Vacation Rental 101

This guide is provided for new owners and for existing owners to use as a reference, to some of the terms and information that owners find useful when purchasing or owning a vacation rental property here in Orlando. Just click on any of the questions and you’ll see the information/answer provided below.

Where should I buy?

This depends on so many factors. Buying close to the theme parks doesn’t necessarily mean an expensive home. There are lots of communities within 5 miles of the Disney gates that have pre-owned homes for sale that rent very well. It’s important to set your budget and try to stick to it. If you’re buying a pre-owned home, expect to have to spend some money refurbishing the home prior to renting it.

You may prefer to buy a home on a resort community with a manned gatehouse and a clubhouse on-site. These are more popular with the guests and you will likely get a better nightly rental rate than on a standard community. However, the monthly costs of the Home-Owners-Association (HOA) will increase your operating costs and you should factor that cost into your budgeting. In most cases, the HOA fees are higher than the property management fees each month.

Wherever you choose, try to pick a property that’s within 15 miles of the Disney theme parks. The 4 counties that surround the theme parks (Lake, Orange, Osceola, and Polk) all have communities that are zoned for vacation rentals and your realtor will know which communities have homes available.

Are all Vacation Homes sold furnished?

Most of them are sold furnished. If you’re buying a new home from a builder, they may offer a furniture pack, or recommend a decorator who will provide the furnishings and equipment for you. If you’re picking a company to furnish your home, please ask us – we have over 20 years experience of managing homes, and we know which companies provide the best packages, that can almost guarantee you more success.

If you want something that is turn key you will most likely pay a little higher of a price tag but it will be move in and rental ready with bookings already in place! That means immediate income for you.

How many weeks per year do the homes rent out?

If you’re in a popular, well-booked neighborhood, and your home is in good shape (furnished, equipped and decorated to a reasonable attractive standard) then you should expect about  60-70% occupancy. This wide variance in occupancy is because there are so many factors that can impact the occupancy each year.

  1. The time of year you join can have a huge impact on the occupancy for that season. If you join during the quieter, second half of the season (after July) then you will see some occupancy, but it won’t be a good representation of what (any) company can generate for you in a full season.
  2. The rental rate can have a massive impact on the occupancy that you see. Too low and you’ll see high occupancy but with a lower return, too high and you will see lower occupancy levels through the season. VillaDirect uses a patented software package algorithm that figures the “sweet spot” pricing. Typically, a property will be added to our site at that price and then adjusted upwards or downwards from there.
  3. Other factors like construction, weather and competition all impact the occupancy that you can receive. VillaDirect closely monitors the occupancy of all of its owners properties to make sure that its average occupancy can reach the target level we require for the company.
How do I pick a good management company?

There are literally hundreds of management companies in Orlando. All of them promise to generate you lots of income and to look after your home. There’s no “barrier to entry” for anyone to start a management company, so there are lots of smaller companies that manage a handful of properties, as well as companies like VillaDirect who manage a wide range of homes and condos.

Be sure to check out the information that the companies provide on their website. If there’s not much there – then beware! A reputable company will have plenty of experience to pass on to you for free and will be happy to provide that information through their website or in on-line documents like we do.

Check out how long they’ve been in business. The average management company in Orlando has been in business for less than 5 years, and many close down each year. It’s a tough business with very low operating margins. If they’ve been in business for over 10 years – then you can feel confident they’ll be around for a long while as they’ve overcome most of the issues and are probably operating professionally.

Do they have an office? Be careful with this one as many management companies either operate from a post box address or a “virtual” office. You can rent office addresses for less than $200 per month and then meet with clients in meeting rooms when they come into town. Ask to visit their offices and meet with the staff. If they haven’t got an office, then they won’t have many (if any) staff and will rely on sub-contractors to look after your property – increasing your costs and reducing the service quality.

As for references. Any company that offers a service should be able to provide you with a few references from existing customers.

Check out their Facebook page and see what kind of comments and reviews they get from real customers.

In short – do a little homework on the company that you’re about to entrust with your vacation home. It’s an important investment to you and it should be to the management company too.

What is the average rental rate I should expect?

Almost all properties in the vacation rental market in Orlando are offered at varying rates through the season. If someone is offering the same rate throughout the season, then they are either “leaving money on the table” – by selling too low; or selling too high and missing out on occupancy to offset expenses. The rate for a 5 bedroom town house is different to a 6 bedroom pool home or a 3 bedroom condo. Similarly, a home which has been professionally decorated and equipped to the highest standards should get a higher average nightly rate than a “builder standard” furnished and decorated home.

Like most companies, VillaDirect offers its rental properties at varying seasonal rates. For example, our peak season rate is twice as high as our lowest rate. To calculate the average rate, many companies simply take the 3 or 4 rates they offer and divide them. So if they have 4 seasons, they add all 4 seasons together and divide by 4. This is called a “simple average” and results in a higher reported average nightly rate. The problem is with this is that it might cause you to budget incorrectly.

To get a more accurate rate, you need to factor in how many nights in the season each different rate band applies to, calculate the percentage that that represents, and then divide the total rate by those percentages – that gives an accurate “weighted average” nightly rate. That’s what VillaDirect provides to its owner clients. Our owner representatives regularly offer the weighted average rate to our clients on request.

 

What is meant by "Retail" bookings?

A retail booking is one that is directly booked between the guest and the management company or the owner.

The main benefit to a retail booking is that you get to retain more of the income, as it’s usually reserved at the retail (or “rack”) rate. If the booking comes from a management company, then they take their commission to offset their marketing and costs of making the sale (e.g., reservations agents and pay-per-click advertising costs).

Some companies charge a higher commission rate on retail bookings to the rate they charge for tour operator bookings. VillaDirect only charges a single rate, because the company only generates retail bookings. In this way, we can generate more income for our owner clients.

 

How long should I keep my vacation rental?

This may seem like a strange question to ask – but there’s a good reason for it. New communities and resorts spring up every year and they are your competitors. Guests always want the “shiny new thing” in preference to an older rental – so after a few years, most homes become less attractive to guests.

We believe that the lifespan of a vacation rental is around 5 years, before it needs refurbishing and investment in new mattresses, decorating, new sofa and maybe even some new TVs (technology moves on all the time). Rather than taking those costs on to your budget, you can sell the home, realize any equity growth, and reinvest in a newer or larger home that has newer furnishings, or start again.

By doing this, you keep your investment inventory fresh and maximize the profitability on your investment.

Do I need a license?

Yes. You actually need 2 licenses (a sales tax license and hotel license). Don’t worry – VillaDirect arranges these for you when you start with the company. We provide you with an individual license that’s in your/your businesses name so that you can move companies freely in future. Some companies operate with a group license, which means that you are “locked in” more easily with their programs.

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