New Trends in the Vacation Rental Industry
A generation ago, booking a rental in the vacation rental industry was hard! In the early 1990s, travelers would call a central reservations line or look through classified ads in the newspaper, trying to find that weekend getaway, whether in a Colorado ski town or a Florida beach community. You often had to rely on a reservations agent describing, over the phone, different properties—and then take a leap of faith that the description was apt. Managing a vacation property required much time, patience and resources as well.
New technology combined with the internet brought us Vrbo and HomeAway, followed by Airbnb—in addition to dozens of other national, regional and niche short-term vacation rental industry platforms. The rise of the online vacation rental industry platform mixed with advances in technology and a customer base eager to book and stay at these properties has resulted in vacation rentals now a huge part of the travel industry. To keep pace, property owners and managers must educate themselves on growing and emerging short-term rental trends, strategies and challenges.
Great(er) expectations
Today’s travelers have high expectations. They want to book a vacation rental quickly and easily online, just like they would book a hotel. This crowd is increasingly comfortable with technology and online processes. They’re looking for memorable moments, Instagram-able backdrops and little extras to make their social media friends swoon. To ensure those expectations are met, today’s travelers are doing more research than ever before. They’re poring through online photos, reading reviews and confirming prospective rentals include necessary amenities, such as smart TV’s, gaming systems for the kids and Wi-Fi.
Customers in today’s competitive travel market expect high-quality listings on sites such as Airbnb or Vrbo. Photos that are grainy or poorly lit are a big turnoff. Travelers want to see high-quality, high-resolution photos that are meticulously curated to make them feel like this is exactly the rental they’ve been looking for. They also want to book a property, instantly, online. It’s also important to be responsive to a traveler’s questions or concerns in a timely manner to avoid losing them to a competitor.
Goodbye subscription pricing; hello transaction pricing
The days of property owners and managers paying subscription fees to list properties, which was the Vrbo pricing model, is basically gone. The industry has converted to transaction pricing models, with both owners and travelers paying commission fees on bookings.
The short-term rental marketplace has never been more competitive—nor has it ever been in such high demand. Although major short-term rental platforms now take a cut from booking profits, a lot of that money is used to drive more traffic, attracting more and more travelers to these websites.
Expert hack: List your property on multiple platforms that don’t charge until a booking is confirmed. This will increase your property’s exposure without paying dollars out of your pocket before you have a booking.
Guest Reviews
Online reviews and social media are changing the game for businesses across the spectrum, and rental properties are no exception. Negative feedback can have negative consequences for any business—but for short-term rental owners negative reviews are especially harmful.
You can keep your online reputation strong by striving for customer satisfaction. Be forthright and honest when advertising your property. Highlight the strengths of the property, but be clear about the location, amenities and views. If the property is older or not in a great location, price the nightly rate accordingly.
If you are offering a vacation rental, you are in the guest services business. Your guest is coming for a week or weekend getaway. Put nice TV’s in the property with high-speed internet, cable and Netflix. Make sure the property has all the basics like utensils, wine glasses, soap, detergence and more. Think about what guests want, what will make their stay better and extras you can provide to meet or exceed their expectations.
New players and changing dynamics
Just a few years ago, Airbnb and Vrbo were the new kids on the block, challenging the status quo and providing a viable alternative to hotel stays for vacationers. But, as the industry grows and appetite among travelers has increased for rentals, the definition of what encompasses a vacation rental is evolving. New players, such as ApartmentJet, Lyric, Sonder, Stay Alfred and many others, are entering the market.
Many of these operators are raising the bar for short-term rental properties, offering professional management services and providing a consistent, high-level guest experience. The short-term rental market now includes apartment operators specifically designed and offered to meet the needs of specific traveler demographics like business and higher-end travelers.
These properties are often homogeneously presented as upscale and luxurious, as opposed to the more homey-feeling of privately-run rentals. Today’s multi-family unit properties are often branded and share a similar look across various locations. Marriott recently announced they are entering the short-term rental space, raising the stakes for their competition. Successful operators will focus on providing a consistent and high-quality guest experience.
Cottage service industries rising
The rise of the short-term rental market isn’t just benefiting property owners. It’s also creating a surge of opportunities for the service providers and technology-based tools required to help run and operate rentals, including:
- Payment solutions: Credit card processors now provide multiple-cost effective options, customized for the vacation rental industry, replacing the old-school payment of cash or check offline.
- Insurance products: Insurance providers have brought to market several products that have changed the industry. Damage deposits have been replaced by low-cost insurance policies, paid by the guest, that cover any damages. New property and casualty policies, customized for short-term rentals, are replacing traditional homeowners policies that often don’t cover short-term rentals.
- Tools: There is a ton of new technology and apps to help manage guest interaction, cleaning service interaction, home system management (i.e. Alexa, Nest, security and more) plus networks of professional photographers and home video/virtual tour solutions.
- Accounting & Tax: Property managers and homeowners need accounting and tax services for their rental business, which includes bookkeeping, 1099s, income taxes and lodging taxes.
- Property managers: Property managers have always been a huge part of the short-term rental industry. We are seeing new entrants and new business models in this space. The increasing change, complexity and competition in the market is making property managers more valuable. These pros have a handle on where the industry is heading and what it takes to secure renters, improve guest experiences and operate efficiently.
Local tax and regulatory changes
Recent changes in tax and regulation around the vacation rental space include:
- An increased focus and enforcement on short-term rentals, which includes licensing and ensuring owner and operator are paying required sales and lodging taxes. Historically, many property owners were unaware they needed to collect and remit taxes on their rental, what tax rates to charge and how to comply.
- New regulations and policies covering how short-term rentals can operate, sometimes limiting the number of units in any particular area, the number of days per year allowable to rent and requiring only owner-occupied rentals, not second homes.
- Leading platforms such as Airbnb and Vrbo are voluntarily collecting and remitting certain taxes across the U.S.
- New legislation requiring platforms to collect and remit taxes as well as more tax requirements for homeowner and hosts.
The growth in the short-term rental market has been astounding – and it’s showing no signs of slowing. In fact, we’re still in the relatively early stages of the industry and there are more changes to come. In this growing and changing environment, property managers and owners will need to stay informed as the industry evolves and matures to ensure the success of their businesses.
About the Author: Rob Stephens
Rob Stephens
Rob has owned and managed his own vacation rental in Vail, Colo., since 1999. He co-founded Avalara MyLodgeTax (formerly HotSpot Tax) in 2002 out of his own necessity to understand and manage compliance with his rental property.
Avalara MyLodgeTax is a leading provider of tax compliance solutions for the vacation rental industry. Avalara MyLodgeTax simplifies compliance and manages the licenses and tax filings for thousands of vacation rental owners and managers across the United States.