There are many short-term rental (STR) management companies to choose from in Australia, with various fee models and charges for different levels of service. With so many options, it can be hard to make sense of what you are really paying and what the real differences are between STR management companies.
In this article, we explain how common fee and performance structures work, and key questions you should ask when considering using a professional STR manager for your own property.
Commission versus fixed rent pricing
The two most common STR fee models are commission based and fixed rental fees.
The commission model consists of a set percentage management fee, usually ranging from 15 - 25%, of the short-term rental income. However care should be taken to find out whether the STR company calculates the management fee percentage from the total booking value including listing platform and cleaning fees, or only the net booking income which would be a lower amount.
The commission model is a popular option for property owners, because it aligns the performance of the property's bookings with the commission fees of the STR company.
The fixed rent model consists of a guaranteed amount of rent to be paid to the property owner each month, regardless of the performance of the property. The advantage of this model is it provides certainty and monthly income for property owners that would prefer to avoid volatility between peak periods, and the impact of changing market conditions.
However, this model does not expose property owners to much higher returns that can be achieved with a well marketed, priced and managed short-term rental. Generally, the rent will also usually be in line with a long term lease in order to compensate for the certainty of a fixed income.
Most short-term rental platforms will separately have a set cleaning fee charged for each booking. Typically, this is charged to the guest as it is a one-off fee per booking, so does not need to be factored into the nightly rate or management fee, however, some STR management companies may handle these charges differently.
It is important to remember that short-term rental cleaning must also include other housekeeping tasks to properly prepare the property for each new guest's stay such as re-supplying clean towels and linen, and re-stocking essential items such as toilet paper and toiletries.
During this time, many STR companies are taking extra precautions due to Covid-19, requiring additional procedures and cleaning requirements. Read about our Covid-19 cleaning procedures at MadeComfy.
Set up fees
There are costs associated with setting up your property for short-term rental, and many companies will generally charge an initial fee to cover this. Commonly, these consist of the cost of:
Taking professional photos of your property.
Creating your property listing for booking platforms such as Airbnb.
- Setting up remote access equipment such as a lockbox, and check-in instructions for guests such as a property guide.
- Performing an initial assessment of your property's amenities required for short-term rental (for example: cooking utensils, furniture, appliances, etc) and coordinating the supply of any missing items before opening your property to bookings.
Key questions you should to ask when considering hiring an STR property manager
- How is your management fee commission calculated?
Typically, when a booking is made via an external booking platform such as Airbnb, guests will pay for both the cost of the booking and a separate cleaning fee.
A management fee percentage calculated on just the booking reservation will be lower than if it is calculated on both the booking reservation AND the cleaning fee.
It is worthwhile to ask your STR company whether you are being charged against the higher or lower of the two amounts.
In addition, some STR companies may charge fees for extra services that may not be fully included into the management fee, such as: guest meeting fees, maintenance call outs, additional linen fees and guest requests, while other companies do not add separate fees for this.
- Can I stay in my own property?
What happens if you need to use your own property for yourself, or would like to have friends or family stay? If you'd like the option to continue using your property flexibly, check the management contract to see if this would be allowed.
- How do you manage your operations?
STR management companies can differ in the way they either split up different role specialisations, or consolidate management to a single person. For example, in a smaller STR company, the same person may be the one that manages: property photography, pricing strategies, housekeeping and cleaning, maintenance, as well as be your main point of contact. Larger STR companies on the other hand may have greater scale and resources to separate these functions to different, often specialised and highly trained people.
- How will you market my property and which platforms will it be listed on?
Airbnb is the most popular platform for short-term rentals in Australia, but you can increase your property's occupancy rate when it is listed on multiple platforms also popular with travellers such as Homeaway and Booking.com. Some companies also receive direct bookings from past guests, referrals or partnerships through corporate guests which can significantly improve your earnings compared to only listing on one platform.
- How do you plan to set my property's nightly rates?
Creating an optimal pricing strategy is crucial to maximising your overall revenue and balancing occupancy rate against Average Daily Rate (ADR). Staying on top of bookings trends, upcoming peak seasons and demand spikes are important to ensuring you are not leaving income on the table or charging too much.
- How does your company communicate with guests?
Will they be able to ring a dedicated phone number, or are they only limited to messages and email? What kind of response time can your guests expect when they contact your company, particularly outside of normal business hours and over the weekend?
- What technology does your company use?
Do they have any specialised platforms or systems used to streamline their operations, provide transparency, keep comprehensive records and improve the guest experience? Is it standard off the shelf software or is it tailored and optimised towards the company and local market requirements?
- Will my income reporting be itemised?
Ask what kind of income reporting you will receive, and how frequently you will receive information on your booking payments. Are individual transactions and charges itemised, or do you simply receive a summary amount? Do you have access to see details of all bookings made at your property?
- How does your company undertake quality assurance (QA) for housekeeping?
Are all cleans independently checked after completion, to ensure a positive guest experience for every stay? Is the process standardised and are photos taken and checklists kept?
- How long has your company been operating?
Are they an established company with a successful track record managing a large amount of properties? Or a new operator that may experience issues with a lack of resources to scale their growth?
Ask an Airbnb expert: want more information about short-term rental in Australia? Submit your question to the MadeComfy team below.