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Mega Vacation Rental Companies vs Hotel Brands

Jan 24, 2017  By 

A study of the “Mega Vacation Rental” business model (companies with a minimum of fifty and often hundreds of rental units) shows some significant differences when comparing their operations and metrics to their established hotel industry brethren.

While the Vacation Rental industry, in this new P2P environment, is young and continues to evolve, it’s important that certain comparisons be made to its older transient-rental relative (hotels). After all, traditional hotel metrics have been established over many decades of perfecting that business model and many of those metrics are comparable to the Mega Vacation Rental business.

The Mega Vacation Rental business, driven on the whole by a younger generation, has in many ways brought several new and fresh approaches to the transient-rental equation. One of these has been to turn over the complete housekeeping responsibility (including the purchase of all related supplies) to new hybrid housekeeping businesses. This new housekeeping model creates a simpler and more cost efficient solution to Mega Vacation Rental Companies.

This new hybrid housekeeping businesses, are no longer being hired to solely provide labor. Instead, in exchange for a set fee (see Exhibit “A”, below) these companies take full responsibility for every aspect of unit turnover.

 

Mega Vacation Rental Companies vs Hotel Brands | By Richard B Evans
 

 

For a set fee per cleaning, they become responsible for purchasing towels, linens, shampoos, conditioners, lotions soaps, toilet paper, facial tissue and of course for cleaning the apartments and readying them for the next occupant.

This “simplification” in combining all housekeeping costs into that one fee provides Vacation Rental accounting departments’ with a clear and simple advantage. Bookkeeping and budgeting becomes simple and there is no longer a need to account for housekeeping inventories, order supplies and/or purchase equipment (i.e. vacuums).

Essentially, placing burdens that were once the responsibility of the Vacation Rental Company onto the independent, reduces a number of “the moving parts” that can make the Vacation Rental businesses difficult to manage.

Here, as in any new business consideration, “the devil is in the details” and a good solid contract must outline responsibilities and expectations. It is essential that this company perform background checks, establish a code of conduct, and adhere to a reporting system that quickly relays unit conditions, provides workman’s compensation and enforces personal hygiene rules, to name a few things.

Maintenance departments in Vacation Rental businesses also differ from “hotel models” in that they become “profit centers” (and act as businesses within businesses). That is not to say that they necessarily will earn a profit, but revenues generated in that department can greatly offset overall maintenance cost.

The following is a screen cast I narrated on Condo-Hotels many years ago. It is very relevant to this discussion since Vacation Rentals and Condo Hotels both have the ability to earn revenues in their Maintenance Departments.

Work performed for rental apartment owners, is typically billed with a 20% – 25% markup (this is still provides the apartment owner with substantial savings over having the work performed by an independent outside contractor) so there is a benefit to the owner combined with the revenue opportunity to the VRC. The hurdle is in managing the logistics of staff, and materials.

I’ve now discussed two of the three Roving Service Agent positions, (1) housekeeping and (2) maintenance and the last and perhaps the most challenging is the (3) Roving Service Agent “in the field” and who is responsible for guests.

Whereas a hotel operates within the set boundaries of a property, Vacation Rental homes/apartments are often spread out over large areas. Managing the logistics of the “in the field” staff is often the greatest challenge in the Mega Vacation Rental business. Roving Service Agent’s that are responsible for “guests” have a lot of responsibility placed on their shoulders and are often not appropriately supported, When this occurs the position will see a lot of turn-over (in fact burn out).

A six day work week is OK, but based on my experience no more than 55 hours (that includes “on-call time”) should be asked of any agent. Please also keep in mind that Vacation Rental businesses that insist that their Roving Service Agent’s, work as independent contractors, when over 40 hours a week are required, and contributes to the high turnover mentioned.

While smart phones and related APPS are (i) used to monitor flights, (ii) text message and/or (iii) call incoming guests, Roving Service Agents still find themselves with a great deal of “wait time”. This is why consideration must be given when hiring to finding “local” RSA’s. It lightens this burden considerably. Flights that are delayed still have guests that have to be checked-in. I offer some “best practices” in the book to remedy this situation.

Mega Vacation Rental Companies are well served in having a centrally located check-in office (that can also double as a housekeeping and maintenance departments). Real Estate Agents who are involved in Vacation Rentals enjoy the benefit of having their offices serve them in this way.

After many years I’ve come to the conclusion that the KEY TO THE SUCCESS of any Mega Vacation Rental Company will always be in mastering the logistics process of their Roving Service Agents.

Replacing Furniture, Fixtures and Equipment (FF&E packages) in rental apartments is, like in hotels, just part of the equation. It must be done every 5 to 6 years.

Here we see another unique solution on the horizon that is to be made available through Vacation Rental programs to apartment owners. An independent company is offering different caliber “FF&E packages” to rental programs via operating leases. They require limited upfront cash and are paid from Vacation Rental proceeds.

An example of this could be that a $9,000 “FF&E Package” would be provided to unit owners at a cost of $225 a month with no money down. That lease payment is made by the Vacation Rental Company from apartment rental proceeds. If during the lease, a television or a dining room seat needs to be replaced, new items are simply placed into the unit and the monthly lease payment of $225 remains the same.

In summary, the Mega Vacation Rental business sees a lot of smart “out of the box” thinking that, in many cases, saves time and money. Challenges in this space are often unique to it and the result of the “off-site” nature of Vacation Rentals. But a great deal of the things Vacation Rental Companies do and money they spend is exactly the same as that experienced by hotels (i.e. – guest supplies, cleaning supplies, towel & linen useful life, staffing, etc.). It is why using hotel metrics and modifying them where necessary provides accurate results.

I use the annual Host Report (by Smith Travel) and modify it to arrive at potential profitability. If you making a commitment to being “MEGA” in size and nature these studies are mandatory and should be considered.

I’ve been an executive in the Vacation Rental, Hotel and Condo Hotel business for over 25 years and served over 4 million guests. I just completed a book entitled ”The Definitive Study of Vacation Rentals” and I’d be very pleased to share, “Chapter 6 – the Roving Service Manager” with you as a gift.

About Richard Evans

Richard Evans

Richard Evans is Founder of Revenue Report Card, LLC – evaluates Area Production (demand) and determines client market share for hotels, airlines, car rental and cruise lines. Collects, Compiles and Correlates Area Channel Pace

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