Running a vacation rental has been around for years.
Airbnb may have taken up the urban market – and is now in deep water with the coronavirus crisis – but vacation rentals in destination locations have been through every crisis – the great depression, 9/11, 2008. They always make it through.
And now more than ever we see that it's important to plan ahead.
Lots of us were riding the wave of the growing Airbnb industry, loving the cash flow but not planning or preparing.
A lot of hosts are still planning to build and scale a short-term rental business.
Setting up the foundations and systems and plan for your business is the key to success. Especially now – the operators that are going to come out alive (and thriving) are those who have a solid, profit-based plan.
Just like you most likely wouldn’t try to build a house without an idea or even a small drawing of the house, a business plan will help you make sound business decisions toward building your short-term rental empire.
A short-term rental business plan is the blueprint to your business — but unlike a home’s blueprint, it’s dynamic and changes with time. Good reasons to write a business plan are to:
- Give your business the best chance of success
- Make operations effective and manageable
- Help you focus on the necessary steps and tasks
- Identify potential weaknesses
- Make sound decisions
If that’s convinced you enough, here’s my guide to writing a vacation rental business plan.
I wrote vacation rental business plan PDF you can have for free
Analyze the market
Your first step in your Airbnb business plan will be to analyze the market where you want to operate. Namely, the market where your property will be. How does your vacation rental business fit within the short-term rental market?
Is there demand? If you’re getting into rental arbitrage, you can choose a property in an optimal location. Generally, you want to look for a place that has a combination of high travel demand, low seasonality, loose or no regulations, and where the return is high.
Same goes for if you decide to go with the property management model.
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I wrote an Airbnb business plan template you can have for free
Identify your niche
You may know the adage “if you market to everyone, you market to no-one”.
This also applies to the short-term rental business. As a part of your Airbnb business plan, take some time to consider what kind of guests you’re targeting. You can target couples, digital nomads, families, business travelers, bachelors, hikers, cyclists, or anyone. As long as you know who it is.
The benefit to niching down is that you can target your property by providing amenities for that specific audience and creating a message that’s specific to that audience.
When your target audience sees your listing is specific to their needs, they’re much more likely to book.
Once you’ve defined your niche, you should create different avatars for your potential guests. Here you’ll put all the information about your ideal guest: how they like to travel, what their likes and dislikes are, what the main thing they look for in a property, and more.
This will help you figure out what they need from a vacation rental property.
Give them the following:
- Job title
- Travel style
Keep asking these kinds of questions (you can also ask current guests if you feel comfortable with them!) until you feel like you are talking to a specific person.
This is where you’re going to check out what your competitors in the same niche are doing. This could be either other Airbnb properties or hotels or B&Bs. Check out the following about them:
- What they’re charging
- What standard of accommodation they offer
- What services do they offer
- What amenities does their unit offer
This will help you make sure your unit stays on top of the competition.
You should know by now what the legal requirements are in your jurisdiction. That's because you've done your due diligence in the initial market research step. The next step is to plan how you’re going to make sure you’re fully legal.
If the area you chose doesn't allow the short-term rental business model you've chosen, find another. Check on the Airbnb website and at City Hall for the local short-term rental regulations.
Check with your local authorities whether you need a business license. Unfortunately, there are no shortcuts to getting this information.
One important part of your Airbnb business plan is to analyze your property to predict its business potential. You can measure what goes out: rent if you’re doing rental arbitrage, team members, marketing, licenses, etc. and measure what goes out.
You may have to do some work on the property — fix things up or throw on an extra layer of paint.
Basically, you want to make sure you’ll be making a good enough profit from your business. You can use Mashvisor’s Airbnb profit calculator to do this.
Short-term rental business model
There are a few different business models you can choose from, all with their pros and cons. Before you start your business, you can choose from:
- Traditional real estate investment — buying property and operating on that
- Rental arbitrage model
- Property management model
These all have different levels of risk, speed to scale and profit potential. Choose the one that works best for you. Traditional real estate investment will generally have the greatest profit, slowest time to scale and greatest risk. Managing other people’s properties, on the other hand, is generally the fastest to scale, least risk but also least profit potential.
It depends on what you’re looking for and what you have access to.
Now that you’ve chosen what business model to go with, the next step on the Airbnb business plan is your finances.
How are you going to finance your short-term property? How are you going to plan to scale to your next property? This is especially important if you’re going with a more investment-heavy business model like arbitrage or traditional investment.
There are also other costs involved beyond the rent or mortgage. Startup costs can include towels, household goods, grocery items, and maintaining the property.
Your Airbnb business plan should also account for expenses to accurately estimate cash flow and net income.
Vacation rental property management structure
Now you’ll have to choose how you’re going to manage the property.
If you’re taking the property management model, this is pretty clear from the start. (You're the one managing the property).
If not, you could take a few approaches. For one, you could be a DIY host and not outsource anything. That’s not very scalable, though.
You can also have a company manage your property from A-Z even including marketing. If you don’t like that, you can hire out an individual, freelance property manager who is growing their property management business.
You can also use automation tools to automate the management as far as possible, including guest communication and pricing. Read my ultimate guide to short-term rental automation here.
Unique selling point
This is part niche, part offer. What makes you stand out from all the other apartments in your niche?
It takes a bit of deep thought and creativity to figure out your Unique Selling Point (USP). Things that aren’t unique selling points:
- Good communication
- Good customer service
Those are generally basic requirements that guests expect from their vacation rentals. They don't make you special, they make you standard.
You have to think deeper than that. What makes your property stand out among the other ones in your niche? Examples of unique selling points are:
- Private swimming pool
- Gas barbecue
- Patio with a sea view
- Historic venue
You’re almost done with your Airbnb business plan. The next — and a very important part — of your plan is to determine how you will market your property.
For a lot of hosts, it’s fine to just upload it on Airbnb and wait. But if you’re trying to scale your short-term rental business, you probably want to think of more unique ways to promote your listing.
For one, make sure to put it on more platforms than just Airbnb. Booking.com, VRBO, HomeAway, Tripadvisor, Expedia and more are all platforms that will help you get more occupancy. Then you can use automated property management software to sync your calendars and pricing.
You could also create a website for your listing and use SEO and paid advertising to get even further reach.
The last step is to plan how you’re going to work the Airbnb SEO to get your listing to rank on some of the first pages. Airbnb has over 100 ranking factors, including:
- Guest satisfaction
- Guest reviews
- Dwell time
- Listing length
- Stay length
- Booking rate percentage
- Guest communication
There are far more than this, but there are many of these you can control by doing the following:
- Writing a killer Airbnb title
- Creating a well-structured, emotionally and descriptive Airbnb description
- Automating guest communication for faster response time
- Focusing on creating a positive guest experience
- Responding to guest reviews
Next steps for your Airbnb business plan
Now you have your plan ready, it’s time to implement it! It should feel much less overwhelming now that you have documented everything you need to do. Follow it step by step and trust it. But don’t be afraid to change it if you notice something doesn’t work!
If you need more help, you can read my ultimate guide on how to build and scale an Airbnb business.