How To Choose a Manager for your Short Term Rental

Airbnb, VRBO, and other platforms have caused a disruption in the hospitality industry, enabling individual property owners to compete for bookings against major global hotel brands like Marriott and Hilton. In the past few years - and especially after the pandemic - our local Columbus market has seen a surge in new operators launching their own STRs, hoping to increase the margins on their rental properties. The details can be overwhelming - how will you set your rates?  How will you screen your guests?  Who will handle maintenance and cleaning?  So, what should you look for in a manager or a co-host?

Scope of Services and Business Practices

If you're ready to evaluate some potential property managers and/or co-hosting businesses, here are some questions to ask:

1. Revenue Estimates - how much money do they think the property can produce?  Do they manage any properties that already perform at that level, and can they provide trailing 12-mo financials to prove it?  What assumptions and what market data did they use to arrive at their revenue estimate?   Seriously, ask these questions!

2. Startup Support / Onboarding Process - who will be furnishing the house and taking pictures?  What checklists or procedures are in place to make sure a listing is set up for success?  Does the manager have onboarding fees?

3. Listing Sites / Online Travel Agencies - what sites will your listing be posted on?  Airbnb?  VRBO?  Any others?

4. Direct Bookings - does the manager have a way for repeat guests or referrals to book your property without paying expensive service fees to Airbnb or VRBO?  How does that process work?

5. Revenue Management - who will set the rates for your property to make sure your rates are aligned with market demand?  Will software be used?  In addition to pricing, what availability rules will be used to help optimize your revenue?  Will you allow 1-night stays?  What strategies are used to maximize occupancy and avoid gaps between bookings?

6. Risk Management - how will guests be screened or evaluated?  What procedures are in place to collect security deposits or to provide damage protection insurance?  Will you be covered if guests cause accidental damage?  If you have additional cleaning costs?

7. Guest Services - who will be reading and responding to messages or inquiries from guests?  Is emergency support available?

8. Operations - who will be scheduling cleaners and maintenance?  How often will the property be inspected?  Who will handle purchasing and who will pay for supplies?

9. Finances / Management Fees - how much is their fee?  Is the fee charged on gross revenue, rent revenue, or something else?  Who will pay the cleaners, maintenance, or other service providers?  Will your manager provide a monthly and annual financial report?  Who will be responsible for collecting and remitting lodging taxes to the city?

Business Models: Property Management / Co-Hosting / Arbitrage

How involved do you want to be in the operations?  Traditional property management offers a more hands-off approach for owners, but that may come with limited options for visibility into the operations.  Co-hosting, a somewhat new concept popularized by Airbnb, allows property owners to hire a consultant to support various aspects of their own STR operations.  Arbitrage is a third option that may seem to be a low-risk approach at a glance, but might leave owners wishing they had a greater share of the revenues. 

Property Management: In Ohio, property management (PM) companies are required to hold a real estate broker’s license.  Typically, a PM company will collect rent directly from guests and then send the owner a monthly disbursement after deducting their fees.  The PM company generally has full control over the Airbnb listing, meaning the owner may have limited access to booking calendars and may not be able to see any communications with guests.  A PM company may offer some services that are not available through other business models, such as collecting rent directly from guests and coordinating maintenance without notifying the property owner.  While this model may come with higher management fees, it can be a good fit for owners who want a profit-sharing arrangement and less involvement in their STR operation.

Co-Hosting: A co-host is a consultant who helps owners with some aspects of property operations, which could be anything from handling correspondence with guests, to scheduling cleaners and maintenance, to advising on revenue management strategies.  Rent from bookings goes directly to the property owner, who then pays the co-host for their services.  The property owner is also the owner of their Airbnb account and listings, so they will have greater visibility into daily operations; if the owner and co-host part ways, the owner retains access to the Airbnb listing and its reviews.  Co-hosting is a more flexible arrangement where services can be tailored for owners who prefer some level of involvement in the operations, and owners may benefit from paying lower fees.

Arbitrage, or "corporate leasing" as it is sometimes called, involves an individual or company signing a long term lease for a fixed monthly rent amount and then furnishing and subleasing that property as a short-term rental (sometimes without the owner's knowledge or consent).  This model is illegal in Columbus without the property owner's knowledge, since the owner is required to have an STR license.  Arbitrage may be appealing to some property owners, since it provides a guaranteed monthly rent payment, often over a multi-year lease, with no initial costs to the owner for furnishing the property.  Owners should carefully evaluate their options: if STRs are expected to produce enough rent for this business model to be viable, would the owner be better off hiring a PM company or a co-host?  What if the operator underperforms and can't make rent payments?

Columbus City STR License Requirements

In Columbus, a short-term rental license is required to rent a property for less than 30 nights. The STR license applicant must be the property owner or a permanent resident.  The "permanent resident" situation is rare - this would apply to someone who lives in a leased house or apartment, who also has permission from the property owner to rent that apartment (or a spare room in that apartment) when they are not using it.  An example might be a traveling consultant or medical professional, who frequently travels and then rents their apartment when they are not using it.  Again, this is not common.

So, regardless of the business model or the scope of services provided by an operations partner, the owner of the property needs to apply for their STR license every year.  This process includes passing a BCI background check, providing a letter of good standing from the Columbus Income Tax Division, and naming a 24-hour local point-of-contact (in the event that it will not be the owner themselves).  Keep in mind that even though Columbus city allows short-term rentals and has very supportive legislation, some HOAs / condo associations, or other local municipalities may not allow short-term or "transient" rentals.

What about mid-term rentals?  A "mid-term" rental is one that is only available for rentals of 30 nights or longer.  This type of rental does not require a license with the city, and these rentals are not subject to Columbus lodging taxes.  Although they are a different animal, mid-term rentals behave a lot more like short-term rentals than traditional long term rentals (12+ month leases).  Should your mid-term rental produce more rent in the peak season than it does in the winter?  Absolutely - but how much?  Make sure your PM or co-host has a plan for how to optimize this.

About StayInColumbus

We're a co-hosting and operations consulting company!  We provide a slightly limited scope of services compared to a property management company, but for many short-term rental owners, that's enough - and we think our clients should benefit by having a lower management fee for that more limited scope.  Our listings consistently outperform the market averages in Columbus.  Our tailored approach to meeting the specific needs of each of our clients might be a good fit for you as well.  Get in touch by sending us a text to 614.654.3000.

-Nat

Published August 2024