All Forum Posts by: Collin Hays

Many states have specific laws for property management companies.  Many, you have to be licensed to operate in.

In the state TN where my company is, you have to have three banks accounts:

1.  Escrow account.  All payments from guests flow into this and may not be disbursed until the guest has departed.

2.  Operations account.  This account pays for all property related expenses - repairs, pest control, etc.  All of these expenses are homeowner expenses.

3.  Management account.  All expenses that are administrative.  Advertising, housekeeping, wages, etc.

When payments to homeowners are disbursed each month, they are net of  expenses that the management company incurred on their behalf during the previous month.

Additionally, there are about, oh a dozen or two, other ways that unscrupulous management companies are hosing homeowners.

I don't want to whitewash the entire industry.  A good management company that charges a reasonable fee will (in my humble opinion) usually outperform self management situations by a wide margin.  You pay them a reasonable fee and let them screw with all of the headaches.

Rent shifting is the practice of management companies of shifting revenues away from rents - which they have to share - to various junk fees - that they do not.  I consider it borderline fraudulent, but most of doing it.  The practice decimates the homeowner's net return. 

I actually produced a video on YouTube this very week of the practice.  I can't give you a link to it because I mention my own company at the end, but if you go to YouTube and search for "vacation rental companies exposed", it should be the first one you see, since it is entitled that.  

There is a LOT of crookedness in this business, and being in the business myself, it is embarrassing.  I am a big believer in transparency.  There is enough money to go around if everyone will just do business the right way.

The entire "Advance Pay" situation with HA/VRBO is nothing but a cash grab.  They are charging an outrageous 3% credit card fee to begin with, and then another 3% if you want your funds "in advance".  ALL payments are in advance on vacation rentals.  VRBO is collecting it; they just aren't passing it on to you unless you pay them another 3 points.

We ditched the whole HA/VRBO credit card system for our properties and went with our own processor.  You have to "integrate" with HA/VRBO to do that and you have to have at least 10 properties.  But our CC fees are now around 2.1%, which saves us huge dollars, and we are getting are funds WHEN THEY ARE PAID BY THE GUEST, which is the way it's supposed to be.

This is a common theme right now throughout the country as the vacation rental industry continues to mushroom.  Municipalities everywhere are waking up to the realities.  It is quite common that neighborhoods - and even cities - are not zoned for short term rentals.  And honestly, I don't want to wake up one day and discover that half of my block has turned into a bed and breakfast.

If the neighborhood you are looking at isn't zoned for STRs, then walk away.  If you do otherwise, you are inviting a host of problems.

 The prices in Gatlinburg, as they relate to yields, are still way cheap.  Try finding similar yields anywhere else in the country.  I have and they aren’t there.  

Tax returns 

We manage a number of properties in the Smokies.  

We have seen instances where the addition of a pool table or hot tub adds $15K a year to a rental.  

Foosball is better than nothing, but a table style multicade would be a much better amenity.

Amenities DO impact your revenues.  A game table, hot tub, and WIFI are critical.  New stainless appliances are a big deal too. 

WOMEN pick the cabin, and they do so by looking at pictures!

The price is always “right” when the yield is sufficient to support the price.

A one bedroom cabin priced at $200K would be a terrible deal if the rents are only $10K a year.

But a one bedroom cabin priced at $400K could be a fantastic deal if the rents are $70K a year.

What determines a good deal in Sevier County isn’t the price of the property, but the yield.

While the Gatlinburg area has risen, ultimately it is all about the net yield.  I paid $275K for a 900 square foot cabin in Gatlinburg last summer.  That’s over $300 psf!

But the rent supports that price:  The gross rents were $34,000 from July through December.

The key is finding a management company in the area that isn’t rent-shifting.  This practice is killing homeowners.