Hello, my name is Sheila Monson. I live here in Alaska. I am a Realtor, and my husband and I also run a very successful lodging business. I am writing this blog post in an effort to show you how to combine the two. Real Estate, and a possible B&B, Lodge, or a vacation rental. Along with being a Realtor my husband and I have been doing hospitality for 16 years. I think I can share my extensive experience and perhaps give you some helpful insight into this industry. To hopefully lend some credibility to this post, you can check out our amazing place here. Alaska’s Heritage Lodge.
All the images in this post are from our place here in Willow, Alaska. Several times a week I will get a call from someone who is looking to buy real estate here in Alaska, and they want to turn it into a B&B, lodge, or vacation rental. And I not only can help you find the perfect property; I can give you tips on how to make it successful. It starts like this. Usually it’s someone calling from out of state. They saw a reality show about Alaska, they tell me of their lifelong dream of moving here, then starting a B&B, vacation rental, or a lodging business. They might want to buy anything from a dry cabin on a ¼ acre, to a $800k home on 20 acres, then they tell me they are just going to “Airbnb it”. And you can tell in their minds that they believe beyond any shadow of a doubt, that the money is just going to pour in. Then there are also the people who already live here in Alaska. They will call my husband who does all our marketing for my Real Estate business, and our lodging business. And ask him what he has done to make our lodge so successful. Almost as if he will produce a magic wand, wave it, and they will be off and running with a successful B&B. I can tell you without hesitation, nothing could be farther from the truth. So, before you make any kind of real estate investment with the intent of using any of the numerous online booking platforms available to generate income for your investment portfolio? Lets look at this incredibly complex hospitality industry a bit closer. Are you ready? Buckle up because here we go!
First, let me address the big question. Can you make money with a vacation rental? Yes! You can also lose a lot of money if some basic rules of thumb are not followed. Let me say here that this subject could fill a 350-page book with all its complexities and every possible thing you could and should know. In this post, I am only going to touch on the 3 major ones. Location, Condition, and Price. Let’s look at the image below. From my experience to have a successful vacation rental business, you will need all three things to line up in the triangle. If you have a great location, price is reasonable, but the condition of your property is less than perfect, then you will not likely get very many bookings. Same goes for the other two. If your price is too high but the location is stellar, and the condition is great, the result will be the same. Minimal bookings. So, suffice it to say, all 3 of these triangle points need to line up perfectly. If they don’t? You will almost certainly be wondering why you aren’t getting many bookings. Also, keep this in mind. Your triangle might fit the same criteria as mine, but my triangle might allow me, or someone else to target a completely different demographic than yours. Example. Our triangle allows us to target an all inclusive vacation traveler, large groups, large family vacations, etc. A more high end traveler. Your triangle might be completely different in the demographic that it attracts. Keep reading, it will all make sense I promise!
So, let’s start at the top of the triangle. We have all heard it. Location! Location! Location! In the vacation rental industry this can mean so many things. Success or failure depends on this critical factor. I will give you just 2 examples of what I mean. You find what you think is the perfect property. You are so excited! It’s the cutest little cottage tucked away in this peaceful little subdivision. This is usually one of the hooks. The listing realtor says in the description in the MLS “Great B&B Potential!” By now you are thinking. Perfect! Let’s make an offer on it! This is where you need to be VERY careful! If it is a cute peaceful subdivision, it is probably that way because they have a very strict HOA (Home Owners Association.) At this point it would serve you well to look at the covenants of the HOA. It is almost certain they will not allow a short term rental of any kind, let alone a vacation rental. You could be walking into a nightmare that could make your life very difficult. HOA’s are tightening the rules of subdivisions to make it more and more difficult to use a property for this purpose. The word is out all over the nation about the constant traffic up and down the streets all hours of the night, the all-night parties and vandalism inside and out that sometimes happens to properties where the owner is not on site. This without question would make you the most unpopular person in the subdivision from every homeowner that lives there. This is one example of how a location could make your life very difficult. Check the HOA’s BEFORE you buy!
So now we will talk about a potential great location. Just to make things simple, I will use our place here as an example of how the perfect location will come back to you in a HUGE way. First, let me put a disclaimer out there. I totally understand that not every location will have this kind of location potential. You may be in Anchorage somewhere looking at something completely different. In this case you may want to look at how close your location is to the night life, shopping, restaurants, etc. Location no matter where you are looking to buy a vacation rental, depends on why someone would choose yours over someone else’s for the same reasons. So, when looking to sell our B&B in Wasilla, we wanted to take our hospitality business to the next level. We wanted something that was appealing for guest in the summer AND winter and would be a destination and experience for people, not just a place to come in at 1 AM from their red eye flight, stay for one night, and leave early the next morning. We looked for 6 months every day before we finally found this place. So much thought and planning went into our decision. Let me explain why the place we chose works so well in location part of our triangle. We are lakefront. This is HUGE. This cannot be overstated in the benefit this provides as an enticement for people to book here. We are on 4 wooded and landscaped acres. We are on the way to Denali Park. We are on the Iditarod Trail. The Iditarod crosses our lake. All mushers must pass right by our lodge on the way to Nome. This makes our place a huge attraction in the winter time. We are accessible by paved road summer and winter. We are also accessible by snowmachine via 200 miles of groomed winter trails here in our area. Our lake is float plane accessible providing a unique way for people to hire a bush plane in Anchorage, fly out, land at our lodge, unload and enjoy their stay. We have 5000 sq. feet of space in our lodge. We have 5 rooms for our guests, and we can sleep 20 people in beds. This in combination with everything else makes it very attractive for large groups which is who we market to. The bottom line is this. People book us, and because of all we have to offer, but specifically the location, they find it very difficult to leave at the end of their stay. How important is location? I rest my case!
So, let’s move on to the next part of our triangle. Condition. Assuming you have the location part of your triangle lined out, then we need to look at the condition of your property. If it’s a fixer upper, it’s possible that you will need to renovate inside and out. We all know the saying. You have one chance to make a good first impression. When it comes to the hospitality industry there has never been a truer statement. We have a huge wooden sign at the end of our driveway to welcome people as they drive in. Our guests first impression is amazing! It lets them know the second they pull onto our property the have truly reached someplace special. That being said. It should go without saying the outside of your property needs to sparkle! That can mean a lot of different things. If you have a lawn, make sure it is mowed regularly to include breaking out the weed eater. My husband has a leaf blower. Several times a summer he uses it to blow off our paved driveway all the way down to the lake. I love flowers. So, I always have flowers planted, and in pots strategically placed all over the property. Another thing we have that is a big attraction and people love, is a fire pit. We try to have different things for people to see placed all over the property so that is a constant pleasing experience for our guests. Of course, most of this won’t apply if you are renting out a condo in downtown Anchorage. But the concept is the same. Keep the outside clean, make sure your sidewalks have been hosed off etc. Now let’s move to the inside. The word of the day is CLEAN. Everything needs to shine and be spotless! Your rental needs to be bright and well lit. A lot of times to make your property appealing for potential guests you will need to do some interior renovations. Maybe new carpet and paint. This is so important. Often when it comes to online reviews from people that have stayed in vacation rentals all over the world, a lot of them are negative because the guests didn’t think the place they stayed was clean. There is so much more that can be said on this subject, but I think you get the picture. Make your place amazing inside and out! Now, lets move on to the last part of the triangle. Price.
This part of the triangle is perhaps the hardest to nail down. The hospitality industry in the last 10 years has changed so much, the implications are mind boggling. It used to be the major hotel chains dominated the hospitality industry. Growing up in my generation when we traveled, we never knew there was such a thing as a B&B. We always stayed in the trusty Motel 6, or we had our tent and we just camped at a campground. In the early 2000’s the internet started being a force in the hospitality industry. All the sudden you could book a room on a site called hotels.com that included B&B’s as an option. You could stay at a B&B before this, it was just a lot harder to find one online. Then in 2008 the world was turned on its head. Airbnb launched (many others quickly followed) and the way people booked a place to stay on their vacation was forever changed, and the lower prices for the stay put the major hotel chains in shock for many years. All the sudden the options were endless. As of now, in 2019, on Airbnb you can rent a tent in someone’s backyard for $29 a night, or a mansion on an estate for thousands a night. And everything in between. There is even a website now called couchsurfing.com where you can stay in a host home for free. For FREE! In a lot of ways, make no mistake the hospitality industry is headed this direction. You doubt me? Enter harvesthost.com, this is a website that you can sign up for that cost $79.00 a year. This is for people with RV’s. We are talking a lot of LARGE RV’s. Here is the premise. Hosts all over the country sign up to allow RV travelers a place to park their RV….you guessed it…. FOR FREE! The travelers are allowed to stay at the host property one night for free. The idea is that they will stay longer and pay the going rate. But this begs a question in my mind. Why would someone that can afford a $200k RV need to stay somewhere for free? Answer? Because people are LETTING THEM! There is an epiphany here. And its an important one! If the triangle lines up? Even wealthy people, and people who can afford to will stay for free if the price on your triangle says “FREE.” People with money didn’t get wealthy by being stupid. Even someone that has a $200k RV will save a buck if they can! Every day websites like hipcamp.com are popping up where people can stay at a farm or a similar property for almost nothing. The competition is fever pitch. Online booking platforms has given the entire world the ability to make some extra money with their place, where before no such option was available. And gang the entire world is doing just that! 3 years ago, you could have done a search on Airbnb for properties in your area. There might have been 15-20. If you do a search today? There will be hundreds and its growing like a wildfire. This is great when it comes to giving people options on places to stay. The problem is that all this competition has made what you can charge for your vacation rental plummet through the floor. 3 years ago, you might have been able to charge$179.00 a night for a room with a king bed. That same room today might go for $59.00 a night and there will be 100 of them very near you for potential guests to pick from. This part of your triangle in my opinion will be the hardest part for you to figure out. The best way to do it is spending time researching your competition. What is the location, condition, and price of THEIR triangle? The reality is this. Its possible that if their triangle is better than yours, and they are charging $59.00 a night? You might have to drop your price to $49.00 a night. And that is truly how the game is played. Only you will know your triangle and if you can compete in this crazy industry. Judging by the amount of calls my husband gets for consulting, it is very possible to buy a $300k property and only have it booked 5-10% of the year simply because of the competition and the prices they are charging. If not done correctly a property purchased for the purpose of a vacation rental can drain the bank account quick if that is the sole income used to make the payment. Lastly on the price subject. At this point it might be worth asking yourself. Can I compete? How much will it cost to turn my property into a B&B or vacation rental. 5k? 10k? More? How long if ever at $49.00 a night per room, maybe 5-10% capacity a year, will it take to get my money back and start seeing a profit? These are fantastic questions to ask yourself. Depending on your triangle and your competitions. Its possible you will never make a profit. And make no mistake. The competition is going to get more fierce every day. Are their people making money in this industry? Yes. But the more general rule of thumb in this industry today goes something like this. For a large percentage of people trying to make it in the hospitality industry, its no longer how MUCH can I charge. Instead it has become like the game of Limbo. We have all seen it. The people trying to make it under the bar without falling usually to some fun music. This industry is becoming a lot like that. A question you might need to ask is this regarding your prices. How LOW can you go? There are so many people doing it now. Everyone is making a tiny bit of money, but almost no one is making a lot of money. Something to consider before making this industry part of your investment portfolio, or retirement income.
There is a mountain of information on this subject. In this blog post I have barely scratched the surface of the peak on the mountain. My husband is the one who truly understands this industry. He spends hundreds of hours a year, updating our lodging website. He does all the marketing on various vacation rental sites like Airbnb, and VRBO, to name a few. He knows what it takes to have and sustain a lodge, B&B, or vacation rental in Alaska. He consults with people just starting out in this industry, and people who have been in it for years. If you would like to have him consult with you, let me know. I can put you in touch with him. Maybe you need to sell your current vacation rental property, or buy a new one. I would love to help with that aspect of your journey. Feel free to call me at 907-841-0840 and I will answer any questions you may have. Until then. Choose your vacation rental property carefully!