All Forum Posts by: Andrew McConnell

@Jo-Ann Lapin Welcome and congratulations! 

If you are looking at out-of-state opportunities feel free to check out the "2016 Rental Income Report" I helped put together that breaks down the best ROI opportunities (for short-term rentals) for Aribnb owners/investors.

Once you get a place out-of-state, and our in need of professional physical management, feel free to reach out to me via phone or direct message, and I would be happy to get you in touch with one of the many Airbnb rental managers that have connections with across the country.

I hope this is helpful.

@Bruno C. Check out AirDNA if you haven't already.

@David Lowe Charleston is a great market for that! That is exciting!

Feel free to check out our "Ultimate Guide to Vacation Home Ownership" on our site.  There is a lot of great information on analyzing properties, looking at insurance options, dealing with pets, etc.

And feel free to reach out to me directly via phone or direct message if you ever need help finding a vacation rental or Airbnb manager in Charleston.

@Heather Wendel If you consider working with Airbnb or vacation rental managers, you would open yourself up to wide variety of investment opportunities as you would not be confided to areas you and your husband physically go on a regular place.

I recently helped out on an Airbnb investor's report on the top markets for investors based on ROI opportunities. Feel free to check it out on our site (is the "2016 Rented Rental Income Report").

@Blake Brose  Interesting Amazon perspective.  Here's my take:

Without question, the vacation rental industry is poised for a historic shift.

How can that be said so authoritatively? Yes, it is true that HomeAway is now a full decade into the revolution of lodging, with its global consolidation of the peer-to-peer rental space, and Airbnb’s latest valuation is believed to be $20B. Given these facts, most people can be forgiven for believing that the tectonic shifts set to transform the hospitality industry have already occurred in recent years and there is no more room for change.

However, HomeAway and Airbnb’s development and growth merely set the stage for more momentous changes soon to come, including the transformation of the vacation rental industry from a $100B cottage industry to one that is more than double that size and dominated by massive, internationally scaled entities. Lessons from the evolution and consolidation of the hotel industry in the 1950s and 60s are informative in understanding the potential for this seismic growth impacting the lodging industry decades later.

The history of hoteling – from grand hotel to international brand:

According to a December 2013 article in The Economist entitled “A Short History of Hotels: Be My Guest,” the age of the grand hotel lasted from 1860-1960. Empress Eugenie opened the original in 1862 and Le Grand Hotel opened as a palatial 800 rooms that she designed “like a home” that celebrated French science and art. As one would imagine, such large one-off lodging were unique and rich experiences, as they were run individually and without modern day economies of scale.

It took almost a century for the hotel industry to change, and the 1950s and 60s began the second age of the hotel. At this time, Conrad Hilton began the internationalization of hotel brands, and in doing so had to muzzle the grand hotel model to conform to growth in other territories. At the same time – in 1952 – Kemmons Wilson unveiled the Holiday Inn after being disappointed by poor quality and inconsistent lodging on a family trip. Promising consistency from San Francisco to St. Louis to St. Augustine, Holiday Inn’s sign told travelers to have confidence that the price and quality would be consistent no matter where they traveled – with the certainty that the sheets would always be clean and the service friendly.

And now, a few short decades later, Holiday Inn and Hilton are not the only immediately recognizable international brands that provide travelers with a consistent place to rest their heads. International travelers easily recognize Hyatt, Marriott and Starwood – to name a few – sometimes even based solely on interior design. And, many people seek out a particular brand for lodging to replicate favorite hotel experiences no matter where they are in the world.

As we review the emergence of hotel conglomerates from one-off hotels, patterns show similar potential for the vacation rental industry and landscape is poised for parallel consolidation.

What many think of today as the big “brands” of the vacation rental space are in reality actually listing sites that are similar to online travel agents like Priceline or Expedia, for instance.

Such online marketplaces allow consumers to find anything and everything easily from the comfort of their own computers, from a spare couch to a castle to a country as Airbnb has highlighted in the past. (For the record, I’m referring here to when Airbnb formed a partnership with the Principality of Liechtenstein in 2011 alongside several German and Austrian villages, and one could literally rent a country or village).

However, while these online marketplaces exist, they are not brands of inventory or even experiences, but instead are sources of it aggregated on technology platforms. In the vacation rental market, the true brands of inventory that do exist tend to be very localized vacation rental managers, who almost define a cottage industry. When we look at whom these local brands of vacation rental managers are we see that they tend to have 50 or fewer properties and all of these properties are generally located in one specific geographical region. They are, in essence, small companies with local economies of scale who could be far more efficient if they partnered with the right parties in other geographies.

Such local managers with large inventory of rental properties often know and can serve their specific market very well, but their work is not transferable easily to other geographies because of marketing and geographic coverage. For instance, take a homeowner who uses a vacation rental manager to rent her home in Destin, Florida, a beach vacation hotspot, but then buys a house in Aspen, Colorado, a ski resort area. That homeowner may have a wonderful relationship with their Florida vacation manager, but that relationship will not be transferrable to Aspen primarily given geography. Now, she must start her research all over again to find a management company that she trusts in a geography that is new to her and go through onboarding as a homeowner with that company.

On the renter side of the equation, the same is true. A vacationer who loved his rental experience via a manager in Cape Cod must find a new manager to rent from for his next trip to La Jolla. Both homeowners and renters will benefit from the growth and consistency of the vacation rental management space, just as guests benefitted from the consistent hotel experience started by Conrad Hilton and Kemmons Wilson.

The stage is set for consolidation, but what will it look like and why will it undoubtedly emerge? Historically, there has been a handful of larger vacation rental management players, such as Interhome in Europe and Wyndham in the United States. However, when it comes to the vacation rental inventory and experience they are not consistent in the same way large hotel chains like Holiday Inn or Ritz-Carlton are.

But, that is all changing as we speak.

Vacation rental managers are beginning to scale more than was previously imaginable. Vacasa, a vacation rental management company, was the 9th fastest growing company in the United States according to Inc. magazine. At the same time, millions of dollars of venture capital money is being infused into the space to fuel rapid growth through companies such as Pillow, Guesty, TurnKey, and InvitedHome. And, at the top end of the market, onefinestay is often mentioned in the same breath as Airbnb.

In the interest of full disclosure, I am the co-founder and CEO of a company that works to fuel vacation rental managers’ growth. My company, Rented.com, helps managers acquire new inventory rapidly through our online marketplace that connects them directly with homeowners looking to rent. Rented.com receives constant feedback that we are one avenue to power a manager’s portfolio growth.

That said, however the vacation rental managers do it, as management companies find new ways to scale they are finding greater benefits of that scale. One massive benefit is that as they become a more recognizable brand. Such identification and publicity creates organic growth that in turn helps them scale even more. On the other side of the equation, as more homeowners know the brand and sign up with them, more guests know them and want to stay at one of their homes for a vetted, branded, and consistent experience.

The managers are also landing more repeat customers that move across markets, as well as referrals in new markets. All of this aids geographic growth on the heels of customer recommendations and requests for expansion into new markets. This consistent demand, and growth of it, in turn enables trusted and known managers to command a price premium in the marketplace.

But the benefits of vacation rental managers’ scaling outweigh basic brand marketing alone. The larger the management company, the more scaled large costs become, which creates more efficiency and lowers costs as a percentage of revenue.

When will this market shift take full effect? Of course, none of this can or will happen overnight. But, if the current 800 pound gorilla of the lodging / accommodation space – the hotel – is any indication, the winners have the potential to reap quite a large reward.

@Gaston Barua In many places in Southern California it is not uncommon to see short-term rental/Airbnb annual rental income rates nearly double that of long-term leasing rates. It looks like most investors can see cap rates almost double what they would see on the long-term rental market. (this explains why so many folks are trying to get in this game)

Here is some data from the Top 10 Zips in LA area with the most Airbnb listings that I believe might be helpful:

Notes:

-Keeping cap rate calculations as simple as possible; cap rate = (median annual rental income)/(median home price)

-Sources:

-Airbnb LA Source Data from Inside Airbnb

-Median Home Value by Zip Tool on Zillow

I have a number of Airbnb managers in the Southern California that have helped owners/investors get into this game. If you are interested in getting in touch with them, feel free to reach out via direct message or phone.

@Timothy Gordon You need to look into insurance.  I recently did an interview with an insurance agent focused on short-term rental/Airbnb type properties that might be helpful to you:

We often get questions about insurance for vacation rentals. What are the best insurance policies for a vacation rental? What type of insurance do we need for our home? And where do we go to get what we need?

In an effort to answer these questions, we brought in Darren Pettyjohn, National Sales Manager at Proper Insurance. Darren has spent his entire professional career working in specialty insurance programs from U.S. import bonds to marine cargo insurance, and his company, Proper, offers a specialty insurance policy designed for vacation rental properties that replaces a homeowner’s or landlord policy.

Here’s what he had to say about vacation rental insurance:

Me: So, what is speciality insurance?

Darren Pettyjohn (from Proper Insurance): Specialty insurance, better known as program insurance, is basically when you create a special insurance policy for a unique risk—a risk or exposure that isn’t covered correctly by a commodity insurance product. For example, auto, home, and life insurance are not special or unique risks, because you can buy them virtually anywhere.

Me: Okay, and what is a special risk?

DP: A special risk would be something like a skydiving company, a fine art dealer, or a winery. You can’t simply buy a commodity insurance product for these risks; you need something special.

Me: Would you consider a vacation rental a special risk?

DP: Well, some might say no, and some might say yes. The founders at Proper Insurance say yes, and that’s exactly why we created our specialty insurance program for short-term or vacation rental properties.

Me: Why and how do you consider a vacation rental a special risk?

DP: Well first, you have to identify the gaps in traditional insurance coverages to see if there is even a need for a specialty product.

With vacation rental properties, owners historically have had three options for insurance:

1. Homeowner’s policy
2. DP-3 landlord policy, or
3. A hotel/motel business policy.

Me: Could you talk more about each type?

DP: Sure! Here's an overview:

Homeowner’s Insurance:

Homeowner’s policies or forms were created and designed for a property that is owner-occupied, a primary residence. It’s great for the protection of a primary home against property damage (i.e., fire, theft, water damage, etc.), and it carries personal liability for the owner and their family in the event they are personally found liable for bodily injury or property damage.

The problem is that it excludes, or does not cover, business activity or renting of the home if it’s not occasional and used as the person’s residence. When someone regularly rents a vacation rental, it’s not their residence or where they live, and it’s not typically occasional.

These are huge gaps that simply can’t be ignored. For example, if a renter damages your home or claims bodily injury against you, the claim could be denied.

In fact, many homeowner insurance carriers will drop insureds when they discover the home is being rented on a short-term basis, typically 30 days or less at the time. If this happens, they’ll just tell you, you’re not covered.

Me: Interesting. What about landlord insurance?

DP: It’s another form of insurance that might not necessarily cover everything.

DP-3 Landlord Insurance:

Landlord policies or forms were created and designed for a property that is rented to others, or one that is “tenant” occupied. It is what you want to carry if you have a rental property.

Me: So what then is the gap, as a vacation rental is a rental property?

DP: There are a few key issues or gaps here.

First, a landlord policy carries what’s called “premise liability,” which covers bodily injury at the premise only.

It does not extend beyond the premise. So, if the roof collapsed on a tenant, then yes, in theory, there is bodily injury coverage for the owner.

But what happens if the guest is injured on a bicycle or canoe provided by the rental? Or if the guest brings their dog, and the dog bites someone off premise? Or if the tenant assaults a neighbor, and it’s tied back to the owner?

Secondly, a landlord policy also has this same business activity exclusion.

If a renter accidentally burns the vacation rental down, and the insurance carrier decides this person was a “guest” who paid you money to stay there for a weekend, and was not a “tenant/long-term renter,” they could deem this a business activity, and they could deny the claim.

These are two of many gaps in a landlord policy, and it’s simply too risky to roll the dice.

Me: Is hotel/motel and business insurance any better then?

DP: Not exactly.

Hotel/Motel & Business Insurance:

This policy and forms are used for a hotel or motel. Since it’s a business policy, it clearly does not exclude business activities. It’s also

significantly more expensive than a homeowner’s or landlord policy and carries many coverages a vacation rental does not need—like signage, property in transit, refrigerated products, salespersons samples, and many more.

Also, it does not tailor or endorse coverage that may be relevant to a vacation rental. It excludes watercraft liability and liquor liability, and it carries a vacancy clause if the property goes 60 days unoccupied.

Me: We’ve heard about bed & breakfast policies. Could that work for a vacation rental?

DP: Unfortunately, not exactly. While yes, a B&B policy is special, it is also still not tailored for a vacation rental. Typically the owner must be onsite. It’s often guaranteed replacement cost as many B&B’s are historic buildings. It carries food liability coverages, and is terribly expensive.

Me: Well, it’s apparent that there is a market for a special insurance policy designed specifically for short-term vacation rental properties—one that is a combination of a homeowner’s, a landlord, a business, and a B&B policy. Does that exist?

DP: That was the problem! It didn’t exist!

A few carriers had tried to endorse a homeowner’s policy and landlord policy, but still, there were too many gaps.

Domestic insurance carriers are traditionally slow to adapt to new markets, and they often don’t want to get involved with specialty insurance, as it’s seen as very high risk.

An insurance company needs to collect more premium than it pays out in claims. The higher the risk, the higher the premium.

A hotel/motel is higher risk than a primary home, both from a property and liability standpoint. So it makes sense that a hotel/motel policy is more expensive than a homeowner’s policy. It’s that simple.

Me: So what carrier will insure a specialty risk?

DP: Lloyd’s of London is the world leader in insuring specialty risk, an emerging or unusual market.

We knew we had a market and a need for a specialty insurance program, and Lloyd’s was the perfect insurer.

Because Proper is a Coverholder at Lloyd’s, we are approved to submit business into the Lloyd’s market. But instead of submitting a single risk (e.g., the Empire State building), we submitted a program, a policy that all vacation rental owners could purchase.

We were able to create a policy that covers all the exposures of a vacation rental. And we able to get very competitive rates, typically about 35% more than a standard homeowner’s policy.

Me: What does the policy cover?

DP: Well, as the owner of a vacation rental, you’ll need to insure four specific areas:

1. your building(s)
2. contents
3. income, and
4. liability.

Building Coverage:

This would be similar to a homeowner’s policy. You need to insure the actual property itself, the building(s). We were able to get the highest coverage form, (special, all-risk), with replacement cost valuation (new for old) in the event of a claim. And since it’s written as a business, there is NO business activity exclusion. This means that at the time of a loss, it doesn’t matter who is staying at the property. It can be you, the owner, your friends or family, or paying guests. Again, because it’s written as a business, it just doesn’t matter.

Contents Coverage:

This also would be similar to a homeowner’s policy. The contents are all of your stuff at the rental: furniture, electronics, linens, dishes, etc. We enhanced this coverage form to match that of the building (all-risk, replacement cost). But we knew theft would be an issue with vacation rentals, so we put NO limit on theft, meaning theft is covered to the full limit of your contents.

Business Income Coverage:

This would be similar to a hotel/motel business policy. Income coverage is written as “actual loss sustained,” not fair market value as found in a landlord policy. We know how much revenue vacation rentals generate, and that needs to be protected. We also know that it can be 18-24 months before a vacation rental would become whole again after a total loss. That’s why we put no time limit on business income. You are only subject to the limit you choose.

Liability Coverage:

This also would be similar to a hotel/motel business policy. It carries $1,000,000/$2,000,000 in commercial general business liability. This is the highest form of liability coverage a business can purchase. Except, we have a few key endorsements to tailor it to vacation rentals: We remove the watercraft liability, so canoes, kayaks, paddleboards, and boats 10 HP or less are all covered from a liability standpoint. It covers pools, spas, bicycles, and so much more. We even remove the liquor liability exclusion. Yes, that means if you wanted to furnish a few bottles of wine at the rental for your guests to enjoy on their stay, you are covered.

Me: This sounds too good to be true.

DP: It’s not. The truth is, after years of back and forth, Lloyd’s agreed to write the program and price it very competitively to get business. Yes, we have claims, just like any other insurance carrier, but we feel good about vacation rental owners and their properties. You take care of your properties, are professionals, and all around are good people!

Me: How can homeowners and property managers get insured?

DP: Keep up the good work, and keep claims low! It’s good for everyone.

I hope this is helpful.

@Alon Maoz SF is a great city! There are people in San Francisco who are doing this successfully but this is definitely still risky. It is ultimately up to your risk appetite.

If you decide to go through with this purchase and are looking for help from a professional with experience managing properties on Airbnb, I have a number in the SF area that I would be happy to get you in touch with. Feel free to reach out to me via phone or direct message.

You are probably well acquainted with Airbnb and how great it can be at helping you earn rental income from your home.

You are also likely well acquainted with the phenomenon dubbed “host fatigue,” where the sheer volume of work (10 hours per week!!) required from you to earn that rental income is becoming overwhelming.

Fortunately, there is an answer that can give you the best of both worlds: work with an Airbnb manager, and get rental income without doing the work.

But before picking an Airbnb manager for your vacation home, there are 7 factors you should consider first:

1. What is the Airbnb manager's reputation?

How reputable is this Airbnb manager? Is she a college student who has heard about Airbnb and how quickly it is growing, and wants to ride the wave? Or is she a professional who is licensed to rent out other people’s vacation homes in the relevant jurisdiction?

How many years has the manager been doing this? How many other vacation rentals does she or he manage? How are the guest reviews? Are there owner reviews for your to review?

If your prospective property manager cannot provide a number of references for you, consider it a red flag.

2. Is the vacation rental management contract homeowner-friendly?

When considering a vacation rental manager, take a close look at the Airbnb management contract. Who does the contract really serve—you or the manager? Who is liable for damage caused by guests? Who is taking the financial and operational risk?

Also make sure you know what you are responsible for.

Will you be paying the property manager a commission as most people do?

3. How much can I expect to make with an Airbnb manager?

How much rental income will Airbnb managers make you?

This is not just a product of how frequently the manager can find guests for your Airbnb, but also what price she is able to charge for the nights rented, and perhaps even more importantly, how much of that rental income ultimately flows to you as the owner.

If you sign a guaranteed income agreement with the manager, this amount is set.

If you use a shared success (or commission) agreement, the calculations can be trickier.

What is the vacation rental manager’s commission rate? Are there any additional fees?

Horror stories abound of owners being tempted to sign with a manager based on a low quoted commission rate, only to be blindsided when the effective commission rate was more than double the amount quoted due to “additional fees and management services.”

Always do your homework upfront, and know how much you can expect to make before agreeing to any arrangement.

4. Is the management company financially secure?

Ultimately this comes down to one question: How deep are the manager’s pockets?

Has the manager ever filed for bankruptcy? Ever been late on payments to owners?

What sort of insurance does the manager carry to make sure she can make you whole should things go wrong?

5. How does the Airbnb management company vet guests?

Maybe the manager is great at booking and cleaning your property, but how good is she at ensuring your home is taken care of?

Ask your manager what type of systems he or she has for vetting guests.

Does the Airbnb manager participate in a “bad guest” scheme?

Does the manager do background checks? How does the company check on the property during rentals?

Cleaning up after a mess is made is helpful, but making sure no mess is made in the first place is even better.

6. Will there be an impact on long-term home value?

Is the property manager an “asset manager” or simply someone looking to “churn-and-burn”?

One is not necessarily better than the other, and your preference will likely depend on your objectives for the home.

For example, if this is a short-term investment property on which you are looking to maximize the annual income and depreciate the value for tax purposes, you may prefer a manager who will keep your home filled to maximum occupancy.

On the other hand, if this is a long term investment or even where you plan to retire, you will likely want to find someone very different.

7. Is this manager someone I can trust?

Finally, it is important to remember that this is still a relationship business, and none of the above six factors really matter if you do not like or trust the manager.

Get to know your potential Airbnb manager. Skype if you’re home is far away, or try to even meet in person.

Ideally, your relationship with your property manager will be one you retain for years to come.

@Brandon Ogilvie Are you open to a short-term rental/Airbnb property management companies?

I know a few in the area that have helped long-term lease rental owners increase their income pretty substantially.

Feel free to direct message me or give me a call if you want some recommendations.