Short term lets are considered a little more lucrative, compared to their long-term counterparts. But, there is a small price to pay…
So, to answer the headline, the short answer is NO.
This isn’t necessarily an analysis of short term lets versus long term/ private lets either. More of a, how to make the short term lets work, without breaking too much of a sweat.
I’ve been managing a short term let close to ten years now, so hopefully, I can offer a little insight (to someone looking to break into this game or a refresher to seasoned owners of such property). I’m by no means an expert (otherwise I would have FIRED by now), but I’ve picked up a few pointers along the way…
Turnkey Versus Micro Manage
The only surefire way to make your short term let fully passive is to employ a ‘turn-key’ agency, to do all the heavy lifting. Where they manage everything. However, this will eat into your yield.
For me, it defeats the purpose. Unless you bought someplace with a super duper double-digit yield. Perhaps in a frontier market? Or maybe you just got a great deal, so congratulations.
Anyhow, the other alternative is doing everything yourself (with the ad-hoc help of a letting agency/ cleaner). But…at the same time, optimising your short-term rental(s), to make them as passive as possible. If you want to optimize your yield, then you have to think of your short-term rental as a microbusiness and run it like one.
Trial And Error of Rental Websites
Airbnb seems to be the default choice for the short term let market these days. However, there are many alternatives out there. So it helps to keep an open mind and shop around.
I recommend validating every key rental website, as each site offers a different angle/ market. So, find the rental website that fits your market.
The response will vary from rental site to rental site. For one site, I had guests asking for my best price (certainly not my type of customer). On another, I received strange requests. I don’t need to tell you’re listed on the wrong site when you get tumbleweed i.e. no responses.
I eventually settled on HomeAway, as they typically attract middle-class families from the UK and mainly mainland Europe. And 99% of the time I’ve had no issues. But your criteria may differ from mine.
I also use them, as they do some of the heavy lifting and ensure day to day operations run passively i.e.
- They send out payment reminders
- Collect payments from customers
- Update your calendar (and other calendars on other websites)
- Collect and return the breakage deposit
- Send welcome and thank you emails
- Remind customers to write a review
Any decent rental website should incorporate this type of software, to semi-automate your day to day operations and making everything a little more passive.
For short-term city lets:
Think Airbnb and Booking.com
For short-term holiday lets:
Think HomeAway, Holiday Lettings, ClickStay and Flipkey
I wouldn’t waste my time with any free rental listing sites. But Airbnb and Clickstay are free? Yes a free subscription, but you pay a commission for each booking. What I mean is cheap rental websites with a low domain authority/ no web presence.
Target Your Market
Just like your blog or web business, you can’t be everything to everyone. So, pick a niche and stick to it, preferably straight away.
I target young families and found a good fit with the HomeAway rental site. Hence I ensure safety is my number one priority for the children. And I kit the place out to keep the family entertained.
Branding Yourself And Marketing
You need a logo and tagline to give yourself an identity and differentiate yourself from the masses.
Create a video for your apartment by taking professional SLR photos/ hiring a photographer and adding a professional voiceover and background music. Hire someone on Fiverr/ Upwork to do the voiceover (if your own voice lacks a little pizzazz) and provide them with a narrative script/ storyboard.
Then give this to a video editor (or do it yourself) to finalise. This will cost considerably less than hiring a professional video promotions company.
In the early days, it’s a good idea to run some promotions such as an early bird or long stay discounts. i.e. build up the clientele and reviews.
You can also hire out a PR team by contacting your rental website marketing department. I had a young lady and her entourage stay in my apartment for a week. They got a free week’s accommodation and I received a glowing review and great publicity. A win-win for everyone.
Set up a website for your holiday home or short term let. WordPress is the go-to website for blogs and small business. However, setting up a website for your short term let is a different kettle of fish. Advertising on the big player rental websites is a relevant step.
But long-term, we want to break away from the paid solutions and the dependency we place on them.
The templates on WP suck for advertising holiday homes/ short-term rentals. But fortunately, a company called Lodgify host and supply some great looking templates and features.
Sourcing a Letting Agency/ Cleaner
The beating heart of your operation. In my opinion, the make or break of a short term let.
It’s finding that fine balance between quality of service and price. And it’s not easy. I conducted a whole host of telephone and face to face interviews for this part.
If the cleaning is not up to scratch, it can seriously damage your rating and then ranking, but more importantly – your reputation.
Second to that is the service. The service/ letting agent need to be quick off the blocks to attend to your guest’s needs.
In my opinion, what we need, are some ambitious young couple/ family with a fire in their belly to take the reigns. As opposed to a faceless corporation.
Hence, finding the perfect letting agency can make your operation close to passive. On the flip side, if the letting agent isn’t pulling their weight, the short term let can become a pain in the butt.
Out of interest…if anyone has service industry experience (although, not absolutely necessary) and fancies a lifestyle business in Eastern Cyprus, looking after apartments/ short-term rentals. Well, let me tell you…there’s a significant gap in the market there. Could be a dream lifestyle for some couple/ family?
It’s a location independent friendly place also, with regards to residency, banking and taxes etc.
Dealing With Customers And Your Advert
- The faster you respond i.e. within the hour, the quicker you’ll rise to the top of the rental website rankings and improve your score. Not only that, your potential guest is more likely to book with you
- Overdeliver with your customers needs and watch your 5-star ratings grow. They may even turn into repeat customers
- Having reviews help, of course. In fact, 92% of travellers want to see reviews before booking. So soliciting reviews helps both your listing and travellers so that they have a clear picture of what to expect.
- Don’t fall into the trap of underpricing. Rise above this and price yourself competitively, a little more than your competitors. It’s all about perceived value.
With regards to some rental websites, you can become a premier partner if you satisfy enough of the above criteria over a long period of time. The pledge is a commitment to continually: provide great traveller experiences. Set and maintain fair, competitive, and consistent pricing.
And guests want validation or some sort of certification with their short term rental. They want that warm fuzzy feeling they’re renting a premium product which is safe and secure.
Hence, it pays to put in all this extra effort. This is where the passive bit goes out the window.
Dealing With Criticism For Your Short Term Let
You will have to deal with various encounters and issues.
Take all feedback and criticism as constructive (not personally) and ensure your letting agent deals with this immediately. As cliche as it sounds, it will make your property the best version of itself.
You won’t be able to address every single issue, otherwise, it could put you out of pocket. But incorporate the key ones. A decent letting agent will be able to advise you on this.
Again, this will take time out your day to address.
Being Threatened With the KGB and a Family on Benefits – Lessons Learnt
You put up with the odd moan and groan, it comes with the territory. Such as the lady who demanded to leave, because the view simply wasn’t good enough.
Or on a rare occasion at the beginning, a guest wanting to leave because of teething issues with the internet. That’s fair enough and on my watch.
But, be prepared for a little stress here and there though. It’s no walk in the park. We’re dealing with humans after all, and lots of them over a short period of time.
These 2 incidents/ examples below stand the test of time for myself and my nerves. Here’s how I dealt with them/ learnt from them:
- I had a well-heeled family from Saint Petes stay at my short-term let in 2013. All was well during their stay until I received an email from my letting agent after their departure. The door handle was ‘broken’ and the sheets were soiled.
Hence, I contacted the couple requesting to retain a small percentage of their breakage deposit. She didn’t like that. Here is the response from that email:
“Dear Stefano! If you want to deceive me, you can leave the deposit to yourself. But know my husband, he worked for the KGB. And so I won’t leave it. If you don’t want to XXXX (very strange threat here…couldn’t quite make out what they were planning to do to me), return the deposit in full. Term to you 2 days. I hope you correctly understood.”
Sure, it was loud and clear. Needless to say, I reverse wired the retained portion of their deposit immediately and was left badly shaken for the rest of the day (and looking over my shoulder for the next few weeks). It’s not every day you get threatened by the Russians.
Here’s the kicker. My letting agent emailed back shortly afterwards…”Ahhh, it’s grand. That door handle is actually ok, just needs tightening. And those stains came out in the wash”
Lessons Learnt – Have some breathing space with the breakage deposit and post property inspection (at least a week). Never overreact and give the guests the benefit of the doubt. You never know who you’re dealing with! So, maintain good communication with the letting agent at all times.
2. What happened in the summer of 2016, eclipsed the ‘KGB’ incident. I would have preferred to be tracked down by the FSB (Former KGB). Or maybe host a Chechen rebel leader and his family.
What happened was a slow burner that mentally tortured me over the course of 2 weeks. This family slowly chipped away at me…every single day. It started off with small demands, then I received the threatening emails. They even managed to turn my resort committee against me.
They served many threats but the one that would ultimately hurt the resort was to leave a bad review on Tripadvisor. Hence, their demands for a payout.
We are good at our jobs and smart enough to FIRE at some point in the near future/ or already. Well, this family knew how to ‘play the system’ and they were very good at it. They were dumb as a box of nails but smart at screwing people over and knowing who was who.
All sorts of demands were played out, but the bully was their pregnant teenage daughter ‘hurting her leg’ with the slats on my rental bed. Hence their demands for compensation.
I had a time difference of 9 hours, as I was working overseas. Every morning, there was a fresh ‘complaint’ to deal with. My mornings and afternoons consisted of addressing this nonsense. I eventually lined up a lawyer through my holiday rental insurance.
Then about after 2 weeks, I thought….I’ve had enough. My consultancy work was suffering and the client was picking up on it. It was really about a matter of pride now, not money.
Unfortunately, in life, some folk feel they are owed a living. They have no interest in doing an honest day’s work. Especially when the UK has a very generous social welfare system.
So, I gave them what they wanted all along. A filthy payout. Well, a fraction of what I received from their rental payment. I felt angry and went through the whole S.A.R.A model during that 2 weeks. But my work was more important. And I took a hit for the team (resort committee), as it was more important to keep the TA rating alive.
When the shameless shysters found out I would pay them a ‘little compo’, they fled in the middle of the night and left the place like a shit tip. It was the final piece of drama to this soap opera or nightmare in my eyes.
The crazy thing was, they still had a week left of their holiday unused.
But it didn’t matter. Our taxes paid for their 2-week stint away in the sun and they made a Brucie bonus out of me. In fact, they profited out of that sun holiday.
I was so relieved to get them out my apartment, my life and it didn’t hurt me financially.
Lessons Learnt – See paragraph below
How to Deter Undesirables
Why did I invite these undesirables into my property in the first place? The problem was, I had no control over this and had uncovered a loophole. I was scratching my head for a while, how to solve this, became paranoid about future bookings and had several discussions with HomeAway.
The solution is this. Decent, hardworking professionals don’t have an issue paying a bigger breakage deposit for established rentals (as I found out later on down the line…I initially thought it would put them off and lead to fewer bookings). I guess it’s like perceived value to them.
However, for scumbags, it’s a psychological deterrent. The thought of them forfeiting their deposit is too much for them. And it works a treat.
Double the breakage deposit.
It’s a bit of a grey area this.
A properties value is determined by its possible legal uses. If it can be both a domestic rental and a holiday rental then it’s value could be greater than one that is just restricted to a holiday rental.
The value of a business is a different matter entirely; the sort of business, it’s location, it’s local competition, etc., will have a bearing on its likely sale price.
Also, the value will also be determined on the basis of the sale – selling as just a property with a “potential” for holiday rental income is not the same as selling an existing trading holiday rental business, including one or more properties, as a going concern.
So, generally a Holiday Lets business could be valued at the total assets true commercial value, plus once the average of the last 2-years turnover; sometimes it can be valued at 1.5 times on the basis of taking the 1.0 times true turnover without really discounting.
Hence potentially, if a holiday apartment is worth £150k & the average of the last 2-years turnover is £6k then the asking price could be £156k.
But, at the end of the day; the value of a business is only really worth what someone is willing to pay for it.
I mentioned re treating it like a micro business. Your best to keep records of all your guest’s bookings, invoices, repair and letting agent bills etc.
Again, a good rental website will take care of this documentation automatically and make things a little passive.
So, What Does it Look Like Today? Are Short Term Lets Worth it?
So what does everything look like today, compared to 9 years ago? Should you buy into the short term let market?
I rarely hear from my guests now, as:
- Everything is semi-automated with email responders, payment collection systems and review request emails
- Robust FAQ page after years of ad-hoc queries
- Good communication and understanding with my letting agent
- All constructive criticism has been addressed and implemented accordingly
My bookings have more or less doubled since inception, due to:
- Word of mouth
- Repeat bookings
- The increase of 4-5* reviews
- Achieving premier partner status
- PR trip publicity
- More exposure in search engines and partner sites with HomeAway’s strong web/ media presence and ties with Expedia
- Professional website with Lodgify which attracts new bookings now
So, if you’re prepared for a bit of hard graft initially, this can be achievable.
In some ways, the short term lets business is like a fund. Your efforts compound over time and you get rewarded generously. On the flip side, if you let things slide, you will not grow and prosper. Then again, there are no guarantees.
Short term lets are very much trial and error, tweaking here and tweaking there. There are many variables. Making changes until you find the right balance.
Once everything is in place, the operation can run like clockwork. Given you have the right letting agency in place and invite the right guests using pointers from above.
If you’re after a pet project after FIRE’ing, then short term lets will certainly address that.
If you’re a people person and can put up with some flack here and there, then even better.
It starts as a slow burner of an income generator but can turn almost passive after lots of time (years, rather than months) and lots of effort.
Now I would like to hear from you in the comments:
- What are your thoughts and experiences on short-term rentals?
- Does this income generator fit into your FIRE plans?