10 Reasons HOA Fees for Short-term rentals are bad

Are you an HOA board member?  Before you start charging property owners fees for short-term rentals, read this article, you may change your mind.  These 10 reasons are by no means all-inclusive.  Prevent economic damage to your properties, and consider all of the potential issues before deciding to impose fees.  

Learn how you can accomplish what you probably really desire without punishing all of the property owners including yourself.

Homeowners association boards are elected by property owners.  The HOA rules were originally adopted by the builder of the property.  If the property has been around for a decade or more, chances are that the HOA rules never considered short-term or vacation rentals.  


Example of HOA fees charged for short-term rentals
an example of a CCR HOA about rental properties

The need for regulations is clear

With the proliferation of short-term renters and in particular, within HOA communities, the need for regulations is clear.  Keep in mind that this article is not promoting uncontrolled HOA short-term rentals.  A little background may help.

During the last housing crisis in 2010, I owned a rental condo unit in an association in Las Vegas.  I bought the unit new from the builder five years earlier.  When the housing crisis started, many people who were renting condos found themselves upside down on their mortgage payments because rents dropped.  

With lower rents, people could not make their mortgage payments, and as we all know property values dropped.  In fact, I purchased my unit for $140,000 at the time, it went as high as $220,000 and then dropped to $60,000.  

Banks were dumping properties

There were many empty units so banks began selling at fire sale prices to investors who paid cash.  Within a short time, more than 60% of the condos were owned by investors who were renting them.  At that point, people who wanted to sell their properties were finding it difficult to sell. 

 The reason, more than 50% of the units were rentals.  FHA loans are restricted in buildings with more than 50% of units rented. This is because FHA loans are insured by the federal government, and the government is concerned about the risk of default if there are too many rental units in a building. 

Most lenders have a threshold regarding investor vs resident ownership.  This problem kept prices low for a few years.  Compounding this, people who had to relocate rented their units because they could not sell them.

Fortunately, in my case, I had planned for worst-case scenarios and weathered the storm.  10 years later, I sold the property at a substantial profit even after deducting the rental losses.  Most people could not do that.  I bring this up because it has relevance in 2023.  

We could be closing in on a similar crisis

We are closing in on a similar housing crisis, not as bad as in 2010 but it could affect every owner of a condo.

What is your motivation for creating a fee for short-term rental owner properties?  I suggest that the primary motivator is that rental guests are unwanted by those who live full-time in a condo development.  Before going further into our 10 items, let me explain my motivation for writing this article, I: 

  • Do not currently own a condo in an association but I have many times over the years.  
  • Fully understand how the board of directors works and must consider the long-term interest of the owners.  
  • Do own vacation rental properties not subject to HOAs.  Also, I am a real estate broker and I have an ownership position in a property management company.

The point of mentioning my position is that I have seen all of the arguments from every angle.  As an owner, as an investor, as a property manager, and as a real estate agent.  I have attended many board meetings, I live in a housing development with an HOA and I vote on issues.  So bringing perspective to the issues is the point here.  

Back to the reason for imposing fees.  Noise complaints and noise levels are too high.  A guest is playing their stereo too loud.  Of course, this never happens to owners, right?  Parking issues are another topic.  Guests on occasion will park where they are not supposed to.  And again, owners never disobey governing documents. Full-time residents are always perfect correct?  

The point is that while I will concede that on occasion and not often from my experience, guests will disturb residents.

All will suffer for what a few do

Ever heard the old saying “throwing the baby out with the bathwater”?  When you punish every investor and owner who will occasionally be in violation of parking rules, you are setting a precedent where all suffer for the issues created by the few.  This does not fix the problem if there indeed is one.  

I understand that some full-time residents just don’t like the idea that people are renting in their development.  It’s a valid concern.  However, anyone intending to buy into a condo development must understand that due to the nature of the property, it is ideal for rentals of all kinds including long-term rentals.

Another of my example.  My wife and I bought a condo as our primary residence.  We lived in the condo for three years and decided it was too small and parking was an issue.  Guess what, it was an issue because other owners would not use their garages for parking.  

My wife parked in the single garage and I had to park in a parking space.  I came home after 6 PM most nights to find every parking slot within a reasonable distance full.  

The HOA told people with garages to park their cars, no response.   They passed a rule that said you could not fill your garage with stuff that would prevent parking.  At least one resident decided to park two cars (they had a two-car garage) in parking spaces and leave their garage empty.

short-term rentals at beach
Short-term rental condos at the beach

We could not sell our condo at a good price

We decided to buy a house and found that as we were trying to sell our condo the prices kept dropping.  I decided to rent it until the market stabilized.  That was my first investor-owned condo but you see how it came to happen.  

It was not my intent when I purchased it to rent it, I was put into that position due to the current economy.  Guess what, it’s happened again.  This 2023 economy is going to force people to rent their property or allow it to go to foreclosure.

Key reasons fees are a bad policy

The following are key reasons why it’s bad policy to create fees based upon “per stay”, “Income”, “cars”, and other similar reasons:

  1. Creating a fee for existing property owners who are Airbnb hosts will raise their rental costs.  This means fewer rentals because they will not be competitive in the area
  2. Higher fees mean fewer residents leaving the property vacant longer which can attract squatters, insect infestations, and deterioration of the property
  3. Investors who can not earn enough to pay the bills will offer their property for sale.
  4. In 2023, prices are dropping meaning condos offered for sale will drag down the comps particularly when they are fire sales ahead of foreclosure.
  5. Finance companies look at the number of foreclosures and reduced HOA fees as a result.  It’s possible higher interest rates will affect sales
  6. Vacant properties are not good and this happens when investors are forced to abandon or sell because they can not make their mortgage payments.
  7. Employing retroactive fees on existing property owners is not ethical.  When owners purchased their properties their decisions were based upon facts at that time.
  8. As prices fall due to investor sales, residents will suffer losses in their property values meaning those with variable-rate HELOCs may have to increase their payments.
  9. Out-of-the-area investors without a property manager are not likely to maintain their property or pay HOA dues without income
  10. The market for vacation rentals is down in 2023, property owners are trying to make ends meet, and with higher rates, fewer rentals means this is a very bad time for fees

Prices of condos are falling nationwide

The above is just the starting point.  Please understand the current market for single-family homes in most areas of the country indicate falling prices.  While inventory is more available than it has been, the only reason that prices have not fallen further and faster is inventory.   

Foreclosures can change the inventory picture.  If more inventory comes to the market as a result of foreclosures, prices will drop further.  

Lower prices are exactly what homeowners’ associations don’t want.  Here is an example.  Assuming that your property value in an area such as the Mississippi Gulf Coast is $280,000 for a two-bedroom condo near the beach. 

When property owners lower their prices, it sends a signal to the market that there is too much supply and not enough demand. This can lead to a vicious cycle, as more and more property owners lower their prices in an attempt to attract guests. As a result, prices can fall to unsustainable levels, and property owners can end up losing money.
In addition, lowering prices can also lead to a decline in the quality of vacation rentals. As property owners compete for guests, they may be tempted to cut corners on things like cleaning and maintenance. This can lead to a decline in the overall quality of the vacation rental market, which can make it even more difficult for property owners to attract guests.
If you are a property owner, it is important to be realistic about the current state of the vacation rental market. If you are not able to attract guests at your current price, you may need to consider other options, such as selling your property or renting it out on a long-term basis.Research on Bard- Wall Street Journal 2022

Profits at these prices are on the edge

 This means that anyone buying one of these properties for use as a vacation rental must earn at least $x per year to cover all expenses.  Buying a property for $280,000 with 20% down puts the ability of that property in this current market right on the edge.  Here are the dynamics: 

  • Mortgage and interest are stable 
  • Insurance near the beach has been increasing putting pressure on owners and HOAs
  • Vacation rental income on average has fallen.  This is due to the larger inventory of vacation rentals and lack of visitors.  Four and five stays are down to weekends.
  • Inexperienced property owners are lowering their prices (where there are no HOAs with fees).  This reduces income, and profits before any HOA fees

HOA charges $75 per night 

The chart below indicates that in Mississippi the nightly average rate would increase by 30% if a $75 fee was added to the average projected 2023 per night rate. Properties in the neighborhood would have a price advantage

infographic HOA fee of $75 per night short-term rental

Put yourself in the position of an investor

Put yourself in the position of an investor who without knowing buys a condo within your homeowners’ associations and only then finds that there is a $75 per stay fee added to their cost.   The problem is that you also have found that occupancy is down and you think you need to lower your fee.  

After considering the situation, you find that you can’t lower your fee or you will be short on your monthly obligations.  Ok, you can manage this for a while but then your company lays you off or your child is going to college and you can’t afford it.

Back to the real reason why some community members want to charge fees.  To prevent investors from buying so they can rent their property in your HOA community. This is the real reason for the fees.  It’s not for the extra income because you can always increase fees for that purpose.  

12.6% of Condo owners vs 9.5% of house owners were underwater on their mortgage payments 2022National Association of Realtors indicates that Condo owners are more likely to have their property forclosed.

Work is required to collect and maintain

Such fees will generate extra cash but then it must be accounted for.  Someone must track all of the data.  My company has clients in community associations where the board members decided to impose a fee for every guest night.  They want a report by the 5th of each month.

The burden it puts on owners to provide this information is a big one since many owners/investors work for a living and the extra money they earn from their vacation rental is a side thing.  Who will manage the data received?  Who will keep owners honest?  Do you have the right to audit their books?  Do they keep records?  The condo boards have to create proper procedures and that takes time.  

This article was not created to discuss the issue of short-term rentals, it was written to lay out all of the issues relating to any rentals in homeowners’ associations including long-term rentals. Our discussion is aside from local laws and state laws which may come into effect. 

 Full-time residents have reasons to prevent rentals in their properties, some are valid and some are not.  Let’s propose a compromise that may work for the American Dream and take care of the rental property issue at the same time.

Please consider the following solutions:

  • All properties that are rented short or long-term must register with the HOA, Why?
    • The HOA will know who to contact if there are issues with tenants.  
    • Damage caused by tenants can be recovered from the property owners
    • Tenants will be informed of HOA rules before or when they arrive
  • Rental properties must
    • Have a functioning fire extinguisher
    • Method of evacuation in case of fire and understanding what that is
    • Fire alert devices are installed and functioning, and batteries are replaced each year
    • Well-maintained exterior areas painted, landscaped, and in full compliance
    • Guest book explaining all rules of the association, full-time residents receive a list of rules they agree to.
  • Tenants must
    • Be advised of parking spaces they can use
    • Be advised of the maximum occupancy
    • Understand how to dispose of trash
    • Understand the noise ordinance and how to prevent disturbing other owners
    • Use of common areas, tennis courts, swimming pools, and other public spaces
  • Owners must
    • Appoint a local company or individual who is responsible and can respond to issues e.g. police, trash, parking, etc.
    • Report the local contact with all information including phone, email, and location.
    • Provide the local company or individual with a power of attorney or other authority to act on behalf of the owner to secure and maintain the property
    • Pay an annual fee of $x for the specific purpose of:
      • Managing the vacation rental process 
      • Enforcing rule violations
      • Maintaining the listing of rental properties and their type.
    • Provide a one-time refundable deposit of $1,000 to cover damage done to the association or individual property.  The deposit will be returned when the property has been sold or is no longer used as a rental property.
  • The Board must at each board meeting
    • Report on rental fees collected 
    • Number of rental properties and percent of rentals vs resident properties
    • Issues reported during the previous period
    • Resolutions of issues reported
    • Create a committee of investor-owners to advise the board
      • The investor sub-committee presents any issues at the meeting.

Property owners can help

Of course, there are many more points that can be added to the above to improve issues at the condo development.  Communication is often the biggest problem.  More often renters show up, causing an issue and no one knows how to contact the property owners.  I believe that property owners can do a lot to help their situation such as:

  • Meet the neighbors next door
  • Provide the contact information for your property manager or responsible individual to your neighbors.  Tell them to call if there is any issue, and not to wait until it becomes a bigger problem.
  • Make sure the property is visited by the property manager or responsible party at least monthly if no more often
  • Tell the neighbors if they see any issue with the property e.g. screen is torn to please bring it to the attention of the property manager.
  • The object of this communication is to prevent the HOA to become involved each time a minor incident occurs.
  • If there is a problem, the property manager should visit the neighbors affected and apologize to you.
  • Keep your property well maintained
  • Participate in the HOA or give a POA to your property manager or responsible person to attend meetings and act on your behalf.

Full-time residents have a role

And then there are the full-time residents who are the ones that have brought the idea of property rental to the forefront.  These individuals have responsibilities as well because there may be a time when they have visitors who spend the night which may cause issues. No one’s perfect.  Full-time residents should:

  • Meet the new owners, it’s a two-way street.
  • Understand what the new owners want to accomplish with their property.
  • Tell the new owner that you would be pleased to keep an eye on it for them and let the property manager know if there are any issues
  • Agree to communicate first with your neighbor or property manager before you go to the HOA.
  • Be a good neighbor, and try to cooperate.  If you see overnight guests parking in the wrong spot, mention it to them.
HOA board meeting
Board meeting

HOA Boards consider the downside

It is my hope that both residents and HOA boards give significant consideration to the downside of attempting to force investors out of their developments.  If you really want no more investor renters, hope that property values increase.  Do everything you can to see that the property is well maintained and that your neighbors understand the real value of properties in your development.  

The higher the prices the fewer investors.  There is a fall-off as prices go up and investors can no longer make a profit.  This system hurts no one.

Work with a real estate agent that “really” understands the value of properties.  Invite this person to an HOA meeting to give a market analysis on selected condos.  The reason I say this is because some people may undervalue their property.  A sale for less than the owner could get will affect comps for all owners.  

Making sure that investors earn enough to maintain their properties will help your values.  If your properties are for example selling for $275,000, when the price starts going over for example $300,000 then rentals may be economically unfeasible.  Let the market and some reasonable rules do your work for you.

Conventional wisdom won’t work

Resident owners of condos probably believe that renters and guests are bad for their property values. The facts speak for themselves. The City of Ocean Springs started allowing vacation rentals in 2015. To experience the concept firsthand.

They allowed only a couple dozen. Within a few years, the amount was increased to 50 then a while later to 75. Recently they raised the number to 105. This does not prohibit the dozens who are located in mixed-zoning areas.

The City took all of its years of experience with vacation rentals into consideration and determined that allowing vacation rentals was very good for the local economy and in particular their residents. 

City elected officials listened first to their residents then to investors and those with vacation homes. Their conclusion was that while there may be a few bad actors, their experience was overwhelmingly good.

Why was Ocean Springs’s experience good?

It became clear to the City that people who owned short-term rentals often completely rehabbed the properties. STR owners keep their properties in great condition often better than the surrounding properties. This adds value to the area.

Also, the city requires a local property manager. No internet managers and no managers 200 miles away. They want someone who can react quickly to any issue including taking in the trash can. They created a great communication program between owners/managers and the City.

Issues are handled in the early stages as a result. Do you think this experience can be implemented by HOAs who go through the knee-jerk reaction of thinking all short-term rentals are bad?

Investors

Please visit us at our Short-term rental site ChristiesGulfBeachRentals.com and check out “Christies Vacation Rental Management Program”. Please read our blogs on this site and Christies Gulf Beach Rentals website. Listen to our podcast, visit our Facebook page.

If you would like to speak to us about managing your long-term rental please contact us through the form on the right of this page. We manage the property on the Mississippi Gulf Coast. Thanks for dropping by.

Considering buying or selling your investment condo? Visit Logan-Anderson Gulf Coastal Realtors by clicking here. Logan-Anderson Gulf Coastal Realtors specializes in investment property. Occasionally a fully furnished vacation rental is ready for sale at a discount. Contact us. 

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The best vacation rental management companies becoming more selective

You are an investor and you are looking for a property management company to manage your vacation rental property.  Finding a good local manager is becoming more difficult.  Vacation rentals have proliferated to the point very few short-term rentals are profitable.  A rental management company makes money when guests pay for a stay.  Fewer stays, lower income for the rental manager and of course the owner.  Worse yet, foreclosures on short-term rentals are on the rise.  This puts the rental property manager in a bind because when guests book in advance and the property is no longer available, it’s difficult to place them.  The local rental management companies suffer both a financial and reputation blow.

Internet property managers are starting up it seems every day.  A few people, computers in an office space in San Francisco, and there you go, instant short-term rental property management.  I have written about this type of management in other articles.  

This is now what an investor needs.  They need “boots” on the ground, someone who will look after their property with real eyes.  Anyone can operate a booking system with a computer.  The real work of property management is local.  Let’s get to the real point of this article.

Local vacation rental property management

The property management company that I am an investor in is a local company.  We manage rentals that are within a short drive of our office and managers’ homes.  Why?  When something goes wrong, a real live person must be there.  It depends upon how much you value your real estate investment.  Do you want a long-distance manager or a local manager?  

The real problem now is that real local property managers need to make a living.  Many of the internet start-ups are expending capital that belongs to someone else.  Some of these companies are not profitable and will eventually succumb to the financial pressures of too many vacation rentals and not enough guests.

Local companies are experiencing the same issue, too many properties, each with far fewer guests than just two years ago.  The consequence of this changing environment is that all property managers are earning less income.  As I mentioned above, what is worse is when their rental properties are sold either from a posted sale or through foreclosure. 

Property managers deal with stress

 If the property managers do not have a location to move their booked guests, they will suffer the fallout.  It’s also the stress to deal with the situation and the disappointed guests.

Worse than the above, is what happens to property owners.  Many people bought vacation rental properties after reading social media stories about getting rich quickly.  Estimates of rental income are much inflated and those inflated amounts are going around the internet and in social media.  

I spoke to a prospective buyer recently who was ready to buy a property that frankly would have probably been a good vacation rental.  He told me that he was financing it with 10% down.  I told him he would not be profitable since the purchase was intended to be a profit maker for him.  

The property for sale made $50,000

My prospective buyer said that he read on the listing that the property had made $50,000 in the past year.  I do not doubt that the real estate agent was quoting fact but the data was old and as we were 8 months into the year, he failed to ask for year-to-date numbers which would have shown very low income. 

 At best that property would have generated about $20,000 in 2023.  His fully loaded costs were about $23,000.  With a high-interest rate, his equity payments would be nil.  Values are slipping so buying it strictly for appreciation is out of the question at least for the short term.

Without a doubt, if he had bought that house, I would be putting it back on the market for him within six months.  He would have lost the $20,000 he invested in furnishings, the purchase costs, and the selling costs.  If my property management company had taken this property on as a client and guests had booked, they would have to be moved.

Rental owners become stressed

You may think that going through all of this as a buyer is stressful and costly.  The guest experience would have been terrible and one more thing that most people are unaware of is the problems caused by property managers.  I am not talking about guest reviews or the management fee, I am talking about how the rental owners become stressed and make it difficult for rental companies to conduct business.

Desperation is a terrible thing.  When owner statements are reviewed and there is little or zero income shown, the previously good property manager is suddenly not doing their job.  Market conditions may have changed or they were already bad when the property was purchased.  First-time investors come to us full of excitement about their new property.  

This is completely natural.  They have heard that investing in real estate is a good way to build wealth and they would be correct in that assumption.  Unfortunately, the source of their information is usually not current.  And, many are not performing adequate due diligence before signing a contract to buy.

Jumping into a short-term rental property

This phenomenon of jumping into buying a short-term rental property where I work on the Mississippi Gulf Coast is particularly pronounced.   Someone living in a 40-year-old house located in Southern California, a Chicago suburb, or elsewhere that is worth nearly one million dollars looks at a $250,000 house here and their eyes widen.  

They can’t believe their good fortune in finding this area where you can buy a home within walking distance of the beach for less than $300,000.  The next thing they do is call a real estate agent and make an offer.  Sometimes the offers are increased if there are more buyers interested.

Quite a few buy without looking at the house and the surroundings.  The last thing they seem to do is contact a property management team before they start spending money on furnishings.  We often meet people who have purchased the wrong locks, lights, and other items.  They may buy a small steel fire pit which will waste away in a short time instead of one made of stone that we recommend.  I have noticed that some love the prospect of decorating their vacation house, it’s a project that keeps them busy and it’s fun.  

There is too much to know 

I wish that I could have learned they were looking for a vacation rental house before they bought it.  There is so much to know before you invest the first dollar that only professional property managers with years of experience know.  Regardless, our property management company is willing to work with investors to manage their short-term rentals.  What has changed is that we no longer work with just anyone.  

Our policy has changed to the point where we will not manage property for investors unless they have no mortgage or they can tell us that they are financially secure enough to cover all costs without any income.  That means zero rental income.  

This is a major change for our business.  Working with investors who are constantly stressed about their income and expenses is not fun.  These investors constantly request things, try to get involved in pricing, and everything in between in the vain hope that something will improve.  They then begin to think that our company is not doing well for them, that they could do better on their own (saving the fee we charge) or another company could do better.

Local vacation rental property managers make real effort

Many local property management companies put a great deal of time and effort into helping investors with their property.   This goes well beyond greeting guests, managing the calendar, disbursing finds, cleaning the property, and working with contractors.  It means a call at 10:00 PM for new batteries in the remote control.  A leaking sink on Sunday going through their list of contractors until they find one who will go out.  

Going by properties before a large storm ensures the lawn furniture does not blow away.  Making small repairs that they do not charge for.  And the hours required to set up the property and meet with owners both in person and via telephone.  

clock
Property managers wait for cable, furniture, and other deliveries. Time is money.

Two or three hours waiting for cable

How about the two or three hours of waiting for the cable guy or pest control or maintenance people to get their work done?  Much of what a good property manager does is not compensated for in the fees earned from rentals unless the business is booming.  

Now when weeks go by without any revenue, property managers are still responsible for the property.  Vacation rental management becomes more difficult when the managers have to manage the owners with anxiety.

We have had a couple of clients who were with us for a few months.  One property was renting nicely with about a 40% occupancy rate and a 5-star review.  The problem is the “what have you done for me lately” concept that appeared when they looked out on the calendar and saw months with little or no activity.  Guess what?  Correct, they were in debt up to their eyebrows on the property.  

sign post
A different direction

We have decided to go in a different direction

Many of the activities mentioned above started to develop.  Finally, they called and said, “We have decided to go in a different direction”.   During this very short time, we helped with the furnished house, went shopping, assembled furniture, and much more.  Our company charges for this service and we decided to delay charging them because they were trying to get started.  

When I talked with them about leaving us, I mentioned all of the work that we had done without a charge. I explained that we expected to recover over a long-term relationship.  The answer is you should have billed us.  Immediately I knew they were so desperate that we would no longer be able to work with them. 

 I found their property listed and they were the host.  That commission was the deal breaker.  Unfortunately for them, we had three bookings in the future which we moved to other properties.   I recently looked and after several months, they had only one guest for a total of three nights in 90 days.  I fully expect the property to be offered for sale soon.

checklist client interview
The client interview

Future clients will be interviewed

It was this situation and a couple of others that sent a message to us that we have to interview future clients.  Fortunately, the last several that have come our way are people who fit into our new policy as follows:

  1. Zero mortgage or
  2. A mortgage but it and expenses are affordable and/or
  3. The property is a true vacation home they will use and extra income is just that extra
  4. They agree to keep the property well-maintained per our request.
  5. Agree that the calendar, pricing, and other aspects of the property are at the discretion of the property management company
  6. Get involved in the marketing strategy using their social media to recommend friends to rent their property

The difference between clients who agree to the above and someone who just purchased a vacation rental property with a mortgage and usually without an adequate analysis is night and day.  The last thing any professional property manager needs is to take on the stress of an over-extended owner.  Believe me, there is sufficient stress in the property management effort on its own.  What do you do with a family when the AC goes out?  How about the roof leaks? 

 There is a water line break?  We like other full-service property management companies feel the pain of the guests.  And you should know nothing stops working during regular business hours.  It’s always at night on a weekend.

Vacation rental managers spend time and money

We spend a lot of time making sure that the property’s condition is suitable for our guests.  When the hot tub stops working, we need to get it fixed.  I hope that you can see the point that I am trying to make which is this:  The vacation property management business is changing.  Some local vacation rental property managers are not earning enough money to remain in business and it’s worse when they have to expend fuel driving back and forth to a property to manage contractors.  In good times things tend to work out well.  The industry is no longer in the good times.  We may have a long way to go before the situation improves and many short-term rentals are sold as permanent residences.

Other local companies are starting to refer people to us because they can no longer manage a large portfolio of underperforming properties.  Even the time to drive by dozens of properties is time-consuming and costly when there are no guests.  My company is not in the same position, we have decided to keep the number of properties that we manage to a small number and they are all located in clusters on or near the beach.

By implementing the new policy of interviewing prospective clients and only taking those who pass our six-point test above, we will be able to remain in business and continue to provide great customer service.  At some point, those internet companies will also fail because you need income even when you are using investors’ capital.  

Internet property managers take anyone

They will start picking up owners that good local vacation property managers do not want.   A few months later they will lose them because when the people who jump around find that the “grass is not greener over the hill”, they will give up.  

I have written about what property owners can do if they are in a situation where they are not earning enough to cover their operating costs.  Sell or rent long term.  The market as of this writing was still good for the sale of properties and the long-term rental market rates are still higher than a few years ago.  

The problem is that some drag it along without deciding to “see if things get better”.  Unfortunately, they probably will not get better any time soon.  Selling before foreclosure is always the best thing to do if you are not going to rent your property.

Over saturation of vacation rental properties

This situation with an over saturation of vacation rental properties is a problem throughout the United States.  There are simply more vacation rental homes than there are vacationers.  The vacation rental property business is changing. 

Some communities see the overabundance of short-term rentals that are vacant as a reason why there are not sufficient housing options. Rules are being considered to limit vacation rentals.

Soon, only people with financial resources and the need for a true second home will be the primary market for a rental property management company or real estate agent working with investors.  

It’s always a good time to rent homes if you buy right.  Your investment property is still a valid way to invest capital and again if you buy right.

I recommend to prospective investors to acquire vacation rental properties when a current owner has offered it for sale fully furnished at a bargain price.  Then and only then, run your analysis.  The most important thing is the evaluation of prospective guests, days booked, and the price per day.  This information is hard to find but there is a free source most people ignore until after they have already made the purchase.  

A local vacation property manager knows all.  For peace of mind, contact a local short-term rental property manager and get the lay of the land.  They in fact may have a client who wants to sell.

Buy a distressed vacation rental property 

A great way to help ensure profitability is to buy a property that has been managed by a professional local property manager.  The owner can make introductions or better yet, you can find this vacation rental property through a local property manager.  If you stay with the local property manager after the purchase, your property retains its history.  

Instantly you have 50 stays at your new vacation rental property. This is how you skip to the head of the line.  Potential guests want to stay where someone else has stayed.  If you buy a property and start from scratch, you will find that it takes a long time to build a good history.  As I always say “the more you rent it, the more it will get rented”.

In conclusion, don’t be surprised if a local vacation rental property manager interviews you about your intentions and decides not to accept your property into their program.  Not all local vacation property managers have reached the same conclusions that we have so it may be possible to squeeze in as a client before they change their policies.  Of course, you can always go with that San Francisco company that drives across the country to change a light bulb at midnight.

Please visit our short-term rentals/vacation website. Read additional articles there. If you are visiting the Mississippi Gulf Coast, check out our properties for short-term rent. The website may have some that are for sale.

Quality tenants are very hard to find and harder to retain

The title of this article is quality tenants are very hard to find and harder to retain. While this article is intended for property owners, it will serve prospective tenants as well. Starting with “quality tenants are very hard to find”, let me explain what I mean by this. 

A quality tenant, in my opinion, is a tenant who treats the property as if it was theirs. They keep it clean and orderly. They throw out the trash and call the landlord when something requires a repair. When you walk into the property, it is clean. You rarely need to call the pest control people out because they clean up food when it is spilled.

Quality tenants pay the rent on time every month. They do not make excuses why they can not pay, they simply pay. You can count on their income when you decide you are going to for example paint the building. Did I mention that they call you when a repair is needed? This is so important I mention it twice.

Quality tenants parks were assigned and do not park on the grass. A good tenant does not have continuous loud parties or have people trying to live in the extra room. A good tenant will tell the landlord when a bad tenant is violating the rules. 

I could go on about the quality tenant but it’s time to get into the other part of the statement. Good tenants are harder to retain. This is true because a good tenant knows they are a good tenant. They will accept a rent increase that is reasonable but expects the landlord to compensate their goodwill by maintaining the property.

Quality tenants do now want to live in a shabby building that requires repairs and maybe a health hazard. The paint is peeling and the railings are broken. If you expect the good tenants to stay, you need to invest in your building and keep them advised. 

Communication is key. Often good tenants tell the landlord about a repair or something that would improve the property just to have the comment fall on deaf ears. If you want to keep your quality tenant, pay attention to their needs.

Quality tenants usually have good credit which means they can go to another property when the lease expires. This does not mean that you can not raise the rent rate, it means that as long as the overall property remains a nice place to live, the good tenant will stay.

You keep quality tenants by getting the bad ones out. If you are reading this and you are a tenant who treats the rental property as if it were a dumpster, I will not apologize for calling you a bad tenant. If you bought a car with the rent money and told the landlord you will be very late, perhaps you need to reassess your priorities. 

Treat all of your tenants with respect and heap it on for the good ones that keep the money flowing in on time so you can make your mortgage payment.

Why making on time lease payments is important

When Gulf Coast Property Management signs a lease on behalf of an owner with a tenant, the intent is that both parties understand the obligations of the other. The primary obligation of the tenant is to pay the lease payment and pay it on time.

Pay on time

Why does paying the lease on time matter so much? Several reasons outlined below:

  • Mortgage Payments – most owners owe a mortgage payment on their property and those payments are normally made on the first day of each month. Late payments are brutal for owners amounting to at least 10^ or more of the payment. If the owner fails to make a payment because a tenant did not pay them, their credit is affected. Nothing is worse than a late on a mortgage payment.
  • Owners Solvency – owners must be solvent to keep the property in good terms with all creditors including utility companies. The last thing a tenant needs is to have the water cut off. A decade ago, many owners stopped paying their mortgages because tenants failed to pay. This caused foreclosures without notice to the tenant. Paying on time avoids this possibility.
  • Social Commitment – the agreement between the owner and tenant is more than a contract. It is a belief on the part of both parties that they will honor their word to meet their obligations. This works both ways. Some of our tenants know that our owners insist on keeping the property well maintained regardless of cost. This is the commitment that they make to the tenant.
  • Good Faith – a follow-up on the above. Paying on time builds creditability for the tenant with the property owner. This means if there is an extraordinary situation the property owner within their capability is more likely to work with the tenant. A good example is renewing the lease. If a tenant is constantly late with payments the lease may not be renewed. An owner through GCPM may communicate with a potential tenant creditor that the tenant has paid on time every time which will help the tenant obtain credit. 
  • Property value – the value of the property is in part due to the consistency of the lease payments by the tenants. When owners sell their property they must produce records. A potential buyer will consider how often a tenant is late when evaluating the income stream of the property

One of the most important elements of a good tenant -owner relationship is communication. If you know that you will be late for example, notify the GCPM immediately, do not wait until you are late. The late fee will still apply but this allows GCPM to notify the owner who then can have valuable time to arrange their mortgage payment.

A key point to remember as a tenant is that the property manager or owner are not lenders. When you do not pay your lease on time, you in effect are borrowing funds from the property owner without their permission. You may not know it but most property owners are not rich nor are they big corporations. 

Residential rental properties are owned by individuals, many who are retired and depend upon the income to pay not only the mortgage on the property but perhaps on their own homes. This is the reason for a credit check and all of the questions during the interview process. The property owner has to “know” that they will be paid. 

Some of our tenants live on the edge meaning that they live pay check to pay check with little or no savings. GCPM knows this and while accepting a tenant without sufficient funds to bridge at least one month without income is our goal, on occasion we trust that the tenant has resources e.g. family that can help them out. 

Gulf Coast Property Mgt is an Agent for Owners

Please understand the Gulf Coast Property Management is an agent for the owner. Owners have signed an agreement with us to perform certain tasks on their behalf so when we call and tell you that your payment was late and you need to pay it or action will be taken, it is our clients instructions that we are following. 

The best way to avoid being late is to pay ahead. That is, if you are paid on the 15th, pay the lease on the 16th even if it is due on the 1st. If you have a checking account, schedule bill pay to pay the lease on the first. We have the ability to send to you an invoice with the option to pay by credit card.

Lease payments are due on the first day of every month. Some agreements have “grace” days. So, this is what “grace” days are for:

  • If the 1st falls on a weekend or holiday you would not be late by paying on the first business day after the 1st
  • That rare occasion when your pay check may be delayed by a day or two.
  • You arrived at the bank on the 1st too late to have the deposit recorded.

Grace Period

The “grace” period (if there is one in the agreement( is not to be used on a regular basis to avoid paying on the 1st day of the month. If your pay day falls on for example the 4th day of the month each month or something like this, you can request a one time adjustment in the due date. Keep in mind that this is a great inconvenience to the property owner which makes it more difficult for them to make their mortgage payment on time. It can however be done to accommodate a good tenant.

Bad Checks

If you make a deposit and your deposit is rejected, immediately call GCPM. The way the system works is that the bank sends a notification by mail and it takes a few days to arrive. This may cause a GCPM check to our property owner to be dishonored compounding the situation.

Tenants who fail to deposit checks that are honored will be given notice to vacate. This may not occur the first time depending upon the tenants record of on time lease payments. It is an option that GCPM holds.

If your deposit fails, you must immediately deposit cash into the GCPM account and notify GCPM that the cash deposit was made. You will be required to make a late payment, compensate for the bank charges and fees for managing the issue. It’s gets expensive.

Failure to immediately deposit cash would cause GCPM to begin eviction proceedings. 

Banking System

Understand the banking system. The old idea of a “float” on a deposit is no longer true. The FED must process checks in less than 48 hours. This means if you deposit a check without funds in your bank, you may not have time for your deposit to be credited before the check is presented for clearing.

Also, many banks put a hold on deposits by check. An example is that you deposit your pay check into your bank. They may give you partial credit for it on day one and full credit by day two. If you write a check against the entire amount it may clear before your hold is released.

If you receive a check from an individual e.g. a parent or customer, that check may be placed on hold for up to five business days. You can not gain access until it is released. On occasion check we receive from tenants are placed on a hold.

You need a property manager for your rental properties!

Managing property requires skill. If every tenant paid on time and took good care of an investor’s property, there are still reasons why a professional manager should engage to help ensure that an investor realizes the maximum profit from their properties. You need a property manager for your rental properties.

Professional property managers know what to look for in a tenant and starting with a good tenant is just the beginning. Things do happen such as water leaks, broken appliances, etc. Some of the issues require fast action to prevent more damage. Others are considered preventative maintenance and require action to be taken before they become a problem.

Passive investors in particular who may or may not be located near the investment property will require a professional property manager who can react to issues. Some tenants require “encouragement” to pay their lease payment or reduce the noise level. A diligent property manager can spot a property where the tenant is sub-letting or allowing others to live there in violation of the lease. Upon discovery, the manager will confront the tenant.

Not everyone who invests in property has the temperament to work with tenants particularly when they have to be evicted for non-payment of rent. This may be the most compelling reason to have a disinterested third party serve and ensure eviction should it come to that.

Property managers ensure a constant flow of rental dollars into the investor’s bank account. When problems occur they are fixed. Investors can continue pursuing their careers without worrying about a leaking toilet. 

Yes, there is a fee for the services provided by a professional property manager but the value is there when all things are considered. The effort to find a quality tenant may necessitate showing the property many times and following up with the many calls from individuals who do not qualify. Professional property managers understand the laws surrounding protected classes and other local, state, and federal requirements. In today’s climate, saying the wrong thing could spark a complaint with a host of local, state, and government agencies claiming a variety of things.

Investing in residential rental property can be very profitable. Just include the cost of a property manager and in the long run, your investment will be well served.

Vacation rental slow? you need a property manager now!

vacation rental income dropping

No doubt about it, vacation (short-term) rental bookings are slowing. It’s time to hire a property manager now. Why? because no one is watching over your property when it’s empty. What happens when your insurance company wants to know about vacancies and who is managing the empty property? 

Bad people know that the vacation rental market is undergoing a major change. They can enter your vacation rental and wipe you out. The pipes can freeze and flood your property. A storm or hurricane can pass through, how would you know the chairs are not down the street?

It’s always a good time to hire a property manager but it’s more important when there are no guests there. Short-term rentals should have a rental property manager in the local area. Property owners who have been managing their property from three states away are risking everything. 

It’s one thing when the occupancy rate is high enough to rely on the cleaner to report issues to you but no rental income means no cleaner.

Tech based property managers

It seems that there is no end to free money. Investors are pitched by a start-up that can manage vacation rentals from 10 states away. There is no replacement for an on-site, local property manager, and many who have tried these services change.

How can a person working from home or an office tower spot a water leak in your house outside? How about when the police are called to settle guest issues? Not to mention that many communities are moving to a requirement for local property managers. Read this article on our ChristiesGulfBeachRentals.com site about this topic.

Take some steps if your property is not producing enough income

Short-term rentals are not producing enough income for many these days and that means taking some steps to protect your investment. A property management company can rent your property on a long or short-term basis. Vacation homes are good properties for people who will be staying longer, perhaps on a full-year lease. 

Long-term rentals are still in demand in many areas with lots of short-term rental properties. As a real estate broker, I am seeing many short-term rental properties coming to the market for sale as fully furnished. Many people bought a second home during COVID-19 and then turned it into a vacation rental to cover the cost.

You need to hire a property rental management company if you want peace of mind that your property is being taken care of and maintenance issues are addressed, Gulf Coast Property Management including Christie’s Gulf Beach Rentals is accepting more properties to manage due to the slowing rental business. during the slow season and more often when properties are booked. Rental management companies should visit the properties at least once each month 

Odors tend to accumulate 

Odors tend to accumulate when a property is not rented for a long time. The property needs to be aired out and in some cases, the hot water flushed to avoid that sulfur smell. The local property manager can make sure that before a storm anything that can fly away is tied down, chairs are stored, etc. After a storm, they will visit and be sure there is no damage. 

A good case in point was during the last hurricane on the Mississippi Gulf Coast a couple of years ago. Gulf Coast Property managers visited all rental properties and assessed damages. Several properties required some work to repair minor damage. This work was ordered and supervised by the managers. The owners were out of state.

odors tend to accumulate vacation rental slow
Odors can accumulate

Your property is susceptible to things

Vacation rental properties are susceptible to many things including but not limited to the:

  1. Insect infestation includes wasps, roaches, ants,, etc.
  2. Water leaks and damage from frozen pipes
  3. Wind damage from strong winds or hurricanes
  4. Theft, break-ins
  5. Landscaping, mowing the lawn cutting weeds
  6. Insurance inspections
  7. Damage from other properties
  8. Flooding
  9. Homeless moving in
  10. Utility company disconnecting due to unpaid bills
  11. Trees or branches falling on the house

The above is just a start and the longer that property goes without guests the more potential issues can be found. Your property management team can help prevent some of the above and mitigate other items. Generally, rental property management fees for short-term rentals are a percent of the total revenue. What happens when a property management company is responsible and they are not earning any income? 

Agreements usually require owners to pay a minimum fee in any month where there is no revenue. Christies charges $50 for such months. Fortunately, there are not many and they are usually in the off-season.

Management fees are a small price to pay

It’s a small price to pay rental companies to put eyes on your property on a frequent basis when you are several states away. The short-term rental industry is in transition as I mentioned above. If you own vacation rental property it’s time to understand that vacancy rates of 2020 and 2021 are not likely to return in the near future. 

If that monthly rent income was critical to your ability to retain the property and you are not getting enough, it’s time to do something else.

There is no question that the vacation rental industry will correct itself as people settle into higher inflation and arrange finances to take vacations. Market demand will increase and the number of rental owners will decrease. Short-term vacation rentals are suffering from an oversupply of properties and a reduced number of potential guests. 

Fully furnished vacation rental for sale
Vacation rentals are being sold fully furnished

More rental properties are being sold

There are of course two ways to correct the situation. More rental homes must come to the for-sale market as single-family primary homes and the economy must improve to stimulate more demand.

Owners who have been reducing their nightly rates are not seeing a pick-up in rentals. As I mentioned, it’s not the cost per-se since the vacation properties represent a portion of a vacation budget. 

Lowering the price does not fix the issue. You can improve your advertising which may bring more to your property and do a few other things to improve the guest experience. In the end, you will probably not see that extra income you need. The bottom line is that it will take time to right the situation.

Real estate investors need the assistance of a vacation property manager to make sure that among other things property maintenance is occurring as needed. Don’t get excited when you see a sizable increase for spring break or during the high season. 

A good short vacation rental season does not mean a turnaround

This does not mean that the economy and situation are making a turnaround. Similar properties will experience the same activity at the same time. A good example is Mardi Gras on the Mississippi Gulf Coast. With a fairly dead winter in 2022-2023, all of Christies properties are fully booked for Mardi Gras in mid-February. In fact, friends of mine who own many properties are trying to find accommodations for overbooked people. Every property seems to be filled at the same time.

This is not a sign of a turnaround. I fully expect that there will be some big blips on the radar where you may think things have turned around. They will absolutely but this is not the time yet. 

Vacation rental properties that are doing the best are ones that have been on the market for several years and have lots of direct bookings. Repeat guests accumulate after years of experience and contribute to keeping income higher. A property with 20+ good ratings will more than likely be rented before one with two or three particularly now when there are so many choices.

A great way to improve the situation for your property is to hire a property manager who has their own website. Their websites help to advertise what a great vacation rental property you have. Their sites can offer additional revenue services that are not available on the third-party sites such rental of bicycles etc. 

social media can help

Using social media can help

Christies Gulf Beach Rentals for example uses its website to advertise free vacation rental insurance when booking directly on the website. Properties are also pushed out to Facebook and other social media.

There is a small benefit from lower occupancy. You will have time to make repairs and upgrades without trying to squeeze them into the calendar during a busy season. Slower seasons are when you can do this work.

Consider that many people who have been working on vacation rental properties need work due to the number that has been sold as permanent residences. A good independent contractor can be found more easily now than during the previous year when bookings were stronger.

Maintenance when it is slow

Your property manager can help find people to work on your property. The best time to complete work is before peak season. Your rental manager may cost a few dollars but protecting your property and ensuring the right person is watching over your passive income investment is the correct thing to do. 

In Mississippi where Christies is located, the state requires that property management companies have a connection with a licensed real estate broker. This requirement helps to ensure good customer service as people can complain to the real estate commission if there are unresolved issues.

Full-service vacation rental management

As an example of the services that a full-service investment property manager can do for you, the following is offered by ChristiesGulfBeachRentals.com:

  1. Full-service vacation rental management including cleaning managing guest communication
  2. Schedule and hire contractors for repairs and maintenance
  3. Meet with the city and obtain a permit when required
  4. Respond if there is an incident e.g. party
  5. Make sure the trash is taken out and brought back in
  6. Provide a full guest book loaded with tips and rules
  7. Set up a new vacation rental from ordering furniture to decorating
  8. Removal of furniture for storage
  9. Offer a short-term rental for a long-term rental including finding a tenant
  10. Coordinate with Logan-Anderson Gulf Coastal Realtors to sell your property
  11. Locate through LAGCR a suitable vacation rental property
  12. Communicate with prospective renters through drip emails
  13. Offer a full-service booking site (website) for booking and looking up restaurants etc.
  14. More

Of course, some of the items listed above are offered for fees that vary with the request. Typically Christies charges a 15% fee (of the gross revenue after the cleaning fee) to manage the property. The cleaning fee goes to Christies to cover the cleaning expenses which are paid directly by the guests. 

As you can see, Christies does it all. If your property is located in different states, the property manager you locate should be able to do much of what is listed above.

You have options for your vacation rental

You do have options regarding your property. If you can afford to maintain your mortgage payment, utilities, and the property management fee during the slow time, by all means, retain your property for rental purposes and visit on occasion. 

The value of your property will increase over time compensating you in part for a shortfall in rental revenue. A word of advice. Don’t let relatives and friends use your property without charge. There is a cost to maintain your property including the following:

  1. Mortgage Payment
  2. Property taxes
  3. Property insurance
  4. Flood Insurance
  5. Electric utility
  6. Gas utility
  7. Water Utility
  8. Landscaping
  9. Wear and tear on everything from flooring to sheets
  10. Cleaning cost
  11. Maintenance
  12. Use of funds to acquire e.g. downpayment
  13. Property management fee
  14. Loss of income if someone else could have rented it
christies logo

Christies encourages friends to rent

If a friend or relative wants to use your property and we strongly encourage this. Have them contact the property manager to make reservations. The way Christies handles this is to provide the property owner with a discount code and the friend goes to the website to book. 

The discount code may be for any percent of the gross but does not apply to the cleaning fee which must be paid. This way if your cousin wants to use it at a 50% discount they can. As I mentioned above, it’s a great idea to put your property on Facebook and other social media so that people who know you will rent it. Even offer them a 10% discount.

Check back at ChristiesGulfBeachRentals.com and GulfCoastPM.Com for more articles on this topic. If you own property on the Mississippi Gulf Coast please contact us, we would love to work with you. Thanks for coming to our website.

Author Michael AndersonPosted on Categories Property ManagementProperty OwnerVacation RentalsTags occupancy lowproperty managershort-term rentalsvacation rentals