How I Started a Vacation Rental Business from Scratch

I have been running a Vacation Rental business full time in Kuala Lumpur coming to 5 years. It all started with renting out my own studio to tourists. The demand was good. Over time, I expended all the way up to 9 units plus an office.

In this article, I will explain to you what is a Vacation Rental, how to run one and at the end of this article, you can make a sound decision if this is a right business for you.

Let’s start with the question, what is Vacation Rental Business anyway?

You can think of it as a small scale hotel without the full service a hotel typically offers (bell boy, room service, front desk, etc.) in exchange for a cheaper price, homey amenities (e.g. kitchen, washing machine, balcony), and a more unique lodging experience, where you’d most likely deal with the owner or manager.

Traditionally, I would associate the term ‘vacation rental’ to a nice bungalow or villa being rented out over the weekends with a group of friends or a couple on their honeymoon.

But now with the popularity of Airbnb, Vacation Rentals are not just limited to nice villas. A regular home, an apartment, studio or even a spare room can be listed as a ‘vacation rental’.

With Airbnb’s success, other OTA’s (Online Travel a Agencies) are also branching out to cater to this new sharing economy.

Agoda introduces ‘Agoda Homes’, Booking.com & Traveloka introduces ‘Apartments’, and Expedia introduces Vacation Rentals. All these divisions did not exist prior to the popularity of Airbnb,

In today’s interconnected world where we can do everything from a single lookup on our phone, the internet will be your best friend by widening your business’s exposure to the whole world. Your online reviews will be absolutely critical for your survival. Let’s look at mine shall we?:

The other end of this double-edged sword of worldwide exposure is that it could also be your worst enemy. If your guest did not have a pleasurable experience with you and leaves a nasty review online, this will discourage other new people from booking with you. Prolong consistent negative reviews will almost certainly confirm the demise of your business.

Look at the following example (not mine obviously), would you want to book at a place with these kinds of reviews?

The only true way you can thrive in this business is to actually love what you do and to have a proper system in place.

In the following chapters, I will share with you how I systemize my whole operations and scaled my business up from 1 studio to 10.

Do you Need to Own the Properties?

In Malaysia, not necessarily. But I personally won’t purchase a property on the sole purpose of making it into a vacation rental, unless if you’re a seasoned veteran in this business. Or you won’t be pressured to get rentals to cover your mortgages.

For instance, when I started out, I purchased a studio in an apartment and started renting it out to tourists. The demand was good and it was occupied at least 80% of the time each month.

I talked to some owners in the same building to let me rent their place to run this business and most of them are OK with it. So I rented their apartments and I sublet them to tourists.

Subletting will significantly reduce your startup capital as you don’t have to buy the property.

A renting rule of thumb is that the security deposits for each unit will be 2.5 x the monthly rent. Depending on how the place is furnished by the owner, you can expect to spend around RM 2,000+ a unit to set it up to your standards.

We’ll cover the costs in detail in another post.

What is Expected from you as a Vacation Rental Operator

Put yourself in the shoes of a traveler or a vacationer. Think about that one time you stayed at a hotel but the experience was more negative than it was positive.

Maybe the staff was rude to you, maybe the room was filthy like it wasn’t cleaned properly or maybe there was a used condom left under the bed.

Your goal is to prevent any of that from EVER happening in your business. Here are the basics:

• Ensure that the property in real life is as close to how you market it online.
• If your property comes with a flaw, don’t mask it, but be honest about it in the description and let your guests know about it before and after they book.
• Ensure that everything in the property works and is comfortable for you yourself to stay in.
• Entertain any questions or concerns that potential prospects might have prior to booking your property.
• Give your guests concise information on how to get to your property.
• Greet your guests personally or train your staff to do as good of a job if not better than you to make your guests feel welcomed.
• Ensure a good relationship with your building manager and neighbors and try not to piss anyone off.

2 Types of Vacation Rental Business

From my experience running, traveling and staying in vacation rentals, there are only 2 ways you can make any decent money with this business model:

1. Luxurious and or a Unique Lodging Experience.
2. Dirt Cheap, Bottom of the Barrel Accommodation.

As you notice, there’s no room for average boring properties on that list. If you don’t plan to be unique or dirt cheap, you will be competing head to head with the regular 3 to 4-star hotels and you’ll be squeezed out of the competition really fast.

None is necessarily better than the other. As long as you’re making money, that’s a good business, right? Let’s look at each in detail and see which camp do you belong to:

Luxurious or Unique Lodging Experience

Some people, especially millennials, are willing to pay above average on either luxury and or unique experiences.

The name of the game here is the show-off factor. You have to put yourself in the trendy shoes of a typical millennial. They want to show off their ‘glamorous’ life to all of their online friends. Is your property Instagram worthy??

Here are some examples: Staying in a posh treehouse. a private cave, a private castle and a windmill. Places you would’ve never expect a hotel to operate:

Staying in a private cave in France

Secluded Treehouse in the USA

Stay in a windmill in the Netherlands

OK, let’s say you’re not blessed with your own private island, take a look at the Instagram show-off factor for this brand new hotel in Kuala Lumpur. They manage to decorate the place to encourage millennials to take photos to show off on Instagram which is good for business:

With the help of Instagram and Snapchat, millennials are immensely pressured to show off on social media and outdo one another. This often means that most millennials have a huge desire to spend money.

Set up your property to tap into their emotions to show off and they will pay top dollar for online bragging rights.

The Cheapest Property you Can Get

Sample of Oyo Room

This business model provides bare bone accommodation and targets the absolute cheap, bottom of the barrel people who only care about price.

Oyo is a startup that is backed by billions of dollars in investor funding. Their modus operandi is simple, take over the low-end, basic hotels, rebrand them under the Oyo name where they sell the rooms on their website for dirt cheap rates to starve out the competition.

At this moment, Oyo is your major business threat, but these types of players come and go. So I do not recommend going for the dirt-cheap business model because there’s always someone else willing to sell at a cheaper rate than you.

Also, cheap rates will attract cheap problematic people. You’ll have a lot of headaches dealing with these people and my tolerance level is pretty low in this area. So I’d personally avoid these types of customers like a plague.

But hey, everyone’s different. So you know yourself better than anyone else. If you want to go down this route, ask yourself this: how low will you go?

Challenges that you WILL Face as a Vacation Rental Operator

Regardless of which side you choose (please for the love of God, don’t go down the cheap accommodation route), you will face problems, it’s inevitable. Here’s what you can expect:

1. When your business reaches a certain size, you will face staff turnover issues.
2. You will face seasonal business profitabilities, so cashflow management is absolutely crucial.
3. You have the possibility of dealing with problematic guests.
4. There’s always someone willing to sell at a lower price than you. What will you do to compete?
5. You will have problems with stuff breaking down. Do you have the funds to repair them quickly or roll up your sleeves to do it yourself?
6. You have the risk of double-bookings.
7. Risk of unauthorized parties/drugs or prostitution activities.
8. Exhaustion from managing this business 24/7.
9. Conflicts that you might face either with your property management or neighbors.

VERY IMPORTANT. Is this Business for Me?

Setting up a Vacation Rental is not cheap and requires a lot of planning, money, time, and patience. I don’t think it’s smart to venture into something that you are not passionate about, so let’s fully define this business so you’re clear of what it is and what it is not.

Putting money aside, this is a SERVICE business, where it is required to interact and entertain guests. So it is not recommended for introverts. You can hire people to do this for you, but then, your business will just blend in just like the other nameless vacation rentals.

Most of my awesome 5-star online reviews, as I shared before, are not just about my property but also reviewing me of how good of a host I am. That would definitely stand out in a sea of boring vacation rentals.

Here are some good questions to ask yourself:

• When things break down (something always does), are you handy to fix it yourself? Or have the network and enough funds to pay someone to fix it right away?
• If your staff quits unnoticed, are you prepared to roll down your sleeves to do their job while you get a replacement?
• Are you ready to deal with (rare but it happens) problematic guests?
• If you have a double booking, do you have the professionalism to compensate the guests for it?
• Are you good at handling money and keeping track of finances?

If you think you’ll be bothered with most of the above, I think you’d have to find something else to do.

But if you are able to not let these bother you too much and can find great satisfaction from making people feel welcomed, and generally being a friendly host, then this is the right business for you.

Should I do it Part-Time or Full Time?

It’s viable to do this part-time, but I highly not recommend it. If you insist to do this part-time, you definitely need more people in your team to cover your tasks especially when you’re at work.

You have to put in all your energy into this and get it up and running until you have a steady team, only then can you ease off the supervisory role and do something else.

What’s the Current Vacation Rental Market Like in Kuala Lumpur 2020?

Summary: oversupply situation. Sometimes when I greet my guests, the first thing they say to me is: “wow there were so many choices to stay in KL!”. If that’s the response from guests, why would you add to the problem?

Reputable hotels are also feeling the pinch and selling their rooms at RM200+ or less, what chances do you have if you operate your vacation rental business in KL?

Unlesss if your property is so unique, I would not recommend you to start a vacation rental in KL at all, especially if you are just another apartment or condominium.

If you have a nice property somewhere on the outskirts especially close to attractions like Genting Highlands or Janda Baik or Melaka, that would be best!

My Setup Strategy to Stand Out in a Crowded Market

My apartment is in the middle of Kuala Lumpur city but is not the most modern. I can’t compete with the newer condos that keep popping up like mushrooms. Each with a better infinity pool, and a more hipster interior.

There’s no way I can compete on that angel. My observation of the competition at the time is that everyone is out hipster-ing one another to the point that it starts to look tacky and trying too hard.

Personally I think it looks nicer than it is comfortable to stay in. Also, these themes do really well when they first debut, circa 2016. But now, EVERYONE has the exact same setup.

• Same hipster lightbulbs
• Same hipster chairs
• Same hipster blanket that is placed slanted on purpose

I booked in a few of these ‘hipster apartments’ to see how it really feels to stay in one. I noticed that most of the apartments are not as clean as advertised, the interior is an either too mainstream hipster or tacky. The kitchen is also not well equipped enough for me to make myself something.

Armed with this knowledge, I came up with a 4 step formula for my own business to stand out from the tough competition with minimal costs:

1. AVOID the hipster theme at all costs and go in the opposite direction. I focus to make my apartment as close to a real home as possible.
2. Nobody put live plants as it is very high maintenance. So I placed loads of live plants to have a more homey feel.
3. I equip my kitchen with utensils that I would expect to have in my own home for the comfort of my own guests.
4. I place nice outdoor chairs, a table, and an ashtray at the balcony for people who smoke (some book my place specifically for this reason).

You need to think outside the box to stay competitive. The formula above worked for me and you can tweak it to fit your style and circumstances.

Now that you have a winning business recipe, let’s take a look at the business model of running a Vacation Rental Business:

Vacation Rental Business Model

This is the basic breakdown of a Vacation Rental Business, or pretty much any business for that matter:

• Marketing & Sales — Promoting business and acquiring new customers.
• Operations — the actual thing that your business does to make money: Check-Ins & Check-Outs, housekeeping, maintenance, and customer relations.
• Administration — Processing of reservations into a calendar system. Making sure property ad online is up to date and no double bookings.
• Finance — Paying bills, staff payroll, issuing receipts and keeping track of financial performance.

As a solopreneur, you’ll end up wearing 4 different hats and doing all the above yourself until you have grown the business enough to hire staff and delegate.

The good thing about Airbnb is that its user-friendly online platform will provide you a system to make all the divisions above easier for a new host.

I will be sharing with you a brief overview of each of the business divisions in the following sections.

Marketing of Vacation Rental Business

This is one of the most important parts of any business. Because without people knowing that you are running a business, you would have no customers. Without customers, you wouldn’t have a sale, and without a sale, you wouldn’t have a business.

Marketing and Sales are 2 different things, and each of these has subdivisions on its own. To not overcomplicate things at this stage, let’s keep things simple for now:

Marketing is the act of promoting and letting people know that you exist and essentially building their trust in you over time.

Sales is the act to convert that trust into money for your service or products.

The good news for a newbie is that you don’t have to feel overwhelmed with Marketing and Sales. Airbnb will do them for you in exchange for a commission fee typically around 18% of what the guest pays online (they are not so open about their charges but I worked it out to be around this amount).

All you need to do on Airbnb is:

1. Register as a host on their website.
2. Fill out the description of your property.
3. Create a persuasive property description copy to convince potential guests of how awesome your property is.
4. Take emotionally engaging pics of your property and upload them to your listing.
5. Go live to start accepting reservations.

That’s all you need to do to market your property. The rest is taken care of by Airbnb. Because of this simplicity, I highly recommend new hosts to only work with Airbnb for the first couple of months just so you can get a hang of things before you spread yourself on other platforms.

Administrations of Vacation Rental Business

Alright, now you have your property all set up on Airbnb. You need to be prepared to organize your reservations, check-ins, check-outs, and cleaning schedule.

Any new reservation that you get from Airbnb will be shown neatly on their calendar:

The Airbnb calendar is really user-friendly, however, it does have several shortcomings. The calendar only shows the month view for reservations.

It does not have the ability to show what time will your guest arrive for check-in, when will they check-out and when to do your cleaning in between bookings.

You can do this any way you want, but I have personally found that Google Calendar is perfect for me. In the sample below, I can clearly see on a weekly basis:

1. Reservation dates & their name
2. When they will Check-Out (CO), Check-In (CI) and my cleaning schedule (shown in pink).

To make your life easier, Airbnb has an import calendar function that can automatically export your reservations to your Google Calendar:

Although this is a really helpful feature to automate your administrative tasks, I tried it twice and opt-out of it. It’s just not dynamic enough. i.e I think I had some issues when there are alterations or cancellations and the calendar can’t keep up fast enough in real-time, causing confusion and administrative mayhem.

So here’s what I do MANUALLY each time I get a new reservation:

1. I log the dates of the reservation on Google Calendar with the correct color code (in this case, the room color is blue).
2. My check-in time is 3 pm earliest by default and I log this in the calendar as you can see (CI for short). Check-ins for me rarely take more than 30 mins.
3. I log in the check-out time, 12 pm by default (not more than 15 mins).
4. I then reach out to the guest to ask them what time will they arrive. Once they gave me an answer, I simply update the Check-In (CI) time in the calendar.

Best Way to Contact Guests

Let’s not forget that when you’re starting out, you most likely won’t have a 24-hour front desk, especially if you operate out of a condominium. Therefore, it is absolutely critical to coordinate with your guests on a check-in time so you don’t have to waste time waiting for them.

Don’t worry to reach out and ask for their estimated check-in time. You won’t bother them. In fact, most of my guests appreciate that I reach out to them first as it shows that I care about their wellbeing.

From my experience, most people don’t read emails or the messaging system on the website that they made the booking on.

• 80% of the world’s population prefers to use WhatsApp
• People from China and Japan use WeChat or Line
• People from Korea use Kakao Talk

Keeping these apps ready on your phone will make it easy for you to stay in touch with your guests.

Operations of Vacation Rental Business

Operations are the physical things you have to do while running a Vacation Rental Business. This includes the following activities:

• Greetings & Check-In procedure.
• Entertaining reasonable questions and requests.
• Coordinating Check-Out.
• Cleaning of the apartment.
• Laundry and ironing of linens.
• Maintenance and upkeep of the property.

As you expand your business, operations are the first department that you need to delegate to staff members because it is the most physically tiring.

Greetings & Checking-In Guests

Most Airbnb businesses won’t have a front desk. Especially if you are operating in a condominium or apartment.

A smart lock installed on your condo front door sounds like a great idea but the guest still needs an access card to get into the condominium common area, elevators, and your condo floor.

Most condo management would refuse to partake in any key drop or key pickup at their security posts as it is not in their job scope to be a front desk officer.

You should also be concerned with the wellbeing of your own property. There are plenty of cases where a reservation is made for 2 persons, but a group of 30 party goers show up and trash your property (this happened to me a few times).

The only solution for this is to actually physically greet and check-in your guests. You will build great rapport with your guests which often translates to great reviews and the guests typically will be quite behaved as they’ve met the manager or owner in person. Your condo management will also be happy with you as they can see you personally ensuring that the right person is entering the building.

As you grow the business, you can train your staff to greet the guest to your standard, if not better.

Entertaining Reasonable Questions and Requests

People can be annoying at times and ask you for all sorts of questions that can easily be looked up online.

From my experience, here are the common questions and request from guests:

• How to turn on the AC, cooking hob, shower water heater, and TV box.
• Where to throw garbage.
• Where can they smoke?
• When and how to access the pool.
• Where’s the nearest place to eat.
• What to do around here.
• Where can they get sim cards for their phone.
• For Muslim guests, they often ask the direction of the Kaaba.

You need to be able to answer all of these questions and compile them into a blog post or in WhatsApp quick reply. The next time someone asks you any of these questions, you can just reply to them with these quick responses to minimize your own stresses.

For older guests who might not be cellphone savvy, you can print the instructions out into a nice welcome book for them to read.

Writing the answers of these into a blog post or youtube video will be a great marketing asset for your business. I will explain this in greater detail in my upcoming posts under the topic of Inbound Marketing.

From my experiences, here are some unreasonable requests that I will politely turn down:

• Asking for free airport transfer.
• Asking for daily housekeeping (this depends on your capacity).
• Contacting you at an ungodly hour over trivial questions.
• Asking where they can find prostitutes.
• Asking if they can bring their friends over for a party.

People will try their luck with you. It is your job not to flip out and remain as calm and professional as possible. Remember, this is a service industry.

Coordinating Check-Out

Imagine if you have 4 check-outs at 12 pm and 4 new check-ins in at 3 pm. Do you think you have enough time to clean 4 rooms in the time span of 3 hours? This is when it would be great to coordinate with your guests if any of them will be checking out earlier than 12 pm so you can start cleaning that room earlier.

I will tell the guests about the check-out procedure when they first arrive and will contact them again the night before their check-out via WhatsApp to remind them.

This is where they usually will thank me for the reminder and update me if they’re leaving earlier than 12 pm. Update the early cleaning schedule with your staff members via Google Calendar and you’re off to an easy stress-free day.

Cleaning the Apartment

You need to have a Standard Operating Procedure (SOP) for cleaning. The point of an SOP is to have a standardized quality for all people involved in cleaning and make it easier for you to train new staff in the future as everything is documented.

In order for you to make an effective SOP, you have to clean the place out yourself a few times.

Let’s not forget that the person on the reading end this SOP is typically not formally educated. So keep the language as simple and humble as possible with loads of pictures in each step.

I have separated my cleaning into 2 categories:

1. Regular day to day cleaning.
2. Deep cleaning (at least once a week).

Regular cleaning will consist of:

1. Replacing bed sheets & towels.
2. Taking out the garbage.
3. Vacuuming.
4. Steam cleaning (replaces a mop).
5. Doing the dishes.
6. Wiping all mirrors and glass.
7. Wiping the cooking area.
8. Washing the bathrooms.
9. Watering plants

Weekly Deep Cleaning will add on:

1. Replacing the mattress and pillow protectors
2. Replacing all floor mats
3. Wiping the dust off fan blades
4. Washing the Air-conditioning air filters.
5. Clean the carpet using a carpet cleaner and shampoo
6. Pesticides to prevent insects.
7. Fertilizers for plants.

Me cleaning under the mattress and the back of the headboard

You need to organize deep cleaning for each room, at least once a week and find a non-busy time of the week to do it spread out your staff workload.

I personally recommend you invest in the following equipment for professional-grade cleaning:

commercial vacuum on the left and steam cleaner on the right

1. Commercial-grade vacuum cleaner. This is a must as you’ll burn out a normal vacuum very quickly. I am a big fan of Kaercher.
2. I purchased a steam cleaner to replace mopping as it disinfects without using chemicals and is quick to dry.
3. A heavy-duty trolley to carry your cleaning equipment around and occasional transfer of stuff around your business.

Laundry and Ironing of Linens

There are 3 ways to do your laundry:

The easiest way is to send your linens to the Dobby as they will wash, dry and iron them for you. The problem with this is obviously the high cost and sometimes you won’t have your linens done until a few days after. In which case, you need to have a steady supply of linens to back you up. I.e: if you have 10 active rooms, you’d probably need at least 20 sets of linens to cover shifts while your lines are stuck at the Dobby.

The cheapest way to do laundry for your business is to wash them yourself using your own washer at your office and dry then dry them outside for free. Costs are minimal.

1. The electricity bill for the washing machine is only around RM40 a month.
2. Water usage is only RM 50 a month compared to RM 20 on average for my rooms that are being rented out.
3. I’d probably go through an entire bottle of detergent a month that costs me around RM 11 per filler pack.

Coin-Operated Laundry: I use this as a backup, just in case I have simultaneous checkouts on the same day resulting in too many laundries and not enough room to hang dry them.

Maintenance and upkeep of the property

From time to time, stuff will inevitably breakdown in your property. From my experience, here are the common ones:

• Leaking Air-Conditioning
• Spoilt water heater
• WiFi not working
• Ants & cockroaches

To prevent this from happening, and impacting your guest’s experience a little preventive maintenance will be smart:

Leaking AC: From my experience, if you live in the city where the weather is polluted, the air filter and piping of the AC tends to get clogged up with dust, resulting in the cleaning.

What you can do is to get a professional to chemically clean and dissolve all the dust inside your AC unit. It will cost you around RM 140 per AC unit and you can do this twice a year. In between these services, you can just take out the air filter yourself and hose down the dust yourself once a week.

Spoilt Water Heater: This can be due to the fact that it is left on for too long, or just due to old age. Most water heaters will spoil naturally at around 10-year mark anyway.

But you can help to prolong that life by putting a label on the switch and reminding your guests to turn the water heater off when they are out or not using it.

WiFi Not Working: This is a common one and the 1 thing most modern guests will complain about. From time to time, the internet will stop working because it is one of those electronic things that you never turn off, like ever.

The solution 95% of the time is to just reset the router. You can voluntarily reset the router yourself when there are no guests once a month to prevent the modem and router from working continuously for too long.

The other 5% you’d probably have to call your internet provider. From my experience, they will reset something on their end and the internet will magically be OK again.

Ants & Cockroaches: This is a pretty common problem in the tropics and it happens no matter how high your apartment is. The problem is from guests leaving food waste in the garbage for too long.

A solution is to remind guests to throw food garbage into the garbage room every night to prevent unpleasant visitors. Most will understand and comply.

In your deep cleaning procedure that I’ve mentioned above, will include a pesticide spray to further ensure you don’t have insects.

Regular off the shelf insecticides will not work. You will have to get a specialty termite and ant poison from a chemical shop. It’s potent so handle with care!

There you go! I’ve covered the main preventive maintenance for you to keep an eye out for to keep those reviews high! Now let’s move on to finance:

Finance of Vacation Rental Business

You need to be on top of your financial performance so you can make quick financial decisions to keep your business profitable. Remember, this is a business, not a hobby!

I use an Excel spreadsheet and pivot tables to know my monthly expenses and record revenues.

Revenue Streams that I record:

• Room sales each day
• Parking rentals
• Room service
• Sim Card sales

Main expenses that you need to keep track of:

• Rental & Mortgages
• Laundry Costs
• Staff salary
• Electricity bills
• water bills
• Maintenance
• Asset purchases (furniture, vacuum cleaners, etc.)

Record: All payments and purchase receipts I systematically store in hardcopy form and also scanned using my phone into Google Drive for safekeeping.

Below is a sample of a sales logbook and picture shared on our group WhatsApp chat that I have trained my staff to do every time we have cash sales:

If you want more control, record sales based on rooms so you can see which rooms perform the best. With this information, you would know which room to offer marketing promotions or discontinue to stay profitable.

You don’t need to be an accounting major to do this. Business finance is just common sense. As long as you record everything, Excel will show your financial performance at the end of each month. The Excel will also come in handy when filing for taxes every April 😉

Summary

Ultimately, your role as the business owner is to oversee it from above rather than being too involved in it. But it is very good to start from within and slowly grow to a supervisory position.

I hope this lengthy blog post gives you an insight into the Vacation Rental business. If you have read this far, you can make a sound judgment if this business is for you.

You can register as an Airbnb host using my link below. You’ll be rewarded with a credit voucher from Airbnb:

https://www.airbnb.com/r/hhasan20?s=6&t=061n0g

Leave a comment if there’s anything specific that you want me to write about running a Vacation Rental Business and I’ll see if I can make an article about it 🙂

Originally published at https://balkonihijau.com.