Get the monthly newsletter that everyone in PropTech is reading

The Ins And Outs Of Fees In Short-Term Rentals | Emir Dukic

 

 

The sharing economy is booming, and opportunities to make money from home are rising. But before you jump in headfirst, it's important to understand where your hard-earned money is going. Listen to this episode to learn about the ins and outs of fees in short-term rentals.

 

Rabbu is a flexible asset management platform that provides property investors higher returns on their portfolio through short, medium, and long-term tenants. Its services include: procuring the best properties, evaluating your return on investment, getting the property ready for tenants, listing and marketing the property, handling support and operations, and coordinating all financial aspects. By providing end-to-end property asset management services on your behalf, our goal is to unlock your property's potential and enable you to earn higher returns hassle-free. 

 

Know More https://rabbu.com/

 

---

 

The Ins And Outs Of Fees In Short-Term Rentals | Emir Dukic

It's very hard for an investor or layman to appreciate that fee as you've described it, an average of 25%. In long-term rentals, the fee can range. If you've got a large portfolio, it could be 2.5% or 2%, and usually, it's 30%. Often if it's a smaller portfolio, it could be 5%, maybe 7%. If you're on the other side of this, it feels like a great idea to go and run a vacation rental management business because you're going to make so much cashflow.

 

The naive approach is that rather than buying one property, I could manage four and get the same cashflow as if I did the one. Could you walk us through why the fees are so high? What's involved in managing a short-term vacation rental? Are they charging these fees because they can get away with it? What are their profit margins like? Is it a business that's very hard to succeed in because of the cost structure?

 

Transparently speaking, we've had a lot of copycats in the markets that we've been in that think, "I can charge 20%, 25%. It's easy money.” Honestly, it is not. The reason why we're able to do it at such a scale is because everybody's invested in building a lot of tech infrastructure that runs our day-to-day operations and automates a significant portion of our day-to-day operations.

 

We tried using third-party platforms that did not fit the investment base narrative that we were solving for. We built our own property management system, access system that sets law codes to properties, security system, and a lot of our own maintenance systems. We had to invest in all of that to be able to do it at scale.

 

The reason short-term rental operators charge more is because it's still a much more active high-touch business. You can get a phone call from a guest at 2:00 AM that you need to respond to because if you don't respond in time, that guest will leave you a two-star review, which is a huge negative towards your opportunity to generate the best revenue possible on this asset.

 

It's much more hands-on. You have to manage cleaners. You have to deal with guests who leave the property in conditions you can't imagine. We've had people use some of our properties for a pigsty, literally have an emotional support animal that they said they were bringing and we can't say anything about it. It turns out it was a pig and smelled like a pigsty after they checked out.

 

 

 

There are different things that you have to deal with that you don't deal with on a long-term rental basis. The good thing is that there are also some additional protections that you have. With short-term rentals, there are no such things as evictions. You can't evict people in short-term rentals and the way we structure our deals. You don't have to worry about things like that. There's some upside there.

 

Overall, it's a much more active day-to-day 24/7 business than your traditional, "I'm going to place this tenant. I'll make sure that we collect their payments once a month. If they have any questions, we'll get back to them when it's convenient for us." We have to do the opposite. We have to get back to the guest when it's coming in for the guest.

 

When you have that critical mass 3 to 5, what are some of the roles you need to start thinking about hiring when you can't do this anymore yourself? Where do you outsource and where do you hire full-time?

 

My best recommendation when you get to that stage is to start looking at virtual assistants. Usually, based in the Philippines, it's where we've seen the best success. The first thing I always tell people that they should be doing is looking at virtual systems that can help them with their day-to-day communication. That's the most proactive piece of the operation.

 

There are some great websites out there where you can find some strong virtual assistants out of the Philippines, whose English transparently is a lot of times better than some native speakers here in the states that have already done this and do this for multiple groups. They are a great resource to utilize. Virtual assistants are great to own the guest communication.

 

The biggest thing to be aware of in virtual assistance is that you need to create a playbook for them, where they have to be trained by you on how to address every type of scenario that they might encounter and what they do. If you do a good job building up this playbook, they'll do a great job. Their effectiveness will depend on how good your playbook is that you put together. That's always my first go-to. In virtual assistance, the options are cheap and they're highly effective.

 

 

Having geographical density makes operations simpler. As much as you can do that, the better.

 

 

What about the maintenance side? You can't outsource that to the Philippines. You have to have someone available in the climate at least. There's a labor shortage and it's very difficult to find competent maintenance staff. How do you handle issues? If you don't handle a key issue, your vacation rental is sitting there empty and not generating revenue.

 

That is probably the hardest part about our business now. The first thing you have to do is you can't take shortcuts with cleaning. You have to find somebody and be willing to pay them a very healthy hourly rate, probably up to $20 per hour, which might sound crazy to some people, but that's what it requires. You need to do a good job of paying an appropriate fee for these resources because they are your eyes and ears on the ground when they're cleaning the property.

 

Luckily, there are some platforms out there that we recommend using. For short-term rentals, there's a great platform called TurnoverBnB.com. That's a marketplace for cleaners and soon-to-be maintenance personnel. I highly recommend using them. You can find some very good and highly-qualified cleaners there that do this for a living. They're able to service multiple properties at once, which will keep them busy because that's the biggest thing with short-term rentals. You can guarantee any amount of work because of guests booking one day or booking a month at a time.

 

You have to find cleaners that have enough work if you only have a handful of properties. Luckily for us, we have a large portfolio. We have cleaning and maintenance on staff, so that works for us, but if you're not in that situation, I highly recommend TurnoverBnB as a resource for you to find those vendors because they know what they're doing. TurnoverBnB already vets them and they're nationwide.

 

Could you talk about the benefits of having the density of rentals in one location? Is there a golden rule in terms of how far apart a rental should be from another rental, so you can benefit from the scale? It might make sense, but there's more juice to squeeze if you have two rentals that you manage close together versus too further away because then you've got to have different cleaning crews and it takes longer to go visit and do handovers. Any thoughts on clustering the geographical segmentation of rentals?

 

There's no denying the fact that having geographical density makes operations simpler. As much as you can do that, the better. Usually, if you can keep properties within a 5-mile radius, that has been great. We now have some buildings where we have an entire building that's short-term rentals or monthly-term rentals.

 

 

 

Luckily for us, we have built out some technology that I alluded to that allows us to launch a new market with only 1 or 2 properties and that's because we've built the technology to do so and built the vendor market and some markets to be able to service that. That's an advantage that we have because of the technology we've built. If we didn't have the technology, we wouldn't be able to expand as much as we have. We would need to aim for that density first before being able to do so. 

 

As you start to grow your relationships with landlords or investors, how should a property manager handle investor communications? How should the updates look? How often should there be updates? How do you set a healthy relationship? A lot of people get this wrong when it comes to property management and investor relationships.

 

The investor needs to look at the property manager as a partner, not as a property manager in the traditional term where, "These guys are taking care of my property." You need to be an extension of their revenue goals. You need to help them and provide them with the data and tools they need to continuously grow that portfolio because most investors want to grow their portfolio, and they need assistance.

 

As a property manager, you are set up to do that. If you can create a cadence to review potential properties for that investor to buy, being proactive there will help you grow your portfolio. You can provide any data to the investor about the market, what you're seeing, and any potential property they'll enjoy. It's all about proactive communication. If you're reporting any issues that might be happening on the property level, be proactive and give them the data. Be a partner, not an enemy, which a lot of times it feels like for the investor.

 

How do you decide when to bother your investors about things that go on? I'm sure you have horror stories. You alluded to someone bringing a pig into an apartment and it smelled like a pigsty. What's the right balance between the appropriateness of updating them on every little situation? They don't want information overload. Something I struggle with is some of my managers that I work with overload me with incident reports and it stresses me out as an owner. The last thing I want to hear is there was a fire in this unit and water damage, etc.

 

I'm like, "Thanks for the update. What do you need from me?" "Nothing, I'm just giving an update. The insurance is working on it." I'm like, "I wish you didn't tell me this." If this is within the budget and it's being managed well, then I'm happy. I'm not happy about surprises. "There was a hurricane and we now need a new roof." "You should've told me about this rather than waiting until the very end." How do you balance and decide when to update regarding incidents and when not to?

 

 

The investor needs to look at the property manager as a partner. They need to be an extension of their revenue goals.

 

 

Honestly, that's a little bit more complicated because it depends on the investor. Some people want to be updated on a continuous basis. They want to know everything. It almost feels like they're micromanaging. Others want to know that things are taken care of. It's early on setting the relationship and expectations with the investors, so everybody's on the same page, understanding what they're looking for.

 

We have a customer success team that, after a contract is signed, the investor meets with our customer success team and understands how this individual or investor wants to be communicated with. We do our best to give them the communication level that they want. Some people want too much data and a lot of times, we say we can't do that, but we're able to find a good common ground that everybody's happy with. Another thing that helps us is we have some dashboards that'd be filled out for them so that they can log in at any time and get the most important information that they need to know and get informed and have the ability to ask us questions if they have any.

 

It's understanding the investor wants to be communicated to and then giving them tools to get the information they want at their disposal. Most investors are happy to know that you've handled it and tell them when you send out your monthly summary at the end of the month. Some people don't even want to know as long the money's coming in and everything's on budget, so it depends on the group. The customer success piece is important. 

 

This has been a very helpful and a very good insight shed. Emir, how can people reach you if they want to get in touch with you?

 

I highly encourage anybody interested in short-term rentals to check out our website, Rabbu.com. We are doing a redesign that we're launching, so it will be different than what you'll see. I do encourage people interested in short-term rental space to check out Data.Rabbu.com. That's the tool that we built that you type in an address and a bedroom count and we give you the comp set for short-term rentals. You can see the revenue opportunity is there.

 

There are some triggers there. If you want to reach out to us and ask us any questions, you can do so through that tool. It's a free tool and it doesn't cost anything. We have people using it for all kinds of things, whether they're evaluating short-term rentals, looking at how other short-term rentals are pricing in their area, or looking for investment properties. I would encourage anybody who's interested to get that data from our site.

 

Thank you so much for coming to the show.

 

Thank you for having me, Zain. It's been a pleasure.

 

---

 

Subscribe to Zain Jaffer: https://bit.ly/2SWhYW5

Follow the PropTech VC Podcast:

Listen on Apple - https://apple.co/2Izoznu

Listen on Spotify -  https://spoti.fi/2STWDwq

Listen on Google Play - https://bit.ly/2H7s6c0

 

Follow Zain Jaffer at:

Twitter: https://twitter.com/zainjaffer

Website: https://zainjaffer.com/

Current Ventures: https://zain-ventures.com/

LinkedIn:  https://www.linkedin.com/in/zainjaffer/

 

---

 

The Changes in Proptech in 2022 - https://www.youtube.com/watch?v=_NQC3b8rDHg

How Investor Value Is Changing in Short-Term Rentals - https://www.youtube.com/watch?v=I-7BKI9ntro

Innovative Housing That Could Change the World - Boxabl | The Zain Jaffer Podcast - https://www.youtube.com/watch?v=K92fRT04Qjo

 

---

 

About Zain Jaffer:

Zain Jaffer is an accomplished executive, investor, and entrepreneur. He started his first company at the age of 14 and later moved to the US as an immigrant to found Vungle, after securing $25M from tech giants including Google & AOL in 2011. Vungle recently sold for $780M.  

 

His achievements have garnered international recognition and acclaim; he is the recipient of prestigious awards such as "Forbes 30 Under 30," "Inc. Magazine's 35 Under 35," and the "SF Business Times Tech & Innovation Award." He is regularly featured in major business & tech publications such as The Wall Street Journal, VentureBeat, and TechCrunch.

 

 

Important Links

 

 


Related Shows

image
Emir Dukic
The Ins And Outs Of Fees In Short-Term Rentals | Emir Dukic
image
Emir Dukic
How Investor Value Is Changing in Short-Term Rentals
image
Emir Dukic
The Changes In Proptech In 2022 | Emir Dukic
View All Shows