One of the most common mistakes beginner real estate investors do is to jump in and get in over their heads. In addition, one reason that they fail is that they don’t treat their investment like a business.
A vacation home is more than just listing your rental property on Airbnb and waiting for the money to roll in. It’s a business and, just like any other business, you can’t expect to succeed without a business plan.
Therefore, the first step to starting a vacation rental business is putting together a real estate business plan that outlines your goals and keeps you on track.
Here’s how to write a business plan for a rental property in 2022.
Is a vacation rental considered a business?
Some consider a vacation rental as a business while others think it’s more of an investment. This depends on the nature of your relationship with your vacation rental. Is your vacation rental a business or an investment? Find out below:
Vacation Rental as a Business
Your vacation rental is a business if you own a property, earn a profit off of it, and regularly work at the property.
If you rent out a house to a tenant and you take on the management position where you’ll need to do things like replace a water softener or fix something that’s broken, you’re more likely to be considered a business.
Even if you’re not at the property that often but, hire a property manager and other staff, the property can still be considered a business.
Vacation Rental as an Investment
If you have a property that you rent to a tenant and you use the income to pay bills relating to that property, you may find that you have an investment, not a business, according to the IRS.
Also if you have a rental property that has been vacant for a long time or becomes vacant more often than not, that specific property may be considered an investment because you don’t spend a lot of time working on the property or with a tenant that lives there.
Lastly, if you’ve invested in a property for tax purposes and aren’t continuously involved in management duties, the IRS will consider this an investment. This can include limited times partners, real estate investment trusts, and people who own shares in the property.
Read more: How To Start a Vacation Rental Business: Complete Guide
What is a Vacation Rental Business Plan?
By definition, a business plan is a document that includes the framework, strategies, and goals you have for a business you are considering investing in or building on your own.
As a new business or startup that is seeking funds, you might turn to Investors and banks for that money. Usually, these organizations ask to see business plans when deciding whether or not to loan you money. Each plan should include details about finances, costs, procedures, and more.
Creating a vacation rental business plan is super important because it helps you purposefully envision the future of your business.
Why You Need a Vacation Rental Business Plan
A business plan is as important to you as it is to your potential investors. Not only is it a requirement when embarking on certain things like sourcing funds but, it also helps you define your complete business strategy for running a successful vacation home rental.
Beyond making money and strategy, having a business plan for your vacation rental serves as a light in the dark to make sure you’re on the right track, reaching goals, and accurately measuring success.
It also helps you identify risk, remind yourself of your business goals, and have enough data to examine your business and how well you are progressing in the future.
What To Include In Your Business Plan?
1. The Executive Summary
Your executive summary should briefly explain the purpose of your business. You want to begin by properly introducing your vacation rental business.
It is just a brief overview that sums up your rental business and includes all of the most important information you want to get across to your partners, guests, investors, and others.
This is so that anyone can read the first page of your plan and know, at a glance, what your business entails.
The rest of the business plan will go into great detail, but the summary should give readers a quick idea of why you are from the business and what it will do.
This can be accomplished in just a few paragraphs. You may even want to break your summary into sub-sections, like the ones below.
These are some important questions to be addressed in this section:
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Where is my vacation house located?
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What crowd does it cater to? Families? Couples? Large groups of friends?
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Is it a seasonal rental or all-year-round?
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Why do you have this property?
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Is this your main form of income?
Of course, you do not need to follow this structure and feel free to add other information you consider important but, make sure to rewrite them to make sure it sounds professional and eye-catching to the reader.
3. Your Value Proposition
Your value proposition means stating why your customers are going to choose your business. Essentially it’s saying what is the value of your business to your customers.
In addition, it’s also an avenue to state why these customers will choose your vacation rental over others in the area. Consider how your vacation rental will provide a guest experience, services, or amenities that the other properties in your area simply can’t provide.
4. Management Structure for Your Vacation Rental Business
This section is where you get to explain what your business management structure is like. Is it a partnership or ownership by a single individual?
Describe the management structure in detail in its current state, including third-party property management services that you may use.
A suitable management structure will enhance productivity and ensure that all members of your organization can achieve their true potential.
5. Operations Plan
This section is where you get to provide an insight into how you are going to run your new business on a day-to-day basis.
Some of these daily operations include tax management, insurance, reservations, payment processing, maintenance, and related administrative tasks.
Here are just a few helpful prompts and examples in case you get stuck:
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Are you going to hire any staff?
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Will you use a cleaning agency or hire in-house cleaners?
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Will you hire an accountant to help me handle the finances of my business?
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Who will deal with bookings and customer complaints?
To streamline day-to-day operations, you can also use software such as Booking Ninjas vacation rental PMS which provides a booking system, channel manager tool, accounting tools, and more.
Read more: How To Manage Vacation Rental Property
6. Financial Plan
When thinking of a financial plan for a business, the first thing that comes to mind is ‘How am I going to afford this rental business?’ Do you have options like self-financing, taking out a loan from family and friends? Or bank or investors.
Proper budgeting and planning your finances will prevent any stress in the future, and it will mean that your business is ready to thrive. For this reason, it’s a good idea to work with an accountant on creating your financial plan.
These are some basic information that should be highlighted in your financial plan
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12-month profit and loss projection
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5-year financial growth plan
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Cash flow projection
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An estimated balance sheet of expenditures for your business
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Cost analysis
7. Customer Analysis
A customer analysis is all about knowing your ideal guest aka your target audience. The idea behind a customer analysis is to create multiple detailed guest personas or profiles and find ways to use these profiles to better cater to them and attract more of these customers to your vacation rental.
In summary, a customer analysis helps you in getting to know your ideal customers, what they want and what they need from a vacation rental property.
Here are some key questions to include in your guest profiles:
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What’s their name?
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What do they work as?
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What age are they?
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What is their idea of an ideal vacation?
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Do they have a family?
With these details, you can find patterns in spending habits, add-on services a certain customer profile prefers, and more. Creating these profiles is one thing but, keeping up with them and using them to create data that can be analyzed can be difficult. Consider using a PMS or CRM for this.
Read more: Outstanding Vacation Rental Ideas 2022
8. Competition Analysis
One thing is certain - you’re not the first one to start a vacation rental in the area especially if it’s a common vacation spot. So you’re going to have some competition sometimes, a lot.
Carrying out some competitive research is an essential part of your business plan. You need to take a look at your competition and analyze them to see how your business can thrive in such an environment.
With competitive analysis, you want to look at all of the people who may win a booking over you and use what you find to put yourself on top. It’s all about what you can do better, what you can do differently, or what you can replicate.
Here are some questions to get started with:
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How much do your competitors charge per night?
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Are they basic rentals or high-end, luxurious units?
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What extra services do they offer?
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Do they offer a wide range of amenities in the house?
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Is WIFI included?
9. Marketing Analysis and Strategy
You could have the best vacation rental in the whole state but, be down bookings because nobody knows. This is why having a marketing strategy that works is important.
To achieve maximum bookings, you need to create and explain in detail the strategies you have decided will be best to use when targeting your key markets.
Here are some questions that can help you create your marketing plan:
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On which listing sites will you place your property?
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What social media platforms will you use for promotion?
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Will you invest in paid advertising?
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Will you have business cards?
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Will you take advantage of email communication with your past guests?
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Will you create a Website and utilize SEO?
Asking yourself these questions will help you create a thorough marketing strategy.
Also, make sure to create a distribution plan for successful advertising. It should cover the costs for chosen methods and outline how you will handle channel management.
Read more: Tips On How To Make Your Vacation Rental Stand Out
Revenue Management
There’s a quote by Karen Spencer that sums up what you need to know about revenue management in your business plan. It goes like this -
“Set stretching yet realistic prices. Quality holiday homes can charge more (because they are worth more) than an average place. When it comes to setting your prices, you need to know what it costs you to welcome each set of guests and work up from there, ensuring a healthy profit per booking every time. The more you charge per week, the more revenue per booking, yet your changeover costs, your marketing costs, your time spent, will be the same.” – Karen Spencer
When running a vacation rental business, you need to keep on top of your incomings, outgoings, and general overall finances.
Although this part can be intimidating, the good news is there are a lot of tools and software out there to help. Software like Booking Ninjas provides revenue management tools and analysis tools.
Here are a few questions that help in building the revenue management section of your business plan:
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How much will you charge per night?
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What level of taxes will you have to pay to the government?
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What will your utility bills be?
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What will your staff costs be?
10. Appendix
This is where you include any additional documents that you want to use to give your reader a feel for your product, marketing, services, and so on.
In your appendix you should put all of the relevant documents and folders you have for your business, containing the vital information you need to keep things running.
In addition to financial documents, you should include more useful information. Indicate anything that can help build the case for the viability of your vacation rental business plan. Here are some ideas for documents to include:
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Resumes (your own and of your key employees);
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Permits to demonstrate your willingness to comply with the latest regulations regarding short-term rentals in the jurisdictions where your business operates;
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Contracts with third-party vendors for property management services;
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Vacation rental industry studies that you’ve cited in your business plan;
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Letters of support
11. Making plans for the future
Some people will suggest doing this step first but, sometimes you don’t have a clear vision to write your accurate goals for the future of your business until you have done some of the other steps listed above.
This is where you write down what your plans and goals are for your business, plus what key milestones will help you achieve these targets.
This section will be useful to refer back to and to ensure you’re progressing as you should.
Some milestones you can adopt include:
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Monthly financial projections (This answer will be linked to your financial plan)
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How many guests do you want per month or quarter
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What rate of growth do you want in your bookings year-on-year?
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How many returning clients do you want each year?
Putting Your Vacation Rental Business Plan into Action
So you’ve written your business plan and properly gone through all of the things that you would need to succeed in the vacation rental business. What next?
The next thing is to get started. From finding the right location to getting the property, furnishing up the place, adopting a vacation rental system, and more. Don’t worry, we have a comprehensive guide on what to do next after creating your business plan. Find out more in this step-by-step guide on how to start a vacation rental business in 2022.
Free Vacation Rental Business Plan Sample Template
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free vacation rental business plan sample template