As a manager, are you beholding to channel bookings? Do you have sufficient critical mass to develop a brand? Do you make enough money? Are you doing social media, managing the finances and marketing, worrying about HR, managing operations, call-outs and more? Are you working for other people, not yourself? Are you considering selling?
We answer the question below if selling your business makes sense and why the market changes and requires more work. Plus, you can register for your free business valuation white paper "To sell or not to sell, that is the question."
Many questions have arisen from conversations over the last few weeks with small managers and co-hosts who are increasingly under pressure due to the multiplicity of disciplines needed to run a small rental business with two clients: Owners and Guests!
The conversations went something like this:-
"Hi, I'm doing some research on property managers' challenges, and I have a few questions; if you have time? I'm looking at managers with between approximately 10 and 30 properties?"
After some preliminary questions and chit-chat, the acid test question:-
"I have talked to many small managers, and a decent percentage seems to be getting worn out representing owners, dealing with guests, adopting new technology, following the changes to legalities, doing marketing, admin and operations. How do you currently feel?"
As you have probably guessed, well over 50% have high levels of stress, and despite initial ambitions, a good percentage are ready to explore an exit within a short period, if possible.
WHAT ARE THE REASONS FOR THIS? THE SHORT VERSION ANSWER:
A much more comprehensive explanation is shown below; however, these bullet points are challenging small businesses in the sector and will affect your management prognosis.
Market forces: Global businesses attract big money, and corporations control marketing exposure, extracting fees and increasing guest control and opportunity.
Real Estate Prices: Peaks and Troughs. Buying high requires a high income to pay off loans. Buy low, and a glut appears, requires low prices to compete.
Economy: Low-interest rates help real estate markets as interest rates are low to borrow, and rental returns are higher. A glut of properties appears, and occupancy falls.
Travel: New destinations attract travellers, and hotspots have a lifespan.
Over Tourism: Legislation and licensing follow, with administration and costs.
Guest Expectations: Are greater, and quality, efficiency and amenities are required. The professionalisation of the sector at all levels is necessary. It takes time and money!
Operational costs: Becoming proportionally higher per booking and making rentals less competitive per sqm.
Margins: With so much competition for inventory, owner marketing and engagement require an increasingly professional approach, presentation, narrative and evidence of performance. Owners can negotiate terms: each system and overhead drain the pot a little more or raises guest rates.
Technology: is supposed to make life easier, but for many, it means a steep learning curve, continuous tweaking, problem-solving, discovering how to mould systems to your business and more.
Owners: Often more savvy and demanding, are OTA aware, use social media, and require more reporting, feedback and continuous personal engagement.
More to come: Environmentally friendly rentals and audits plus, depending where you are, financial challenges are in the wind with VAT and more localised fees and reporting. Expect, like real estate businesses, to be licensed for these services, if you aren't already, or/and to be officially registered as a company with the authorities, if not already.
It's tough, and making a decent profit can be excruciatingly painful, jeopardising your family life and your mental and physical health.
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"To sell or not to sell, that is the question."
THE LONG VERSION ANSWER (on selling a short-term rental business)
Certainly, in early 2000, these levels of stress were not experienced, and the reasons are apparent moving forward 20 years but not necessarily pleasing. These comments are borne from running management companies and software businesses and being involved at a senior level in the STR industry as it's now called, aka Airbnbs (another $1 in the pot) or vacation rentals, self-catering or holiday homes!
1. MONEY: The Internet is the biggest influence and the equivalent of Yellow Pages on drugs. E-commerce allows choice and selection and provides frictionless trustworthy booking opportunities through significant investment in tech, marketing, consumer ignorance, and disposition. I want it, and I want it now syndrome. Cheaper than hotels, often in better locations, with more space and often more group privacy.
2. REAL ESTATE: We have been through several real estate cycles and economic turmoil since 2000. Assets generally need to make money, and people must pay mortgages and loans in an economic slump. This accelerated the volume of properties, as illustrated by the 2008 property crash. Then we see Airbnb launch and HomeAway acquisitions and sales to Expedia, and we see a global market emerging and visible to the public at large (it's always been there).
This is what happened in the USA from 2000 to 2020.
When prices crash, equity falls and houses potentially on the market, especially those as investments, need income. Short Term Rentals were an option.
Low-interest base rates over the last 14 years have seldom been above 1 or 2% until recently; inflation and interest rate hikes to kerb have meant much higher debt repayments on properties and a greater demand for ADRs, performing managers, and often miracle workers. Oversupply, more budget-conscious consumers, and the threat of legislation are now adding to the stress of owners, guests and managers.
3. EASY ENTRY: No qualification is generally needed. A website, a spreadsheet, cleaning and maintenance, and you are off! Many EU sun-drenched destinations saw people establish lifestyle businesses with a perception this was an excellent way to earn a few bucks looking after absent owners' properties and playing golf in the afternoon. How times have changed. Now with hundreds of thousands of small managers and Airbnb Co-Hosts, it's a "bun fight".
4. HYPE: Get-rich-quick schemes abound. We have seen endless people lecture on building an Airbnb portfolio, combined with large managers buying up smaller businesses and getting $bn valuations and funding or IPO, and it seems anyone can do it! Think Vacasa, Sykes Cottages, US and UK, both sizeable businesses.
5. TECHNOLOGY: This has allowed people to use software and hardware tools to create efficiencies but also adds steep learning curves, stress and costs.
6. GUESTS: How many people have stayed in a vacation rental? In 2021, user penetration was 13.1%, so around one in eight people have been vacation rental guests. By 2025, nearly one in five people will have stayed in a vacation rental. This is great news, except these are new types of guests. They won't remember the days when a guest brought their own linen and often had electric coin meters. They often expect a hotel service approach and do not appreciate the litter removal, hoover before leaving approach. This means more operational diligence and owner investment.
7. RENTALS NEVER SLEEPS: This is not a 9 to 5 job. Guests stay day and night and arrive day and night, and problems arise day and night.
All roads are not paved with gold!
If you are considering a life change and think being a manager is easy, this is a list of things you must consider and often address daily. Without staff, this can cripple you from day one. Remember, one property is easy and gets incrementally more complex with more.
Marketing to guests AND owners: Website with payments, photography, social media, content writing, local, national and international PR if possible, sales packs, local shows, conferences and meet-ups, newsletters, reviews, deals, paid online marketing, traffic engagement, conversion analysis. Competitive analysis and positioning.
Technology: Booking management system, dynamic pricing, channel distribution, guest apps, accommodation hardware, email system, CRM system, noise and air quality tools etc
Legal: Contracts with owners and guests. Local and national laws on stay duration, registration, licensing, guest and owner rights.
Guest Relations: Bookings, cancellations, changes, quotations, calls, complaints, reviews
Owners: Calls, complaints, education, financial reporting, accommodation reviews and updating, maintenance, payments, terms etc
Growth is hard
Taking on one property is simple, and this is where it's easy to consider that scaling is simple. The margins are thin as a manager, generally. High value, longer stays, and quality properties in great destinations are the golden ticket but are rare to newcomers. The eventual outcome is to generally accept anything and later deprecate that inventory as the business grows, but with little real income, especially if it's seasonal, then without smart, loyal and hard-working staff, the whole operation becomes a pressure cooker. Add in a demanding family, too, and it just gets worse!
Are you building value for an exit? Is it time to get out of the rat race?
The perception has been, build it, and they will come, which means guests, new owners, and predatory larger managers will all show interest in your business. How times have changed:
Guests book on OTAs unless you have good organic web positions, a high-converting website and a decent previous guest list. You are beholding to the 15% commission OTA.
Owners have a considerable choice of managers to choose from, and this allows them to negotiate an already thin margin. Large managers can access significant resources, and data tools and often have large cash reserves.
Large managers who grow by acquisition and look at company size, location, and local brand awareness and geographical dominance. Has the company grown well over the last 2-3 years and has decent margins? What is the quality of inventory, team quality, systems, operating processes and churn? It is often more economical and faster to recruit locally and grow business that way. These days 100 properties is a small manager. 1000 is a mid-size manager, and 20,000 is a supermanager.
Does a small business actually have value?
It depends on the properties, but in general, the value lies in the opportunity to book a property with good margins 365 days a year, without owner consent on pricing and times, combined with excellent and cost-effective operational management. Plus, low churn and owner loyalty. In general, 90% of the value lies in the owner's contract, property and history.
How much is a contract worth?
That's the million-dollar question, and there is no simple answer. However, many growth companies are keen to acquire contracts with owners and often employ the local services of the individuals running the business as part of an earn-out deal.
Interested to know more about your business or contract(s) value?
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"To sell or not to sell, that is the question."