to their commission that effectively negate the original low rate. When a homeowner is interested in switching to InvitedHome, they often tell us about their frustration with the amount of hidden fees they’re incurring with their current property manager. Here are a few items we’ve heard other property managers charge for:
- Linens
- Welcome Amenities
- Credit Cards
- Laundry
- Amenity Re-stocking
- Caretaking
- Shine & Clean
- Maintenance & Supplies
- Housekeeping
- Marketing
In your search for a property manager, you’ve likely noticed that commissions truly are all over the place. This is no accident. In this new gold rush, commission rates are more of a marketing play — a number for an online ad — than a business operations strategy. If you can look past the management fees, there are only two things that really matter in a vacation rental management company:
1. The services they offer
2. How these services contribute to your net revenue
Here are two case studies based on actual numbers we’ve received from homeowners interested in joining InvitedHome, but are currently with a different property manager. These show how quickly a low commission can add up.
- Management commission with current property manager: 25%
- Gross rental revenue: $61,081
- Commission amount: $15,270
- Additional expenses from ancillary fees: $15,440
- Total expenses: $30,710
- Actual management fee: 51%
- Management commission with current property manager: 25%
- Gross rental revenue: $84,751
- Commission amount: $21,187
- Additional expenses from ancillary fees: $17,862
- Total expenses: $39,049
- Actual management fee: 46%
Transparency
We pride ourselves on our all-inclusive management fee, and clearly explain upfront any additional costs homeowners may incur. Here are the only three additional expenses you may see:
- Snow Removal We keep this separate from our management fee simply because the cost is so inconsistent. In the 2016-2017 winter, parts of Lake Tahoe saw nearly 70 feet of total snowfall. The following season, less than half that. By keeping this separate, you won’t be paying for the service when we don’t have the need to perform it.
- Hot Tub Maintenance and Cleaning The same goes for hot tubs. Some of our owners have an intimate, 4-person hot tub, while others have a resort-style, 12-person spa. The maintenance that goes into these two is simply incomparable and must be separated out from other costs.
- Specialized Maintenance Repairs Work that requires a licensed professional and is more time-intensive is billed separately. This most often comes in the form of emergency repairs, however our ongoing maintenance programs are designed to prevent these from ever happening in the first place.
If you ask the right questions during the process of choosing a vacation rental manager, you’ll likely uncover these hidden fees early on. Use our guide of the 10 Questions to Ask Before Choosing a Vacation Rental Property Management Company to determine if the partnership is a good fit.
To learn more about InvitedHome’s luxury vacation rental management and hospitality services, get in touch with our Owner Consultants today.
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