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There are many ways to invest in real estate (including some pretty weird ones). One fast-growing real estate investing option that has the potential to bring both profit and pleasure is to buy a vacation home. This investment property can pay lots of dividends as it provides a place to get away from the daily grind as well as the opportunity to rent it out to other vacationers when you're not using it.
Investing in a vacation rental is becoming increasingly popular these days, driven in part by the rise of several online vacation rental platforms that have made it easier for investors to advertise their properties. Here's a look at the top vacation rental websites from an investors' perspective.
Airbnb is an online marketplace that allows property owners to rent out spare rooms to guests (like a traditional bed and breakfast) as well as the "whole home," which can mean a single-family home, condo, or even something more unique like a houseboat. The site draws an estimated 80 million monthly visitors.
Airbnb doesn't charge property owners anything to list their rental on its site. Instead, it collects a 3% booking fee when a traveler makes a reservation through their website. Unlike most vacation rental marketplaces, Airbnb doesn't charge property owners any additional fees for collecting payments.
The company does, however, typically charge an additional fee to guests, which usually runs around 13% of the booking subtotal (the nightly rate, cleaning fee, and any other guest fees). This fee adds to the cost of a traveler's stay and could deter some potential renters.
The main draw for listing a property on Airbnb is that it offers a low pay-per-booking commission. It's able to do that because it shifts much of the cost burden to travelers who generally pay higher service fees when they book through the site, which, again, could potentially cost investors some bookings.
Booking.com (NASDAQ: BKNG) is the most-visited travel website on the planet, with an estimated 448 million monthly visitors. As such, it's a great place for vacation rental property owners who want to get lots of eyeballs on their listings, though it's not exclusive to the vacation rental market.
The company charges property owners a 15% commission when travelers book a reservation through their site. Further, while it doesn't charge a credit processing fee, it requires property owners to have a secure merchant account (e.g., VacationRentPayment.com or Square (NASDAQ: SQ), which typically charge 3%.
Booking.com also requires that vendors on its site have an instant booking option. Because of that, vacation property owners might not be able to list their properties on other sites since they could potentially run the risk of double booking.
While Booking.com charges a high fee for owners, travelers don't pay any guest fees. Because of that, properties aren't likely to lose bookings to similar ones listed on other sites.
Because Booking.com offers investors the opportunity to get their property in front of lots of potential renters who don't pay any fee to book on its site, properties could rent more frequently. In exchange, property owners pay a hefty price, which eats into the rental revenue they generate.
VRBO and HomeAway
VRBO (Formerly Vacation Rental By Owner) and HomeAway are among the many travel brands owned by Expedia Group (NASDAQ: EXPE). The two sites draw a combined 40 million monthly visitors who are looking for "whole home" short-term rentals, which can include single-family homes and condos in vacation destinations.
The companies offer owners of vacation rental properties two fee options:
- A 12-month subscription
- A pay-per-booking option
Under the HomeAway/VRBO subscription model, vacation rental owners pay $499 per year. That grants them access to:
- Online booking
- Global exposure on more than 20 international sites
- Access to Reservation Manager and other tools to help manage the listing
- The ability to upload 50 high-definition photos
- An interactive map on the listing page
- A reservation calendar
On top of that, investors pay a 3% payment processing fee on the total amount received by the renter, which covers the cost of credit card fees.
The other fee option is pay-per-booking, which offers investors the same access as the subscription model without the annual commitment. As such, it can be a better option for those who only rent out their properties for a short season or special event, with it tending to be more favorable for vacation rental owners who generate less than $7,000 per year of rental revenue.
Under the pay-per-booking model, vacation property owners pay a 5% commission on the rental amount as well as any fees (e.g., cleaning and pet fees) and other payments (aside from property damage protection and cancellation protection insurance). In addition to the per-booking commission, vacation property owners also pay the 3% payment processing fee.
VBRO and HomeAway also charge a guest services fee to travelers ranging from 5% to 15% of the rental amount. The fee percentage declines as the booking amount increases, and it maxes out at $399 per booking.
VBRO and HomeAway offer property investors options as they can either pay a flat annual fee or per-booking. However, it also charges them a payment processing fee, which enables it to offer guests a slightly lower service fee compared to Airbnb. Those lower guest service fees could help win bookings compared to a similar property listed on Airbnb.
TripAdvisor and FlipKey
TripAdvisor (NASDAQ: TRIP) is the world's largest travel platform. The company's sites draw nearly 500,000 travelers each month who browse user-generated reviews of accommodations, restaurants, and experiences. Visitors can also directly book hotels and vacation rentals on the company's namesake site as well as its vacation rentals marketplace FlipKey. The sites have a combined 145 million monthly visitors who are searching for travel accommodations.
Both sites use the pay-per-booking model, matching Airbnb with a 3% owner fee. However, they also charge an additional 3% credit card processing fee. Further, they charge guest service fees, which range between 8% and 16% of the total rental cost, with an average of around 12%.
While that relatively high guest service fee could deter some vacationers from booking a rental through TripAdvisor, investors benefit from the low owner fee. Further, TripAdvisor automatically posts all listings on FlipKey, which gives property owners the dual benefit of promotion on its highly trafficked namesake site as well as its targeted vacation rentals marketplace.
The impact of online vacation rental marketplace fees on investor income
Each of these major vacation rental listing sites has advantages and disadvantages, both for vacation rental owners and travelers. For investors, the difference in net revenue after fees can be significant. The following chart shows the impact on rental income using each platform based on $25,000 in yearly rental revenue:
|Vacation Rental Website||Credit Card Fee||Subscription Fee||Booking Fee||Total Fees||Net Annual Rental Revenue|
|HomeAway & VRBO (Subscription)||$750||$499||$0||$1,249||$23,751|
|TripAdvisor & FlipKey||$750||$0||$750||$1,500||$23,500|
|HomeAway & VRBO (pay-per-booking)||$750||$0||$1,250||$2,000||$23,000|
As the table shows, Airbnb is the lowest-priced option for vacation rental owners. That makes it the best site for those who want to maximize their net revenue on each booking. However, there are some trade-offs, including the site's focus on renting rooms as opposed to whole homes as well as the higher guest fees, which could cause some travelers to book a similar property on a site like Booking.com, which has no guest fees.
There are also several pros and cons to listing your vacation rental on HomeAway/VRBO and TripAdvisor/FlipKey. Because of that, property owners should consider cross-listing their vacation rentals on those sites as well if they have the time to manage multiple marketplaces.
While you won't be able to offer instant booking, and it will take some extra work, it will put your place in front of more potential renters, which should help boost occupancy and your overall earnings.
Unfair Advantages: How Real Estate Became a Billionaire Factory
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