Hidden Expenses Your Short Term Rental Management Company Doesn’t Want You To Know About

I never wanted to be a whistle-blower but I just can’t sit back and watch good people get ripped off by property management companies on their vacation homes. Having worked for a management company briefly in the past and seeing what goes on behind closed doors I have a first hand view of the hidden expenses that most companies don’t tell you about when giving you their sales pitch. 

The first thing one does after placing an offer on their cozy, sunny holiday villa is shop about three or four property management companies to find a reputable company who is going to get their home rented out while they are gone.  The first question many people ask the sales rep for the management company is “How Many Weeks Can You Book My Property?” They are most likely going to quote you a lovely figure that sounds nice to you and entices you to want to turn your home over to them.  STOP! Before you start celebrating and getting excited you MUST know that 98% of the time this figure may not apply to your home.  It most likely applies to one or two particular homes they have under management that are rented like crazy and often because the owner is very active in the process. This doesn’t mean you are going to see those numbers.  Request booking reports on a home similar to yours to see what it’s really doing. 

This next part is the one you’re really going to love. . .so you want to know what type of rates they will be charging for you home?  They give you a print out with their rental rates on it quoting you low season and high season rates.  STOP! The rates that you are looking at on that paper are RETAIL RATES not wholesale rates.  Retail rates are what you will see IF the management company is able to book the stay directly through their website or marketing efforts.  This only happens on average 20% of the time!!!! The main way management companies get their bookings is through travel agencies (tour suppliers).  The tour supplies book their guests in your home at a discount of nearly 50% off the retail rates! The concept behind this is that they supply so much volume that it makes it worth it, and often time it does but beware!

So when they pull that pretty little rate sheet out and start quoting you these wonderful rates you now know it’s a sales pitch and you need to ask them, “What are your tour supplier rates and what percentage of your bookings come from that source?”Once you get that figure subtract the 13% state and county taxes off the top and then subtract whatever fee your management company is charging off the booking and you will then be left with a real figure that goes into your pocket. 

Lets just do the math: (these are just example figures not real figures)

Here is an example for a 3 bed Single Family Pool home in high season per week:

$665 (Retail, this is what they quote)
-13%= (Taxes for state and county, will vary among states)
_______
$575.55-
25%= (This is an average figure of what management companies charge per booking)
________
$431.66 (This is what you are left with on a Retail Booking)

Keep in mind the wholesale rates are 80% of bookings so even if the whole sale rate was only 30% less than retail you would be walking away with a figure closer to $300.  So you can see it’s less than half of what was quoted on your retail rates.

Now that you are armed with knowledge you can negotiate lower management fees on wholesale bookings.