You need a business plan. Don’t let anyone tell you otherwise. Your vacation rental business plan is a must. Some of you will need it to secure financing. Others will need it to be able to attract business partners. But we all need it to get our thoughts in order.
For me, it’s the best way to get myself organized. I get an idea, a great idea :). I start to think of it from all angles, consider all options and analyze all possible outcomes. At one point it’s too much info so I write it down. Angle near angle, option near option, it all becomes clear and at one point it clicks. That’s the moment I know I’m ready to pursue it.
First things first, a mission statement
So you thought long and hard about building a vacation rental business. Even if you are renting out only one apartment or even a single room in your house I’m still going to call it a business. Because that’s the only way you can take this seriously. And because it’s a business it needs a mission.
Famous companies have powerful missions that outline their values and vision for the future. It gives employees a sense of belonging and acts as a differentiator in their market. You have a small business. For now, we need to focus on something precise and easy to follow. A good example would be “offer the best customer experience possible” or “try my best to make my guests feel at home”.
Both examples keep the customer or guest at the heart of the company. And he should be in any vacation rental business plan. Leaving aside the fact that he is the one saying he is also the one leaving the review. And in this line of work that review goes a long way.
How’s the business environment in your area?
How hard is it to open a company? How hard is it to rent out the property? A question that comes up more and more is if vacation rentals are legal in your area? You should look here at all external and internal factors that affect your vacation rental business.
There is a recession around and people have cut down on traveling. Or you leave in a seasonal travel market (like a ski resort) so certain periods might not be profitable. All these aspects have an effect on your business. Some of them we’ll revisit in the SWOT analysis. In this part make sure to note them down and mark the ones that might change later on. Seasonality won’t but a recession might pass in a year or two.
SWOT analysis, brainstorm time
I find this the most exciting part of any business plan. Split between strengths, weaknesses, opportunities, and threats the SWOT analysis is the place where you let yourself go. Write everything here, even ideas that feel stupid. This is the part of your vacation rental business plan that will make or break your idea. Depending on how you fill this out you will know in an instant if you have any chance of success, or how hard the journey will be.
Strengths will include the location of your property for example, or it’s size. The fact that you are right in the heart of the old city center or near the beach. Another strength will be the fact that you can speak 4 languages making it easy for you to interact with guests. Some people have designer furniture in the property and others have a swimming pool or a pool table. Got the idea yet? Anything that has to do with you or your property and can help you along the way goes here.
Weaknesses are everything that you would like to hide about your property or yourself but can’t. That was a bit harsh. Let’s give some examples. The property has no parking spot nearby can be a weakness. The fact that the property is located very well but the windows have no view. You have no marketing or customer service experience. This doesn’t mean that all stay weaknesses. Some you can improve upon some you can’t. The reason we put them here is so we are aware of them and learn to cope or package them better.
Opportunities in the market are something rare in the vacation rental industry. Almost everywhere you travel you have the option of conventional lodging, like a hotel, and a vacation rental property, like an apartment or a villa. There is a big chance you are not bringing anything new to the table. But that should not discourage you. In Minnesota, there’s someone offering an old fashion farm experience. And it works. In Poland, I stayed in an apartment bringing back communist memories. There’s always a twist no one thought about yet in your area.
Threats are nothing to be scared of but actually things you should be aware of. The nearby airport has two terminals closed for renovation and flights might get canceled for the next two months. The city is planning to regulate vacation rentals soon and you might have issues getting a permit. Some neighborhoods might be banned from vacation rentals all together so property prices might go down and you’ll have to move. Some of these you can find out through research or keeping an eye on the news. Others you might find out about by meeting people in your area doing the same business. This part should always keep updated and for each thing, you should always have a plan in place.
And the same thing applies to all 4. You will never be able to write down all of them and new stuff is bound to come up. But the more you think about it, the more you anticipate and the better prepared you’ll be.
Competitor analysis and what can you learn from your rivals
Competition is not a bad thing. Having lots of competitors proves your idea works. Keeping an open mind and knowing how to learn from their experience is something else.
In the vacation rental business competitors are easy to research. Go on any listing website like Airbnb or Booking or HomeAway. Look at their description, prices availability and read their reviews. You will find more about your market and possible guests that you could ever imagine. The other 5 or 10 properties on the same street with you have similar problems with parking for example.
People that stayed at properties with a price like yours look for the same type of service or list of amenities. Read through the reviews and note down everything they sad they needed. Bigger cups or wine glasses or softer towels. That’s easy stuff you can check off.
These are some ideas. We’ll discuss competition later on. For now, remember that you should have a list of 5 main competitors that you track on a regular basis. All in the same area as you and all at the same price point.
Marketing plan, build it and they will come
If all the above make sense and fit together marketing in a vacation rental business plan shouldn’t be the problem. There are 2 sure ways of getting guests. Your own channels (website, social media) or listing websites.
Listing websites come in all shapes and sizes. The best part is you don’t have to choose. You can list your property everywhere and calendars can synchronize. A few years back you needed a channel manager to be able to do this. Nowadays portals offer ical links that you can import in all the other ones.
The big advantage of listing websites is they already have the demand. The guests are there searching and booking their next vacation. The downside is there’s a lot of competition. Pictures, description, and reviews matter but there is someone with a better offer around the corner.
Your own channels, let you control the experience. Even if the number of people you can reach is smaller. You control what they see and read and learn about your property. I’ll write more about this and explain how it’s done. Keep in mind there isn’t a golden path. The combination of the two in the right proportion will give the highest occupancy rate.
The best for last, financial plan
The big number you need to know in this section is cost. How much does it cost you per night to host someone? This should include all costs like electricity, heating, internet, taxes, employees or anything else. This is important so you know you can never go below this when pricing your property. If you know the cost the rest is a game of balancing price per night and occupancy rate.
Let’s try an example. Your cost per night is $30. Last week you had 5 night occupied at $60. That gives you a total of $300. Now imagine if you drop your night rate to $55 but because of this discount, you book 7 nights next week. That will give you a total of $385. Better, right?
From here you can build the normal projections. How many nights do you expect to have booked every year? At what price per night and what cost. What’s the profit per year? Is the investment viable or not? And never forget to price and include your own time.
There is no perfect vacation rental business plan. The same as your business, this too will adjust and transform as you get more experience and time passes. Keep it near and revisit it every 3 months. See if something changed, see if you can adjust. And make sure you are one step ahead of the competition.