Owners and experts explore the ins and outs of operating a vacation rental property
The Gierke family has seen just about everything while renting out their Sylvan Lake vacation home over the past 20 years.
They’ve housed families, business people and youthful tenants who turned their 840 square foot cottage into a party house.
“Honestly, I’ve only had one bad renter,” said Tammy Gierke, as she described her property that can be booked on www.cedarparkcottage.com. “Before I rent my home out, I have to get to know the people on a personal level. When they say they want to come with their buddies and party, when they’re barely old enough to book it, you can kind of tell what it’s going to be used for.”
Outside of rare unruly houseguests, Tammy encourages would-be vacation homeowners to look into the legalities and bureaucratic hurdles of renting out a vacation property in Alberta.
“There’s quite a lot to look after and you need to go through the rules of your town – things like sleeping arrangements, how many bedrooms to how many people can stay, and even parking,” she explained. In Sylvan Lake, for example, RVs, tents and campers are not allowed in the yard.
“If you’re going to buy an old cabin, renovate, and rent it, you need bigger windows for emergency evacuation purposes. We have to get a fire inspector and safety inspector every year . . . they send a letter to the town and then the town writes up my license and permits. There are lots of hoops to jump through.”
Tammy’s husband, Heiko, estimates their vacation home is occupied about 25 to 30 per cent of the year.
“Quite a lot of people have primarily booked in the summer and we have been trying to expand that through advertising and places like Trip Advisor,” said Heiko, a heavy duty mechanic.
“When we first got into it we didn’t do much advertising at all. There was such a demand for places in Sylvan Lake that we wound up getting people staying here. I had grown up in the area and knew the demand for properties like ours, so my wife Tammy took it on and started doing it.”
Tammy and Heiko are an example of vacation home owners who have taken a do-it-yourself approach. For others, getting a property manager can be an option to drive passive income with less effort.
“Many investors who take the plunge and decide to host themselves can find that the continual barrage of questions from potential or pre-reserved guests overwhelming, especially when juggling the many balls of work, home life, fitness, socializing, and just wanting to have a little downtime on a Friday night,” said Sarah Webb, marketing consultant at O Stays, a professional tenant and management company, that leases properties directly from owners for carefully screened business executives, families, and leisure guests on a short-term basis.
“When you’ve just sat down with a glass of wine to the latest special released on Netflix, relaxing your way into the weekend, do you really want to deal with a guest calling to say that a lightbulb has burned out or a toilet has overflowed?” asked Webb.
She also understands that some vacation property owners enjoy socializing and actively being the host for guests. With sites such as Airbnb, VRBO, and countless other online tools to maximize exposure, Webb has a variety of tips for keeping a well-reviewed property.
“(In order to keep) your guests happy — providing the staples like cooking equipment, free Wi-Fi, soap for bathing and cleaning, towels, paper towel and toilet paper — these all should be stocked in the suite at all times. Faulty appliances should be repaired or replaced, or you will be called out on it,” said Webb.
With sites such as Airbnb, VRBO, and countless other online tools to maximize exposure, Webb has a variety of tips for keeping a well-reviewed property.
“Then there is the trust factor — to be extremely responsive to guests, much like a hotel front desk. Nobody trusts a host who is slow to respond, as it leaves a lingering doubt of the likelihood of a response if locked out of the suite at 3 a.m., or waking up to a flood, or if the heat stops working.”
Potential vacation homeowners requiring financing to own their gleaming dream home-away-from-home will find it’s not terribly different from a traditional mortgage.
“Requirements for qualifying for a vacation home are the same as buying a primary residence. (You will be) required to confirm income to liabilities using the government qualifying guidelines and servicing ratios,” said Tim Lacroix, mortgage advisor at Calgary Mortgages by Tim.
Two ratios that Lacroix suggests homeowners need to adhere to are Gross Debt Service (GDS) and Total Debt Service (TDS).
The GDS is used to estimate the maximum home-related expenses that a homeowner can afford to pay each month. The total should not exceed 32 per cent of gross monthly household income.
The TDS is used to estimate the maximum debt load a homeowner can carry each month, which should fall below 40 per cent of gross monthly household income.
He adds that projected income from vacation homes cannot be used to qualify for a mortgage, as the income is not consistent compared to a one-year lease with a traditional rental arrangement.
“You will have additional insurance and maintenance costs, possibly property management costs to facilitate rental usage, as well as further tax considerations. Planning financially is very similar to qualifying for a principal property,” explained Lacroix.
“Start early to understand your budget and impact to carrying the vacation home, even if you will be generating income.”
Some lenders will also assess marketability of the vacation home, says Lacroix, which can skew the appetite to lend in certain areas where the implication that a larger down payment may be required.
“Qualifying is based on income and liabilities, but when buying a vacation home, it is important to consider the potential increase in maintenance costs. Before you even consider this option, find out if rentals are permitted in that area.”
Sarah Webb, marketing consultant at O Stays, has ten suggestions for listing property on sites such as Airbnb or VRBO:
- Understand the condo rules and bylaws in your building. While there are many Airbnb friendly condo policies, there are certain boards that have a serious distaste for the nightly rental model, and have the power to levy significant fines against you for breaking the bylaws.
- Decide if you want to offer your entire suite or just a private room in your home.
- Design a space that makes people want to visit. Don’t just stop at IKEA to select the cheapest bedframe, mattress and dish set that you can find, and then assume people are going to flock to your listing.
- Think through the list of extras that you need to create the ideal space. Items such as a flat screen TV and stand, basic cable, air conditioning, an iron and ironing board, hangers in the closet, a fully equipped kitchen and some basic cleaning supplies are good to have on hand.
- Photography. Invest in some proper high quality photos, or find a friend who is a professional photographer and offer them a free night in exchange for some enticing shots of your suite and the views.
- Name and describe your listing. Do a little research into popular listings in your area, and don’t write a boring description. Remember that people are choosing your unit to experience the local area, so sell the best features and let them know where to find the best latte or trendiest new restaurants.
- Reviews. Reviews. Reviews. They will determine the ranking of your listing, the rates you can charge, and the likelihood of people wanting to book your suite.
- Be a good host. This means smiling, greeting people like you mean it, providing extras like water bottles and a snack upon their arrival, writing a useful area guidebook, and being available to answer their questions.
- Cleaning your suite. Either do it yourself or find a reliable cleaner.
- Keep your calendar up to date. Check in on your rates and availability at least once a week.