8.7 DIY v. Third-Party Management

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out to other vacationers. A lot of VRP owners get their start this way, and they do it by using DIY websites. These sites help owners fi nd renters. But it can be a tough road, the DIY route. It’s kind of like having a neighborhood where you have no zoning laws whatsoever, where a slaughterhouse can be put up right next to your home. There’s just no control; there’s no uniformity.

This approach works okay for properties that exist outside of created communities, where there is really no other option. What I mean by this is if you’ve got a home in a suburb just outside of New York City, a DIY listing is the way to go. If you’ve got room in that home, and need to connect with people who want to visit New York City and avoid Manhattan hotel room prices, that’s okay. As the owner, you’ll need to put your room up on a DIY site.

If you buy a condo or a home inside of a development that has a very good, exceptional third-party rental company in place—or one of the new hybrids that has a developer with their own rental management company—and insist upon doing your own management and using a DIY website, however, that’s not a great idea. You’ll have a dozen other owners in the community doing the same thing and you will all try to undercut one another. The fi rst thing everyone does in this situation is lower their prices, and then the others lower in response, and you have a big mess.

The other issue with the DIY website placement approach is the goal with these sites is to try to get your property to 100 percent occupancy. Occupancy is pushed very hard, but it doesn’t make good business sense to be at 100 percent. It makes good business sense, instead, to be 70 percent with a high average daily rate. From an economic standpoint, you will make more money, net, if you’re at 70 percent with a very high average daily rate than you will at 100 percent battling it out for the lowest rate.

Why? Because your home gets trashed at 100 percent occupancy. It will get damaged.

This extremely high occupancy approach can prove to be a bad business decision if it makes your investment deteriorate—and not

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just physically. As you lower your daily rates to compete with others, you’re lowering your net income for the year as well. Run that out for two years, and that’s where you get your cap rate on the sale of your home as one of the considerations of value. So, just by DIY renting and battling it out with your competitors on price, you’ve lowered the value of your property when you go to sell it.

I’m more inclined—and so are the really good vacation rental management companies—to get enough scale (enough units) that they can put VRP on platforms like Expedia. Why not be side-by-side with hotels and hotel rooms? This is a better model because respected travel sites strive for uniformity. No one is undercutting one another. The value is what the value is.

At the end of the day, I can embrace the DIY approach. It defi nitely does have its place. But I see it as a very complicated and very diffi cult way of going about succeeding in VRP.

When you buy in to a structured community with a good vacation rental management company running it, things get a lot easier. You don’t even have to think about pricing. They have a scale and the money to do the analysis on appropriate pricing models throughout the year, just like a hotel chain does.

I would rather buy a hotel room in the Four Seasons and just give it to them to manage, than buy a really nice hotel room at Four Seasons and try to manage it myself. That’s really what we are talking about here. Imagine this: Four Seasons off ers one of their hotel rooms for people to buy. And I go in and see that even though Four Seasons could manage this thing and keep their rates nice and high, and do a really good job, and do everything: housekeeping, and maintenance, and all that, I say, “Yeah, I want to buy mine. But guess what: I’m going to do the maintenance, and I’m going to do the marketing on it.” True, I can’t call it Four Seasons anymore, but I’m going to undercut you on price.

What sense does this make? None.

One more note on this topic: the way the zoning laws are going now is another consideration. Cities are imposing prohibitively high

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taxes on DIY operators. However, in the vacation communities where they’re not using the DIY sites, counties and cities often give them a tax break. It’s one of the advantages of the new model where the professionally and centrally managed rental communities say, “Look, we’ll actually benefi t hospitality because we’ll pay the hospitality tax. You don’t need to raise taxes with us because we are virtually the same thing as a horizontal hotel. Don’t penalize us.” The hotel lobby is very strong politically, but the hotel lobby is participating in VRP when it’s done this way. They’re not fi ghting it. Instead, they are fi ghting the DIY sites because those are all about lowering prices. You’re not going to see prices inside of these communities lower than the hotel price. They’re standardized.

Third-party management is well-suited to the more sophisticated investor who wants to build a portfolio of VRPs and is looking into locations that have large VRP profi les. In most resort areas today, there are many fi ne Vacation Rental Management companies. Most are local, have their own strengths and weaknesses. It is best to interview the largest, most well-established fi rms. These provide not only Vacation Rental Management, but also home management, purchase consulting, even personal chef and concierge services for the luxury homes under their management.

The coming trend is the all-in-one solution of VRP developments with their own management services. This is what we’ll cover in detail in Chapter 9.

Third-party VRP management is an excellent way to cover all the daily, weekly and monthly needs of your VRP business and allows you to concentrate on your next investments (and enjoy all the free time you will have!). These management companies range from small local “mom and pop” companies, to local developments with their own VRP management.

The industry has now grown even this level. National development fi rms with multiple brands spread across the globe with their own VRP management imbedded into each location. These development/

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management companies command massive marketing budgets, build their own amenities like clubhouses, hotels, waterparks, golf courses, ski lodges, beaches, even their own private lakes and lagoons.

These companies are a one-stop-shop to do your investing into a home, with a system already in place to keep the home in perfect condition, keep it occupied, and continually manage your investment so that it provides the highest return, with the fewest headaches to the investor.

Remember; your goal is to have multiple properties creating net income and increasing in value. This gives you cash fl ow AND growing net worth. Without both, your business will not reach the $10 million mark. Stay focused! Focus on growing your company—not saving a bit here and there, spending time cleaning your own homes and DIY-ing every aspect of business. Choose a powerhouse Rental management company, like Vacasa, and get powerhouse results.

Steve Gulotta is the Director of Sales for LRR at Encore Resort in Reunion, Florida. He has over 19 years of experience in residential new home sales and green building techniques, and I asked him to share a few of his experiences on the front lines of VRP. For example, Steve recently handled an unfortunate situation in his community involving a wedding and an unauthorized third-party rental management company, so I wanted him to explain what happened:

“We had a rental party coming in to the Encore Resort community to celebrate a wedding, and unfortunately, they did not use an authorized management company to handle their event,” Steve said. “Because of this decision, everything went sideways. The catering was a disaster; the reception was supposed to be under a tent in the backyard, but this isn’t allowed by the homeowner’s association here.

“The food that was supposed to arrive for the wedding was late and some of it was undercooked. There were issues with the home, one of the pipes was leaking, the toilet was clogged. The wedding party called the management company they had contracted, and the company never returned the calls or sent anyone out to fi x the things

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that were wrong with the home. There were bigger repairs required later on as a result.

“The bride was understandably very upset. She was expecting to have personal concierge service while she was getting ready for the ceremony and the only people who were there were the caterers—who arrived late! She didn’t have anything she needed. So, she went to the community clubhouse and complained to our people, saying, ‘This is ridiculous! I’m going to leave bad reviews.’ Unfortunately, because the wedding party did not make any purchases through the community itself, or use authorized vendors, there was not much we could do to remedy the situation. The property manager they had hired didn’t even show up until the next day, and by then it was too late to save the event.”

This situation happened because the wedding party had gone online and found a home in Encore that was listed below market rate. They believed their guests would automatically have access to the community’s waterpark, but this was not the case. As Steve’s team dug a little bit deeper into what had happened, they found pricing quotes outstanding. This customer decided not to use LRR because it would’ve cost them more than they wanted to pay. That decision resulted in a nightmare scenario.

“We try to do as much as we can in the moment to help when things go sideways like this,” Steve explained, “because people don’t know about all the diff erent property management companies out there, and we always have a concierge onsite. We do as much as we can for guests while they are in front of us, but there’s only so much we can do if people are bringing in outside caterers or vendors.

“We are sometimes caught in a pickle by these rogue management companies that say they have the services and they have the staff to provide the level of support guest expect when in actuality, they don’t. This is why they are able to charge so little—you get what you pay for.”

I asked Steve for his advice for a VRP owner choosing a thirdparty rental management company. Here is what he shared with me:

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• Make sure your home is being operated by a company that is approved by your community to operate there. You also want to research ahead of time what kind of staffi ng and support a particular company is able to provide. Look at the growth they have and their plans for future growth. • Find out how many people a rental management company has on staff . What are the hours the staff is available? What if something happens at 3 AM? Will someone answer the phone? If someone does answer the phone, how quick is the response time? When can they actually get to your property to address a problem? Response time and a quick recovery for a guest are essential for running a successful VRP business. It’s is all about the guest experience. If a guest has to wait, that becomes a big problem. It can ruin a vacation. • If you’re a VRP owner interviewing a property management company, do spot checks to evaluate their service. See what their logistics look like. Understand their operations. If you fi nd that a property manager has a lackadaisical attitude or is on the arrogant side, run for the hills. Make sure that the property manager understands it’s not about them, it’s about maintaining the brand standards of the community, the reputation. This is going to build higher occupancy rates and a higher average daily rate for an owner. • Focus on how much you are getting per night—that’s where you’re making your money. When you’re evaluating a company, be sure that company is looking at it as a partnership. Some managers make money on a house whether they actually rent it or not, by charging a fl at management fee.

Be wary of that. You want a manager that is proactively out there seeking business for you and working to keep both the occupancy rate and ADR up. • As a prospective VRP owner, make sure there is a bigger picture in the resort community you are considering—and that you are part of that bigger picture. At LRR, we are in this

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business to provide great vacation and make great memories, not to provide a cheap service. We want people to be over-thetop excited about their experience. We want people to post and blog about what an amazing time they’re having. We are providing resort-level services and it’s a new way to operate in the short-term vacation home world.