Are you paying VACASA 39 percent of revenues? Probably!

[Collin H.]

Follow along with me here.  You owe it to yourself.  I was tipped off by this from a client that we took over today.  

I went to VACASA.com and booked this cabin for January 11-14.  The nightly rate is $127.  The total rent is $381.  But notice the "fees" that VACASA is adding on:  A $45 "hot tub" fee, a $66.60 "booking fee", and a $49 "limited damage waiver".  

Well, that's $160 in purely junk fees, straight into VACASA's pocket.  They don't share this revenue with the owner.  And then then are charging the owner 18 percent of the rents.  VACASA is pushing down the rent so that they can charge these fees and keep the total is palatable to the guest.

So the total revenue, not including housekeeping and taxes, is $541.  The homeowner gets $312 of the $514.  61%.

Here is a photo of the deal.  Moral of the story: If someone is charging you "only" 18 percent, they are getting money from you in other, creative ways.  Wise up.

[Ken Boone]

@Collin H. Dude that is a really good breakdown.  I think you nailed it with your assessment of what is going on.   I have heard similar stories from other folks on how some mgmt companies are offering lower fees, but at the end of the day, a lot of nickel and dime stuff gets added back into the mix and that 20% fee becomes a lot larger.

[Joshua Strickland]

Good breakdown and point here. I’ve seen other property managers do similar things with “administrative fees” which are higher than the cleaning fee!

[Collin H.]

Originally posted by @Ken Boone:

@Collin H. Dude that is a really good breakdown.  I think you nailed it with your assessment of what is going on.   I have heard similar stories from other folks on how some mgmt companies are offering lower fees, but at the end of the day, a lot of nickel and dime stuff gets added back into the mix and that 20% fee becomes a lot larger.

 Those nickels and dimes add up to big bucks!

[Nancy Bachety]

Really useful post! So besides self-manage, what does a fair arrangement look like between an owner and a property manager? 

[Collin H.]

Originally posted by @Nancy Bachety:

Really useful post! So besides self-manage, what does a fair arrangement look like between an owner and a property manager? 

Whatever both parties are comfortable with, but full disclosure and transparency should be a good starting point. This is fundamentally dishonest.

[Nancy Bachety]

It’s making me question the worth, the value, of self-managing in actual dollars. Especially as I consider running a self-managing company as a tax strategy. 
Using your example, is it reasonable to  earn 20% of the controllable gross paid, in this case, $541, or $108? Or is that too little to property manage for? Seems like a larger percentage is what is more common. Even 25% is $135. 

[Collin H.]

Originally posted by @Nancy Bachety:

It’s making me question the worth, the value, of self-managing in actual dollars. Especially as I consider running a self-managing company as a tax strategy. 
Using your example, is it reasonable to  earn 20% of the controllable gross paid, in this case, $541, or $108? Or is that too little to property manage for? Seems like a larger percentage is what is more common. Even 25% is $135. 

You raise a very good question. Generally, we think in "all or nothing" terms. Black and white. But every decision we make has a cost. In fact, even a non-decision is a decision.

Like everything else in the investing world, there is a cost, and an opportunity cost, with Short Term Rentals. There is also a cost, and an opportunity cost, with self-managing versus hiring a professional manager.

Without getting too far into the philosophical weeds, let's look at an analogy.

Hair color, particularly for women, is a $ billion dollar industry in the U.S. and the Western world. Women want to color their hair to a) look younger, and or b) take on a new look altogether. My teenage daughter recently wanted to change her hair to red, and had to decide whether to allow a professional to do it, or buy a kit at Target and do it herself. Well hiring a professional was going to take a chunk of her savings, so she chose to buy a kit and did it herself. Two days later, she came home bawling because girls at school were making fun of her hair. Being her father, I didn't want to hurt her feelings and tell her it looked awful, but it was pretty hideous.

But now what? Yes, she "saved" the money by doing it herself, and yes, she did in fact color her hair, but there was still a cost to do it. A cost for the kit, and now a cost for the results. Which was less expensive? Well, that depends on how you define "cost". And after the experience, my daughter's choice turned out to be very costly! ;)

How does this related to how you manage your short term rental?

1. Managing your short term rental is not free. You pay for professional photographs, you pay 3% credit card fees, and you pay anywhere from 8 to 11 percent for each reservation on VRBO or Airbnb. So realistically, you are probably at 12-15 percent in fees to self-manage. On a property that does $100,000 a year, that's $12,000 to $15,000 per year. You also have the time that you have to invest in the rental to do it well. If you do not, you are throwing away a big chunk of your potential rents. And if you can't get a repairman out to fix the TV, refrigerator, hot tub, or air conditioner the same day, you are refunding lots of rents, PLUS the cost of paying a professional repair company to fix the issue(s). So don't let anyone tell you that managing your own STR is free.

2. Paying someone to manage your rental isn't free, either. However, you should be saving the 8 to 11% booking fees on VRBO and Airbnb, and your credit card fees should be cut by at least 15 to 20 percent. You should expect that the manager has access to repair people that can get things addressed the same day. Even on Christmas and Easter. And your hourly rate with their people should be dramatically less than paying XYZ Repair Company. You should also expect that your manager booking your property from 280 to 300 nights per year (in the Smoky Mountains at least).

3. Not all professional managers are created equal. Some are big, some are small. Some are local, others are remote. Some are honest, others are not.

[Nancy Bachety]

So sorry for your daughter. I had a similar story at her age. To this day, I’ll move a yard of mulch, clean our gutters, mow the lawn etc but I will not color, cut or even touch up the roots of my hair! And it’s not because I prefer the outdoors.

[Collin H.]

Originally posted by @Nancy Bachety:

So sorry for your daughter. I had a similar story at her age. To this day, I’ll move a yard of mulch, clean our gutters, mow the lawn etc but I will not color, cut or even touch up the roots of my hair! And it’s not because I prefer the outdoors.

 If only she had learned the lesson on the first, second, or third try....   ;)

[Ryan Moyer]

Originally posted by @Collin H.:

2. Paying someone to manage your rental isn't free, either. However, you should be saving the 8 to 11% booking fees on VRBO and Airbnb

This would only apply if they're doing all of their bookings on a direct booking site, right?  If the PM is listing through AirBNB/VRBO you'd still pay those fees on bookings through those sites.

In fact, I would bet a lot of PM companies calculate gross revenue before those fees are taken out, so they're actually charging you their 15-30% management fee on the VRBO/Airbnb fees you're paying, effectively INCREASING the Airbnb/vrbo fees, not lowering them.

[Collin H.]

Originally posted by @Ryan Moyer:

Originally posted by @Collin H.:

2. Paying someone to manage your rental isn't free, either. However, you should be saving the 8 to 11% booking fees on VRBO and Airbnb

This would only apply if they're doing all of their bookings on a direct booking site, right?  If the PM is listing through AirBNB/VRBO you'd still pay those fees on bookings through those sites.

In fact, I would bet a lot of PM companies calculate gross revenue before those fees are taken out, so they're actually charging you their 15-30% management fee on the VRBO/Airbnb fees you're paying, effectively INCREASING the Airbnb/vrbo fees, not lowering them.

If a company is integrated with VRBO, they are not paying a per-transaction fee.  We are integrated, so there is no fee per transaction.  We do, however, pay a substantial annual subscription fee to VRBO, which is a cost that we bear.

[Nancy Bachety]

VRBO grandfathered out the annual subscription to owner hosts so that difference can really add up for hosts who pay per booking. But Ryan poses a good point with Airbnb’s fees. 

[Cliff H.]

I checked out once you started talking about hair club for men… but to the original post: I’m lost. If you’re lazy enough to go with Vacassa versus a local vacation rental shop, finding a co-host to manage your rental for you, or learning how to self manage yourself, why would you not think you’re going to pay more than 18%? Historical percentages were what, 40-60% of gross revenue? Moreover, if an owners are too busy to care/notice isn’t that on the them anyway? 

[Mark S.]

@Collin H. I pay 3% to VRBO and Airbnb, about $1,000 annually in some platform fees, and spend a few dollars for an annual site visit/vacation to the properties. No other fees. I generate approximately $160k annually from my two properties and spend perhaps 10 minutes a day on them on average, plus the annual two day site visit. Pretty good gig in my opinion and a lot less expensive than paying $30-40k to a PM.

[Mark S.]

@Mark S. oh, plus an annual subscription fee of I believe $500 to VRBO per property. Need to be accurate here!

[Collin H.]

Originally posted by @Mark S.:

@Collin H. I pay 3% to VRBO and Airbnb, about $1,000 annually in some platform fees, and spend a few dollars for an annual site visit/vacation to the properties. No other fees. I generate approximately $160k annually from my two properties and spend perhaps 10 minutes a day on them on average, plus the annual two day site visit. Pretty good gig in my opinion and a lot less expensive than paying $30-40k to a PM.

It is a great gig and I am glad you are having success. And VACASA is still charging 39%!  ;)

[Mark S.]

@Collin H. Oh I believe you about that! I’ve seen some of those games when booking a place for myself.

[Collin H.]

Originally posted by @Cliff H.:

I checked out once you started talking about hair club for men… but to the original post: I’m lost. If you’re lazy enough to go with Vacassa versus a local vacation rental shop, finding a co-host to manage your rental for you, or learning how to self manage yourself, why would you not think you’re going to pay more than 18%? Historical percentages were what, 40-60% of gross revenue? Moreover, if an owners are too busy to care/notice isn’t that on the them anyway? 

The purpose of the original post was to point out that the cost of VACASA is more than advertised. My second post was in response to someone weighing the cost/benefit of self managing.  I am sorry I lost you with the analogy. 

I think a huge benefit of this forum is the vast knowledge that so many investors bring together that do care, and I value and appreciate the professionalism and mutual respect of the board members.