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Creating a vacation rental business plan isn’t just about securing financing or finding properties to manage; it’s also about having a roadmap for business growth.
Business plans anticipate possible mishaps so that you can prepare for them in advance. They also let you set milestones to guide your business development. Finally, vacation rental business plans can help you secure financing to fuel your business’ growth.
A business plan takes time and it can be intimidating to know where to start, but it doesn’t have to be. If you’re wondering where to begin or what to include, we’ve got your back! Using this comprehensive guide, you can develop a vacation rental business plan using the downloadable template provided.
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Fill out each section of this vacation rental business plan, and determine your strategy to achieve financial, marketing, and business goals.
A vacation rental business plan describes the steps to reach your financial, marketing, and business goals . It should assist you and potential investors in understanding your short-term rental business’s profitability.
Along with describing the goals, strategy, and tactics, you should also use this plan as a guide to ensure you’re headed in the right direction.
A vacation rental business plan prepares you for the future as it anticipates goals, milestones, and possible mishaps. But a vacation rental business plan can also help you secure financing, plan for the long term, set clear goals that increase your chance of success, and budget sensibly.
Just like you wouldn’t lend your car to a friend who doesn’t know how to drive; banks won’t lend you money if you can’t prove that you’ll pay them back.
A vacation rental business plan is a way of letting potential investors know that you have a strategy in place to build a profitable business.
Planning for business growth allows you to choose tools and systems from the beginning that will scale with you. For example, without long-term planning, you might end up having to change your property management system (PMS) in the future as the needs of your business outstrip the feature set of the cheap solution you chose without future growth in mind. Being able to plan for what you’ll need as you grow will ultimately save you time and money.
It’s easier to achieve success if you first define what success looks like and give yourself clear goals to work towards. These goals should be measurable and achievable, for instance, establishing you need a 60% occupancy rate in your first year to cover costs. If you’re succeeding in meeting some of your goals but falling short when it comes to others, you’ll be able to identify where you need to make changes in your business.
Running the numbers and having a plan that backs up your vacation rental property investment reduces the luck element of buying real estate. Having a business plan with financial projections allows you to allocate a realistic budget for renovations, furnishing, decoration, software, permits, and staff.
A business plan will help you anticipate cash flow issues you may face. For example, as your reputation builds, your property may have fewer bookings at first, so some expenses will be out of pocket.
Before you start writing your business plan for your STR business, you should:
Make sure you research to understand local laws, the challenges presented by the location of your properties, and the types of units you’re going to be investing in.
You should also look into what’s being discussed in the media about the market you’re researching. There may not be a law yet, but there are rumors that vacation rentals will be prohibited and you should know about it.
Location can also determine your rental’s profitability. If you buy or manage a vacation property in an up-and-coming location, or a place that has a nearby attraction, your place might be in high demand. Location is also important when looking for possible cleaners or maintenance workers. A cabin in the woods sounds nice until no one wants to drive there to clean it or fix a broken pipe.
You should look at the market to understand which types of units you should be managing and what challenges they present, as well as how profitable they might be. You can rent nearly anything:
Compare existing listings against similar units in your location to get an idea about how much guests are willing to pay to stay in them, how much demand exists in your area, and what amenities will set you apart from the rest.
Determine how much money and time you’ll need to renovate and furnish your unit. Find out what sort of amenities are expected in your area and what extra things you could invest in to give yourself a competitive advantage.
If you’re buying properties to rent rather than simply managing properties on behalf of owners, there are several different business models to consider:
Your vacation rental business plan is also a way to pitch your company to potential investors. If you’re about to start a property management company , creating a business plan is a great way to formalize it.
Depending on your business model , you’ll have access to different financing options that have very different initial payment rates. When you know how much money you can invest upfront and who your target investors are, you can tailor your vacation rental business plan accordingly.
Before you buy or agree to manage any rental property, you should run a competitive analysis to determine if it’s going to be profitable. You can use tools like Vrolio or AirDNA to estimate expenses, nightly rates, and estimated occupancy. Make sure you run your calculations on cautious scenarios. Never estimate 100% of occupancy. If it’s your first STR, estimate vacancy at around 45-50% .
Even Rob Abasolo from Robuilt who has various successful STR properties doesn’t run estimates assuming a perfect year. “I wouldn’t calculate my numbers based on a 100% occupancy rate ,” Abasolo shared. “When I’m running the numbers to see if a deal works, I’m typically running my calculations at an 80% occupancy rate .”
Your business plan is a living guide that contains all your goals for your business and how you plan to achieve them. That’s why it contains goals, milestones , and an initial financial forecast. It’s an outline of what you’re planning to do, why you’re doing it, and how you’re going to succeed. You can present this as a one-pager or a longer form shareable document.
This document should stand alone and only by reading it your potential investors and property manager should be able to know what your goals are and how to achieve them . For it to be complete, you need to fill in every section presented in this list.
Fill out each section of this vacation rental business plan, and determine your strategy to achieve financial, marketing, and business goals.
This section is an overview of your business, you should mention:
In this section, you should get into more detail about your company. Talk about your mission statement, unique selling point ( USP ), and value proposition (more on this later!)
If this is your first investment property, create those statements and include them here. You can adjust future plans as your business grows.
The first two sections of the business plan give readers a broad overview of where your business is headed. Here is where you get to explain in detail what you’re aiming to achieve with your vacation rental.
You can follow any goal-setting methodology that you prefer—S.M.A.R.T, H.A.R.D, or W.O.O.P. The important thing is that you set objectives for different aspects of your business. Answer the questions below to get some ideas:
A huge part of marketing your property is defining who you are talking to. Do you want your property to be used by families, expats, digital nomads, or college students?
Defining your guest persona allows you to determine your value proposition , unique selling points , and marketing strategy . Include their:
If you have a pet-friendly property and you want to attract dog owners, then, your marketing strategy will be more successful if you promote on niche listings like BringFido along with global listing sites.
Your value proposition is how your guests will perceive your property compared to others. Why should guests choose your property? What’s your added value?
Maybe you offer flexible check-in or you offer a discount to the local museum. Define how you’re improving the guest experience and write it down, that’s your value proposition .
Analyze your competitors and the industry to determine what makes your property different from others and how you can position that difference as a unique selling point ( USP ). This is different from your value prop. Your USP is how you’ll differentiate your property and listing when you’re selling it; the value proposition is how you’ll improve the overall guest experience.
For example, let’s say you bought soundproof windows and a memory foam mattress that guaranteed a good night’s sleep, that’d be your value proposition. If you offer one free night to guests who book a three-day stay, it becomes your unique selling point.
You can use tools like Zillow and AirDNA to look into your local competitors and ask yourself if your property is better than other competitors because you:
You should also define which listing sites your competition is using and see if there’s any room for improvement.
Your operation plan is a rundown of how you’ll operate your business, how much it’ll cost, and which tools you’ll use. Some tasks you should outline include:
List all of your fixed and variable costs including:
You should have that information from your research stage and your profitability analysis. Then, based on your total expenses, you determine the minimum and maximum nightly rates that you’re able to offer based on a safe estimated occupancy rate .
So, let’s say your expenses are $2,300 a month and you’re estimating a 60% occupancy rate . That means that you’re expecting your property is booked for at least 18 days each month. That makes the minimum nightly rate $128. If you compare against similar properties and your rate is too high, you should look into a different market, see where to cut expenses, or offer a premium experience.
There are tools like Vrolio that allow you to define your base nightly rate based on your expenses and your competitors automatically. A good tip is to launch your property with a low nightly rate to get eyeballs on your property, get momentum, and start collecting reviews.
Having a pricing strategy for your vacation rental lets you start with a low nightly rate and once you have a set of positive reviews that make your listing more accurate, you can start adjusting your prices . A great way to ensure your prices are adjusted to match demand is by using a dynamic pricing tool. If you’re using Hostfully as your property management software, you can do revenue management from the same platform due to our integrations with:
This is the section that investors really want to see. It’s what determines if your STR business is a good investment. If this document is for personal use, this section is still crucial for defining milestones and keeping track of possible cash flow issues.
You should tell your previous history by managing your personal or business finances. At this point you need to answer these questions:
Just like you would with any other business, you should think about marketing your property. For vacation rental businesses, marketing and distribution go hand-in-hand. Each listing site or online travel agency ( OTA ) has its own audience. For example, Vrbo is targeted at families, while Airbnb is more suited for millennials and freelance business travelers .
For your marketing plan you should answer the following questions:
Every business plan should contain an appendix. Here’s where you should add any relevant documents, graphs, calculations, and pictures. You can also include additional information that supports your background or business experience.
Fill out each section of this vacation rental business plan, and determine your strategy to achieve financial, marketing, and business goals.
Whenever you’re writing a business plan for your STR, you should beware of these common mistakes and try to avoid them:
It’s common to allocate less money than needed to:
It’s common to think that if you target everyone you’ll get more eyeballs on your listing and that will translate into bookings. That might happen once or twice, but if your potential guest can’t relate to your listing description they’re not going to book it. Targeting your listing to your guest personas and promoting your property in the right distribution channels is a more effective use of your time and money.
Everyone thinks that their property is better, prettier, and more comfortable than the others. It’s a common mistake to underestimate the competition. Doing a thorough competitor analysis is a good way to prevent this.
Short-term rental businesses are often profitable, but they’re not magical. Make sure the goals you’re setting for your business in the financial plan are attainable and realistic. For example, make estimates based on your least expensive nightly rate and the minimum needed occupancy rate .
Whether you’re financing or using your savings to pay for your vacation rental property, you need to make a business plan to forecast growth. Your business plan should include:
If you’re planning to automate parts of your business, consider incorporating Hostfully into your operations plan . We’re a vacation rental software that lets you automate your day-to-day admin tasks, manage different channels, and do dynamic pricing all in one place.
Fill out each section of this vacation rental business plan, and determine your strategy to achieve financial, marketing, and business goals.
You need a vacation rental business plan to outline your business milestones and goals. This document will be your guide in terms of how to manage your STR marketing, operations, and finances.
Having a vacation rental business plan helps you anticipate cash flow issues and see progress toward financial goals.
A vacation rental business plan includes twelve different sections to outline your strategy and tactics to make your business profitable. These sections are:
