Short Term Rental: How to Write an Offer
What is a Short Term Rental?
It is a rental that can be rented for shorter periods of time than an annual lease. A short term rental can be rented for a day, week, month or longer. Typically the tenants are people on vacation who want to rent for a short period. Short term rentals are not allowed in all cities and communities, so the community must be zoned to allow short term rentals. Many people who spend time in Orlando like to invest in short term rentals so they can utilize it when they visit and rent out the property the other times.
Orlando has many Short Term Rentals to buy…
Orlando attracts 75 million visitors per year! All these visitors need a place to stay, many choose to stay in a short term rental. Visitors are offered a wide range of attractions Disney, Universal Studios, Sea World to name a few, along with entertainment, sporting events, thousands of restaurants, beaches and cruises that it make an exciting place to spend a vacation.
Many people visit Orlando several times a year and so it makes sense to buy a vacation home…that can be used as a short term rental. Many of these come with bookings included in the price of the property, and some seller want to “sell” you the bookings at an additional cost. Of course, some properties come with no bookings at all.
Owning a vacation rental can mean you offset your vacation home expenses or make some extra money depending on several factors. In addition to income, there are other top 10 reasons to invest in short term rental home. Many areas that surround Disney are zoned for short term rental which means that homeowner can legally rent their property to other people on vacation during times they are not using it. This means that these homes can be advertised on HomeAway, VRBO, and Airbnb.
Website bookings give Owners Booking Power
HomeAway, VRBO, and Airbnb have evolved so much, they have given the owner the power to generate their own rental bookings. Just a decade ago, most of the vacation rental bookings were handled solely through the short term rental property management company. These companies would generate bookings with tour operators, vacation companies, and through their own marketing platforms. While these are still utilized today, more and more owners are doing nearly 100% of their own bookings.
What to do when you buy a Short Term rental with future reservations?
It is common to buy an Orlando vacation rental that has bookings on the calender a year out. Most buyers want to retain those future bookings rather than start over from scratch. To retain these bookings when purchasing a short rental, there will be some needed information to document transferring the bookings as part of the home purchase. To do this there is some leg work.
You have to determine who owns the bookings and where are they coming from.
- Does the owner generate his own bookings on HomeAway, Airbnb?
- Does a third party booking company handle the HomeAway, Airbnb page?
- Does the property manager generate bookings?
- Is it a combination of everything above?
Once you determine the booking sources, you can establish who is holding reservation deposits which usually includes cleaning fees and taxes. Not only, do you want to retain the reservations, but these fees may have to transfer, depending on set up. If you retain the use of the current property manager generated bookings, and/or the third party booking agent that is currently being utilized then all the reservations and deposits will automatically transfer. There is a different process for owner bookings.
Steps to Transfer Owner Generated Bookings
HomeAway, VRBO, or Airbnb will not automatically transfer future bookings. There will need to be coordination with the seller transfer to the new owner. The seller will need to notify the future guests of the sale of the property, cancel the booking so the guest can rebook under the new owner’s account. This should be done just prior to closing, so there is leverage the seller will cooperate in the transfer. If this is done after closing, then it is best to hold back some of the seller proceeds in escrow by the title company to ensure the seller cooperates with a post-booking transfer, if allowed by the lender.
It can be very complicated, so it is always best to work with an agent that understands how it all works…
When the guest reservation is canceled and rebooked with the new owner, the guest will repay all their deposits with the new reservation. In this scenario, no deposits need to transfer from seller to new owner for the closing to occur, unless the closing occurs in the middle of a reservation.
It is a best practice to set a closing date in your offer in between rental bookings.
1) Setting a closing date on day the property is unoccupied, means you will not have to prorate the rental booking on the closing statement. 2) You should set a closing date where you have at least 2-3 days vacancy in between bookings to conduct a final walkthrough before closing and to transition the property with new utilities, set up vendors/contractors, and change locks.
A home buyer should address in their offer how they expect future bookings to be handled. They also should request an itemized list of the future guest names, guest contact information, reservation dates and deposits, so the new owner has a record and matches reservation rates. In addition, a home buyer should request any marketing materials (photos, videos, property website), vendors, property managers, and any other service the new owner would need to carry on the rental service.
Transferring “Reviews” about the quality of accommodations
Reviews are a mainstay of any business in today’s world. It’s essential to have reviews and great ones to have a successful rental. Renters want predictability with their vacation stay will be good with no major surprises. Many of the booking sites do not allow reviews to be transferred to a new owner, except HomeAway and VRBO.
In order to transfer reviews on HomeAway and VRBO, the new owner has to have an account set up. Both the seller and the buyer have to call their customer service on the same phone call and make that request. All the reviews will transfer, both good and bad. So before a new owner wants to transfer reviews, be sure those reviews are highly rated and benefit their rental business.
Writing an Offer on a Short Term Rental
You will need to know how the short term rental is currently being handled in order to write an offer and determine what is expected between seller and buyer. Buying a short term rental requires a high level of coordination between the seller, buyer, and future guests. It is best to address the major components in an offer.
Some of those components would be seller transfer bookings, deposits (if applicable), service contractors (cleaners, pool, and lawn service), marketing materials (photos, website) and rental rates if a closing occurs in the middle of a rental. A buyer would also need to request an itemized list of future guests, rates, and contact information, so you can extend the same rate.
Some sellers will stop bookings altogether, in order, have the opportunity to show the property, have openings for inspections, and closings, etc. One of the most difficult things for buyers is to get to see these online properties in person. Buyers want to see a specific property. Often, when they come to Orlando to look at the property it is guest occupied and cannot be shown to buyers. Some buyers will buy a property sight unseen.
Can you make money with a short term rental business?
This is a loaded question! We receive this question ALOT! Yes, but there is NO magical formula because there are always several factors and variables. Some of these factors are location, whether or not you have a mortgage, who is doing your bookings, condition of the property, host rankings on HomeAway, VRBO, Airbnb, online marketability, how much time you dedicate, how involved you are with guests, guest reviews, and rental rate structure.
It is best to give the short term rental business a year to work through the process, kinks, and learning opportunities. Instant success is not guaranteed.
Our clients that have optimized income on their short term rental, by generating their own bookings, doing their own marketing, having nice properties, interaction with guests, and have rave reviews. Having no mortgage payment always helps too. The short term rental business is not a “buy it and forget about it investment”. There are decisions to make, repairs, property maintenance and guest complaints to handle. For those that treat their short term rental like a business will reap the best investment.
Orlando is a phenomenal place to live and invest. About 1500 people relocate to Orlando each week and many move for better weather. If you are a theme park fan, then Orlando is an ideal place to consider a purchase of a vacation or second home.
Buyers Broker of Florida is an Exclusive Buyers Agency office that only represents the best interest of the home buyer. They also understand the “short term” rental market. For more information, contact Buyers Broker of Florida at 407-539-1053.
Related: Short Term Rentals Orlando