Managing or owning vacation rentals can be a lucrative business with many complexities involved in accounting for managing vacation rental properties. These complexities are unique and dependent upon on the quantity of your inventory, where you manage them, and how often you have guests.
To help you untangle these complexities that surround vacation rental accounting and more, you’ll find a list of basic tips and advice that will help you navigate all facets of vacation rental management from accounting and on.
Do Your Research
It’s mandatory that you know local restrictions, permits, and regulations that are necessary for owning or managing a management company in every city that you have a rental property. A common regulation that you might encounter is trust accounting.
Trust accounting dictates when you can and can’t recognize your income. There are far too many aspects of trust accounting to get into for this post, so we’ll only say that it’s recommended that you call your city’s office to figure out the requirements. If you ask directly what regulations you have to follow in that area, you’ll be able to avoid any confusion or future financial headaches.
Get Organized
Every vacation rental business needs a plan. However, for a beginner, this can prove to be a difficult process. You need to learn how to anticipate the needs of your guests and even the neighbors. Consider the price for maintenance, repairs, and construction, and make an honest assessment of what it is going to take to manage all these operations.
Initial Expenses
To start calculating the needs for your vacation rental business and to get a better hold on the accounting process, you need to determine your initial expenses. These often include:
- Getting everything up to code
- Making sure all utilities are up and running
- Making sure all the amenities are in order
- Providing clean and appropriate furnishings
- Setting up an emergency repair and maintenance fund
Revenue and Expenditures
Next, you will need to consider the answers you found when conducting your research so you can make a more educated guess about the profitability of your property.
- What are other similar properties in the area charging on a weekly or per night basis?
- How many nights are booked?
- Can you charge more for holiday stays or during peak seasons?
- Are there any features or amenities that would allow you to price higher?
Ongoing Fees
We will get more into taxes below, but you also have to consider your regular and ongoing fees when accounting, including:
- Utility costs
- Service charges, i.e., cable and internet
- Maintenance costs
- Taxes and property payments
Manage Your Taxes
Taxes and death, those are the only certainties in life. Every city, state, and country have a set of taxes and tax schedules that you have to follow, plus the IRS doesn’t play around. For instance, counties in Utah charge vacationers who stay at any hotel anywhere from 9 – 11.85 percent, this is what’s called a ‘transient room tax.’ On top of this tax, vacation rentals are charged an additional 4.25 percent TRT tax.
If you don’t collect this extra 4.25 percent per booking, it can adversely affect your profit margins. Taxes are also subject to a charge per jurisdiction. You’ll want to make sure that you are closely monitoring what tax laws you are subjected to for each city that you have a vacation rental property.
Rental Property Management Responsibilities
Do not take any online bookings until you can handle everything we have mentioned so far. There will be a lot of bills you may have to deal with in the beginning but doing so is important and can help you start your vacation rental management on the right foot.
Make yourself available for guest communication and allow the opportunity to cover any unscheduled services when something is to arise. Answering the guests phone calls can also lend to a more positive guest experience and can also result in repeat guests in the future.
To help you manage all your bills, accounting information, and everything else you need to stay on top of as a vacation rental owner, it never hurts to enlist the help of rental property management software. This kind of software helps you synchronize all your properties and listings. It also allows you to manage your property listings, channels, guest communication, inquiries, and invoices and billing on just one platform.
A vacation rental software solution allows you to better manage your short term rental properties. Some of the more notable features you can take advantage of include:
- Channel Manager
- Availability Calendar
- Reservation System
- Website Builder
- Analytics
- Task Manager
You may want to consider hiring a property manager to help you stay on top of the day to day tasks and expenses to ensure your short term rental is taken care of. It also helps to have the right property management system in place to keep track of a reservation, booking, and all accounting information.
Amenities
The right amenities in your short term rental can help you stand apart from your competition. For example, if the competition has a washing machine, this is an amenity you will want to seriously consider for your own vacation rental. You also want to keep your prices as competitive as possible too. So, don’t add amenities if you can’t cover the cost or it starts to shrink your profit margins.
Contracts
Before you start managing a property with for someone, you must know how income and expenses will be shared. The success of the rental property relies on this delineation. To keep high property management margins, you might need to adjust your pricing strategy because it’s dependent on how the income is split between the property owner and you.
It’s very important that you know your contract inside and out. You’ll want to go through and make sure that you understand all of the terms in all of your contracts, make sure that they’re clear on which costs are going to be shared between you and the property owner, and which ones will not be. By going through your contracts with a fine-toothed comb, you ensure that nobody ends up being stuck with low margins or unexpected costs.
Keep Property Ledgers
If you keep property ledgers, it makes it so that you’re able to know what revenue was earned and what expenses were incurred at each of your properties. This way, you know what is owed to each owner, for each month, and depending on the terms of your contract. Each property has it’s own owner contract, owner, expenses, and income.
One property might need to have maintenance done on the air conditioner, one might need to have a chair reupholstered, and one might need to be repainted. When you are responsible for multiple properties, it can become quickly become confusing when it comes to knowing which property corresponds with each maintenance order and thus makes it difficult to know how much you need to pay to the owner. It’s important that you keep track of all income and expenses on a property level.
Monitor Your Process
When just starting, your process for accounting should hopefully be relatively simple. However, if you start by managing multiple properties, accounting for each one manually can start to be a nightmare. As you start to take on more inventory, it’s crucial that you take note of how long accounting took previously and then compared it with your current progress as you increase your inventory.
Manually managing property is possible, but the number of responsibilities will increase as you start to manage more properties – the amount of work that you’ll have to do will increase too!
Instead of drowning in accounting work, think about incorporating some automation to help you deal with extra tasks. This continual evaluation and controlled evolution will help you organize everything, and it will keep you agile enough to adopt new tools that are necessary for your business’ success.
Always Put the Guests First
When managing a vacation rental property, you must always work toward improving the guest experience. Whether it is offering better amenities or allowing for a much more efficient check in and check out process, always put the guests first.
There are several integrations, apps, and tools you can use as a property owner or vacation rental manager to ensure that your guests are satisfied and leave positive reviews.
Keep in Mind That This is a Business
Vacation property management is a business that is centered around people, and it revolves around excitement, happiness, and family memories. However, you have to remember that at the end of the day, you’re still running a business and it should be run like one.
The success of vacation rental property management means that you find the balance between making the most money and giving guests the vacation of their dreams at the same time. Running a vacation rental property like a small business means that you’ll have to:
- Evaluate any potential risks
- Anticipate guest’s needs even before they realize them
- Invest in security
- Stay on top of market trends
- Respond quickly to any reviews
Charge fines and a management fee when necessary and fair, and don’t make any financial decisions based on your personal budget. You’ll want to stay on top of your competitors’ prices so you can price your property accordingly and earn rental income. Remember that just because you wouldn’t pay $200 a night for a vacation rental home doesn’t mean that your rate is too high.
Run your vacation rental properties like a business because it is one. Keeping track of your income and expenses will go a long way when it comes to doing the accounting work for your business – and keeping track of who pays what when you’re in a partnership – you’ll be able to manage your vacation rental property successfully. Look back at how long it took you to do your accounting work previously, and if you need to add some automation, do it!
