The biggest challenge Real Estate Investors face is finding a reliable short-term rental property manager. Investors need to not only optimize for revenue, but also reduce their cost overhead. In this article, we will help you identify full service Short-Term rental property managers. We also explain some of the common pitfalls when choosing property managers and also expand on the challenge with focusing on management fees alone: low revenue and hidden costs. Lastly, we also provide a check-list of questions to ask property managers when interviewing.
Partial Service vs. Full Service Property Management
Property management comes in two forms. Partial service companies such as Evolve typically only handle the front end (marketing) of short term rentals, viz, listing setup across multiple channels, guest communication, pricing and charge a low fee - usually a 10% management fee. However, they leave critical aspects of backend operations to the home owner: cleaner coordination, home restocking, repair & maintenance support, and other operations of short-term rentals which define revenue success.
Full service property management typically charge higher (20-30% management) but covers both front end (marketing) and backend (operations). For the purpose of this blog, we will focus on full service property management as majority of home owners end up choosing this option because the backend operations of short-term rentals is where the majority of effort lies and causes home owners headache.
How to Find the Right Full Service Short-Term Rental Property Manager
Property management is a highly localized and fragmented industry. While some nation-wide property managers such as Turnkey, Vacasa do exist, most property managers are local boutique operations, typically managing 5-30 homes in their local market. These property managers usually have minimum to none marketing budgets, no website, and are focused on managing their own properties, alongside investor properties from referral and word of mouth. Among such a fragmented industry, it may be tempting to choose a national property manager, we advise investors to tread with caution.
Nation-wide property managers deliver the lowest returns, as their local staff are poorly equipped and trained to take ownership of your property issues, and their operations are unable to keep up with localized needs. In contrast, most local property managers started renting their own homes first homes, and learned the craft through trial and error, and eventually were able to scale to manage other homes. While they lack in marketing prowess, they are able to compensate through higher revenue by delivering better operations and ownership. We typically see a 60-80% difference in revenue and a 200-250% difference in profit between a national property manager, and a property managed by a local boutique property manager, with high ratings. Case in point, Nicasa delivers 2X the return than average property manager and 250% higher profit in Seattle (refer to graph below).
Pitfall #1: Choosing a Nationwide Property Manager. Nation-wide property managers typically deliver the lowest returns, as their operations are unable to keep up with localized needs.
Investors are best to focus on finding boutique property managers for the specific market they are looking to invest in. To identify strong boutique local property managers, investors need to get creative. While some managers may have limited marketing exposure, most will not even have a basic functioning website. To identify strong property managers, we recommend going to Airdna.co and finding properties that match yours with highest revenue. For example, if investors click Seattle 3-4 bedroom properties in each location, they will find the entire the top performing properties in that range is from us, Nicasa. The investor can then identify a few top performing property managers and reach out to them to validate their Airdna revenue numbers with them, inquire if they are accepting external clients, and learn more about their operations.
An alternative method is to search on Airbnb and filter on superhosts, and identify hosts managing a few properties (usually >5 properties). Some of these hosts may be simply managing their own homes, but a few of them may also be in midst of scaling their operations to manage other homes. Investors can then simply reach out to these owners and inquire about their revenue, property management operations, etc. We show an example of how hosts can filter on Airbnb Seattle to find top property managers such as Nicasa on the Airbnb platform.
Choosing superhosts is critical, as these hosts have consistently delivered high ratings (>4.8 avg rating) across multiple reviews. This ensures a consistently high quality of operation, which in turn leads to higher revenue. In fact, we recommend taking it even one step further and focusing only on hosts who deliver >4.9 rating consistently across more than 5 properties and 500+ reviews to ensure these hosts are able to scale the good reviews as their operation grows, otherwise the investor may end up in a situation where the host's quality continues to decline over time. You can easily look up any hosts rating on their profile page and the number of reviews they have had below. For example, Nicasa has had 900 reviews with an average rating of 4.98.
Pitfall #2: Choosing a property manager with poor reviews (<4.9 average Airbnb rating) and no super host status.
While ratings are one side of the picture, investors don't want to over index on it to the point of choosing a low revenue property manager who delivers high ratings.
The key metric investors need to focus is their profit. To do so, investors need to not only identify property manager revenue, which can vary significantly, but also their management fees. Management fees for full service property management typically range from 20-30%. The cheapest management fees may not necessarily deliver the highest returns, as we have seen net profit can vary by 2.5X. Furthermore, the lowest cost property may even have hidden charges tacked on, which are not covered as part of management fees.
Without proper due diligence, a home owner may be tempted to go for the lowest cost option, which may end up costing them more time, money, energy and stress in the long run. In the next section, we will explain common hidden costs that are not included as part of management fees that owners should be aware of.
Pitfall #3: Choosing property managers solely based on lowest management fees. Investors may end up hurting their profitability in the long run through lower revenue and/or hidden fees leading to higher expenses.
Hidden Cost of Property Management Fees
We recommend investors to compare netprofit apples to apples by benchmarking revenue of each property manager minus management fees, and subtracting any other hidden costs that might exist. Hidden costs typically include restocking consumables, linens, trash rollout, tacked on charges on repair and maintenance requests.
At Nicasa, we take pride in upfront pricing, and ensuring that we provide end to end service so that owners can be rest assured their homes are well maintained, and not have to worry about hidden costs tacked on at end of month. Nicasa does not charge any hidden costs outlined below that are typically seen in the industry, which can easily add up to $300-$500/month.
Consumables: Some property management fees charge extra for restocking consumables such as paper towels, toilet paper, coffee, tea, detergent, dish washing liquid extra. We have seen some companies charge $15/guest stay. This cost alone can add up to $120/month over 7-9 guest stays in a month.
Non-consumables: Most companies also charge extra for replacing broken non-consumable items such as wine glasses, plates, lost silverware etc. The savvy owner will want to confirm who owns this cost and how often these items need to be replaced.
Linens: We have seen this cost vary widely, from $10-$20 per stay. Sometimes, management companies charge owners on wear and tear of linen instead of a per stay cost. Regardless, this cost can easily add to $100+/month even if 1-2 bed sheets and towels each are worn every month.
Minor repair and maintenance: Home owners will typically see minor repair and maintenance issues such as broken light bulbs, dead smoke detector batteries, caulking cracks etc. that need to be fixed. We have seen some property managers charge only material cost, and some even charge a labor service call of $70/hour to fix such issues! One to two hours per month can easily add $100/month of additional cost to the owner. At Nicasa, we do not not charge labor or material costt for minor repair and maintenance issues such as above.
Additionally, management companies take different approaches towards dealing with larger repairs such as drywall, plumbing, electrical, appliance. Some companies leave it to the owner, others may handle it but charge a 10-20% markup on the contractor cost. At Nicasa, we take pride in taking ownership of your issues and do not charge any markup on contractor cost.
Preventive Maintenance: This is the most neglected piece of home ownership and short-term rentals. Preventive maintenance is critical to ensuring the longevity of your home and its operation. We have not seen any management company except for Nicasa conduct routine preventive maintenance, less alone provide a free annual preventive maintenance, which usually costs $500/year. At Nicasa, we strive to ensure your homes are well maintained for guests so that your homes have less issues and hence we include an annual gutter cleaning, AC filter cleaning, dryer vent cleaning, and more every year to ensure your home runs smoothly.
Trash Roll-In/Rollout: Trash rollout is a problem that every short-term rental managers faces as no one is consistently onsite to roll bins out the night before trash day. Property Management companies typically sub-contract the rollout to a third party and charge the cost to home owners as an additional charge of $40/week (or $160/month).
Combined, these costs can easily add up to additional hidden costs of $500/month or roughly 5% additional expense on an owner's revenue. The savvy owner will want to confirm these costs with their property manager. To help you with your property manager search, have provided a list of questions to ask your future property manager in the next question.
18 Questions to Ask Your Future Property Manager
Lastly, we want to leave you with some of the common questions you should ask property managers while interviewing them. The questions typically can be classified in 3 main categories, revenue, management fees (and what's covered), and management operations. Through these questions, we hope you can find the right property manager for your needs in the local market you serve.
- What is your revenue for a XYZ bedroom home in my area? Does this revenue include cleaning fees or without?
- What is the revenue projection for my home? Does this projection include cleaning fees or without?
- What is your strategy for pricing homes?
- What is your average guest rating? Are you a superhost on Airbnb?
- What percentage of your stays have you had to file guest claims against?
- What should i look purchasing a home? Are there specific requirements in homes or amenities we should be providing?
- Have you had neighbor complains on improper parking, trash, parties? How do you deal with those?
- What is your management fees and what does it NOT cover?
- How are management fees calculated? Are they based on gross revenue minus cleaning fee and channel fees? Or simply based on gross revenue? (Note: Certain property managers artificially inflate your revenue by tacking on management fees on channel fees, which is typically 3% for Airbnb).
- Who pays for restocking consumables such as tea, sugar, oil, salt pepper?
- Who pays for damaged non-consumables such as plates, utensils etc?
- Who pays for linens (bed sheets, towels) and how much is it?
- Who pays for trash roll in/out?
- Who pays for minor repair issues such as light bulbs, smoke detector batteries etc? Do you charge labor for this?
- If there are plumbing, electrical, drywall or other issues, how much is the hourly charge usually?
- Who is responsible for annual preventive maintenance such as annual gutter cleaning, AC filter, dryer vent cleaning etc?
- What is the minimum commitment period for the contract? What is the notice period?
- Does the property manager have their own liability insurance apart form ones provided by Airbnb or VRBO?
Curious to learn more about Nicasa and how we can help you manage your short term rental in Seattle? Contact us here to book a free 15 min consultation!