Buying Vacation Rental - What Specifics to Include in Contract?

Question

We have verbally agreed on purchase price to buy a successful, profitable vacation rental condo in Colorado. Owner uses a primary property mgmt/marketing company for the condo but also does some of his own marketing to fill in the vacancy gaps. He has agreed to train us on this and provide time to show us how to set everything up in AirBnB and VRBO (since his reviews/account can't transfer to us unfortunately). We are using a realtor friend to draw up the purchase contract. The contract will be straight forward but we want to create a separate agreement that states he will provide training, help us get new accounts established, link to existing reviews, transfer bookings/deposits, etc.

Is it fair to also ask for all bookings from the date the contract is signed (vs closing date) while we are waiting on closing to happen (which is 30 days)? Also, once the closing has occurred, he and property mgmt company need to transfer all deposits collected for future reservation to our account.

Those who've done this before...What's been your experience - what's the best way to do this? How was contract set up and worded in the agreement? What else should we request or consider in this transaction? Just want to make sure we have our i's dotted and t's crossed to ensure the transfer goes smoothly and we're not left hanging. Should we consider a real estate attorney to draw up the contract or will a standard purchase agreement with a separate agreement that outlines those details suffice? Thanks! :)

Jon Crosby · Answer

@Grace T. I have been thru this twice now (both on purchasing and selling side) and each time I tried to make it as clean cut as possible for both parties. Spending a bunch of time and energy transferring bookings 'in-flight' is just not worth the headache in most cases.

We usually have (or ask) the original bookings cancelled once escrow reaches the point of no more contingencies and refunded with a note that the property is being purchased and the new owner will be happy to take on the booking for the same rates and dates once escrow closes. The guest may decide they don't want to risk it and just book another property but that's fine...there will be another in their place most likely anyway. Try not to have a scarcity mindset on these bookings as if you bought right, there should be plenty of back fill available. This is going to save you the trouble of trying to figure out balance of rental share between you and the current owner. You should be focusing that energy on getting your new listing up, making sure supplies are ready and really trying to figure out how your rental model is going to be better than the previous owners.

The current owner should turn off his calendar as soon as escrow begins also. You can't keep his listing or his bookings from system perspective so all you are doing is putting guests in a potentially bad spot or transfer experience to which you might end up on the receiving end of the poor review once they complete their stay.

Let me know if you thinking I'm missing something here though. But just remember, anything can happen in escrow and the guests should not become collateral damage should something go south as you are going to be the one answering to them in the end.

On another note, congrats on the new property and wish you much success in your STR adventure!

Cheers!

John Underwood · Answer

After closing you are entitled to all future bookings and deposits.

I like Jon's idea(even though he spells his name funny) that you get the future bookings cancelled and hopefully moved over to your new Vrbo / Airbnb accounts so that you start getting reviews under your new accounts.

Avery Carl · Answer

Hi Grace! Sellers are not going to agree to give you any money or bookings for before closing. A lot can happen between contract and close, so I don't think that's a reasonable request.

I could be wrong about this, but I don't think that once they sell the property, that their reviews on Airbnb/VRBO will still exist/be accessible for linking.

What I usually do is have the buyer go ahead and set up their Airbnb and VRBO profiles, and before closing, have the seller send a cancellation email to the future bookings with the link to re-book with your listings included.  That's the cleanest way to make the switch. That way, the deposits are refunded back to the booking platform and then the guests re-book with you with new deposits. The transferring of deposits etc from seller to buyer in a real estate transaction can get VERY messy.  So I recommend avoiding it if you can.  However, all markets are different! That's just my experience. Good luck with it!

Michael Baum · Answer

Hi @Grace T. I agree with @Lucas Carl 110%. You need to really get someone on your side that knows the game. If not, you are setting yourself up for trouble.

I will say from what I have seen on deals like this, most give up all the bookings AFTER it closes and not before. If it was me, I wouldn't. Anything can happen before closing.

Luke Carl · Answer

@Grace T.  Your agent should have experience and should have done this before. Many times.

I would straight up ask them. How many of these condos have you closed and how many of them were for STR and how many of the owners self managed and how many of them used a PM and which PM do you recommend or can you teach me how to self manage? AND while I'm at it... how many do you own?

If you don't get the right answers you've got the wrong agent.

Sounds like the seller is selling you a line of crap to get you to buy. Possible he's being honest but you need someone on YOUR side that KNOWS what they're doing and clearly your agent does not.

Buying Vacation Rental - What Specifics to Include in Contract?

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