Austin is now known to be one of the friendliest places for vacation rentals and we’re here with my friend Erika Albert with E-Rae Realty who’ll share with us some hacks on how to sell a vacation rental business. Erika started her brokerage in 2020 and found this niche of helping people buy vacation rentals. Erika has a background in hospitality and hotel management and ended up working for Turnkey Vacation Rentals which was started by some people that used to be in HomeAway and was bought by Casa, a vacation rental management company operating across the country.
Erika worked in those companies and that experience made her want to get a license where it took her a while to realize that it was her niche. It wasn’t until three to four years after Erika got her real estate license that and realized that she had this unique experience that not many people had in the real estate industry. Short-term rentals took Erika into areas where the legislation and local rules allow such uses.
TABLE OF CONTENTS
- How Erika Marketed Her Niche in Vacation Rentals
- Types of Short Term Rental Licenses
- Vacation Rentals Outside Austin
- Getting into the Vacation Rental Niche for Real Estate Agents
- Fear of Annexation in Vacation Rentals
- Vacation Rental Management
- Connect with Erika
How Erika Marketed Her Niche in Vacation Rentals
Starting to figure out all the different rules and get a clear understanding of what they were, Erika started blogging about it. She didn’t really think anything of it, she wrote it down and learned so that she could come back to it and reference it in the future. Erika didn’t pay for any Google Ads or other types of paid marketing, people started to find it organically. The more she wrote, the more information she gathered. She would write another article, and people would find her.
Types of Short Term Rental Licenses
Erika states that her history is limited, but around eight years ago when the laws took into effect and they are some of the strictest laws in the country. They basically define short-term rentals in the city of Austin in three types and it’s Owner Occupied, Non-owner Occupied, and Multifamily. At that time, they issued a moratorium on it.
Type One is an Owner Occupied License. Type Two is an Investment License, it is a complete investment where you don’t live there and you’re strictly going to do vacation rentals. It was legislation passed many years ago and stipulated so they haven’t issued any new Type Two permits for quite some time and the unusual about this order is it was said that they were going to make those that have this type of license cease operating in April 2022.
There was a lawsuit brought about by some homeowners that would have bought a property for this and then the city came up to that and said that they can’t do that anymore. They thought at the time that it was going to allow for type twos to reissue, but that’s not what happened.
Erika said that it was quite a rabbit hole. To make matters simple, that is what the court order stated, but that’s not what the city of Austin is enforcing. They are not issuing any more Type Two, but they are allowing those that had a type two permit to continue operating throughout this month.
Type Three is for Multifamily where it applies to condos and apartments. It’s really interesting because it doesn’t apply to all condos. It doesn’t apply to condo regime properties. It only applies to true condos. Type Three has two sections, either you can be an owner-occupied or unoccupied under type three. These rules are quite different. But you can still get a type three permit. A condo invests its own short-term rental permit.
Erika spent so much time looking through HOA docs. They’re constantly changing too. One of the biggest things is to advise clients that even if this HOA allows them right now or they don’t prohibit them, they could pass an amendment in the future and could no longer be able to do this.
Vacation Rentals Outside Austin
There is a market outside of the city of Austin for vacation rentals. There are many areas that are performing quite well and there are areas that you would think would perform well like properties on Lake Travis. People want to get out on the water and have a good time. Round Rock and Pflugerville. These northern suburbs are actually doing quite well.
There’s just a growing desire from the public to stay in vacation rentals rather than hotels that were even made stronger by the COVID pandemic because people wanted someplace where they could stay with their own family, cook their meals, and be able to get out of their house.
With Dripping Springs being the wedding destination of the world, it is absolutely booming with short-term rentals. The revenue numbers are great. One of the things that often affect the revenue numbers in the short-term rental industry is the seasonality of the market.
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Dripping Springs does not affect the seasonality as much because there are so many different demands such as weddings, wineries, breweries, and the gateway to the hill country that is close to Austin so that people can do everything in Dripping Springs.
Fitzhugh Road starts in Dripping Springs and goes all the way to Bee Cave. Very close to Austin. You could see the allure or can go within a mile to these distilleries and breweries or can take an Uber into town where there’s a lot going on out there.
Seems like people want to get vacation rentals that are closer to Austin. Erika says that everyone wants to be as close to the city as possible. Those are within the city limit. Everyone wants to get as close as possible, but not most people aren’t willing to operate illegally.
Getting into the Vacation Rental Niche for Real Estate Agents
For agents that have clients that are trying to get into a vacation rental, here are the things you need to tell and need to do.
You need to know how to identify properties for them. You need to first figure out what if you see something that you think could work and figure out whose jurisdiction it’s under. Figure out which jurisdictions they are in and what their rules are for short-term rentals and then check and see if the HOA allows it.
Check the deed restrictions, make sure there’s nothing in there that’s going to prohibit what they want to do, and figure out if it’s going to be profitable because your clients probably have an interest in that.
There are lots of different tools out there to be able to run those numbers. You can use AirDNA’s Rentalizer or Rabbu. If you’re looking at a property that’s not waterfront, it’s averaging in those that are waterfront, so you have to be careful with that. It’s just like finding comps for a normal rental, it’s just a little bit harder to find those exact annual revenue numbers.
Agents should let their clients understand the potential risks. Make sure that they tell them that they’re not a lawyer, they’ve looked over and this one makes up preliminary. It’s a huge liability when you’re trying to tell them what they can and can’t do that will be based on documents that may or may not be 100% correct because some usually use tax or county record documents to base decisions. Hence, always say that up front so they understand and you can also protect them by covering the use in the contract.
Fear of Annexation in Vacation Rentals
Anything in investing is a risk. Things could happen at any point, you just try to mitigate those risks as much as possible. A short-term rental is any rental that’s less than 30 days. In your worst-case scenario, you could always go to a 30-day rental, and you’re still going to make more money doing those mid-term furnished rentals than you would be doing a long-term rental. There’s a huge market for that. People are moving here by the droves and they don’t want to be forced into a hotel and then look out for buying.
Vacation Rental Management
To all agents, you need to have all of your vendors on hand. One of those key pieces is management. You can either do self-management or you can outsource it. Short-term rentals vary in management fees, but they’re going to be a lot higher than your long-term rental management fees and that’s something to be aware of and you can earn anywhere from 15% to 30%.
Connect With Erika
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