you are going it alone, read Chapter 9, Marketing Your Vacation Home, which covers marketing in greater detail.
If you have chosen to do your own marketing, there will be up-front costs for a website, marketing literature, web advertising, and other promotion. Although you can allocate a figure for ad hoc advertising through the year, setting a marketing budget at the beginning of the year will help your bottom line and profit margin. Otherwise, it is all too easy to drift along month by month, registering here and there with different agencies and Internet advertisers, only to find you have overspent badly and received insufficient return on your marketing investment. Play with the figures until you settle on a sensible figure for marketing. Then decide how best to spend that budget.
Contingency funds
Regardless of how meticulous you have been in estimating your overhead costs, there will probably be something you have overlooked, or some equipment failure or damage that requires additional funds. The amount you forecast for contingency funds depends on many factors, including the age of the property and when items such as water pumps, roofs, and appliances were last replaced. Then there is an element for sheer bad luck: Only you can judge how much to budget for that!
How Many Rental Weeks Will You Have Available?
Once you have a clear objective about how much income you want to generate, have set a realistic rental rate, and have accurately forecast the expenses, you will know the minimum number of weeks you’ll need to rent to cover your expenses. Readers already involved in the financial aspects of a business will recognize this as identifying your breakeven point — the amount that you have to make in order to cover all your outgoing expenses. Once this has been defined and you have set a contingency amount to cover unexpected expenses, you can then forecast how much profit you will make.
To rent your cottage as a business rather than a hobby requires a commitment from the entire family, so once again, it’s decision-making time!
When do you want to use the cottage for yourself and your family? Will you want several high-season weeks? What about Christmas/New Year’s, public holidays, and school breaks? Unless you and your family are flexible enough to use the property only when it is vacant, you need to decide exactly what dates you have available for paying guests. Once the bookings start to come in, you won’t be able to change your mind without seriously inconveniencing your clients, and possibly facing legal action.
To maximize your income, you’ll need to rent during the entire summer, but that may not be practical if you have family who want to spend some time at your property. At times you may need to be strict with family and friends who may see your cottage as an inexpensive way to vacation, particularly if they have used it in this way in the past. Let everyone know that you are renting in a more professional manner, but that you may have late availability weeks or weekends that they can use. If you have minor jobs that need doing, you could save a little on property management by asking your nonpaying guests to do these tasks. Alternatively, have your nonpaying guests, family, or friends leave a gift for the cottage. Why not keep a list of items that may need replacing from time to time and ask nonpayers to choose from the list and take the replacement item with them to the cottage. Include things such as new pillows, towels, books and games, additions to the fishing tackle box, etc. Guests will appreciate knowing their gift is needed, and you will save on some of these expenses.
Jim Holland’s Clear Lake cottage was a haven to many of his work friends, and he was happy for them to use the property when he wasn’t spending time there himself. Once he started to rent seriously, he decided that he would offer time at the cottage if it hadn’t been booked by the previous week. He left a “job jar” with a list of tasks that needed doing in a prominent position by the beer fridge (figuring this was the first place his guests would go!) with a note attached asking for at least one job to be done in return for the use of the cottage. From the notes of thanks in the guest book, everyone enjoyed the opportunity to give a little back.
Before deciding to rent your cottage in the winter season, give serious thought to what could possibly go wrong. For example, you will need someone to check the property very regularly when it is not occupied to make sure that the residual heating is working and pipes have not frozen. Offering winter rentals means ensuring you can guarantee a continuous supply of water, maintaining the heat throughout the season, and having snow removal organized so your guests can access the property without difficulty. These costs could be significant; however, if you are able to rent during Christmas and New Year’s weeks, along with some rentals during January to March, winter rental could bring valuable income. However, if you are spending all your time troubleshooting winter problems for your guests, or worrying about what may happen, then maybe winter rentals are not such a good idea.
Having decided on the weeks you want to rent, you’ll need to decide on your charging strategy. This is covered in the next chapter, What Is My Recreational Property Worth?
4
What Is My Recreational Property Worth?
I recently asked a real estate friend how appraisers arrive at a figure for property valuation. After getting a short explanation of the principles of appraisal, I realized that setting a rate for a vacation rental week is not dissimilar.
What you will charge on a weekly basis for your property should be largely determined by what the market will bear, and this will depend on a number of criteria. Location (regional as well as physical), facilities offered, size, and ambience all play an important part, and it is well worthwhile spending time looking at comparable properties before making a decision. Regardless of whether you decide to go it alone and do your own marketing and advertising, or if you choose to use a rental agency, have a realistic idea of what rental fee you are expecting before you start planning. Doing the research now will pay dividends in the future as it will be a daunting task to make changes to your rental rates once you start advertising.
First of all, look at the websites of rental agencies servicing your area, then check local advertising sites. Finally, check out the larger sites where your potential competitors might advertise.
One way of setting a price is to decide whether you want to go the Wal-Mart route — high volume/low price — or the Chanel route — low volume/high price. However, setting rental rates is not an exact science; we will discuss different factors that will influence your pricing in this chapter.
High-season rates are generally applicable from mid-June to early September, and for Christmas, New Year’s, and the Spring break. Long weekends in the low-season period will generally attract higher rates. The rest of the year can be set at one rate, although if you are near a ski area, you might want to have an additional high-season or mid-season rate that covers the January to March period. Your location may dictate your seasons, so take a look at what your competitors are using for their low/mid/high-season dates.
Location
Look for similar-sized recreational properties in your rental area. If your property is in a much-sought-after location, it may fetch a premium price. If it is a relatively short drive from a major city, rental rates can also be higher than in a more distant location. If your property has a unique selling point that may appeal to a particular section of the market, that could justify a higher price. For example, people looking for a peaceful, relaxing break will pay a premium if your vacation home is located on or near a no-motor lake. In locations that feature
