(Part 1 identifies some general characteristics of predatory STR management services and part 2 identifies 19 contract clauses that can hurt you.)
If you are thinking about using your primary home or your vacation property as a short-term rental, you may also be wondering how to manage maintenance, guest relations, housekeeping, and security. While modern platforms such as AirBnB and VRBO provide excellent tools that make self-management relatively simple, you may also be considering a hands-off approach by hiring a professional vacation rental management service. If your property is in a strong amenity market, you may have already been contacted by several STR management firms. A quick google search reveals no shortage of services that promise you worry-free profits and unlimited personal use.
Over the last few years, the short-term-rental industry has mushroomed into a multi-billion-dollar real-estate gold rush with little or no regulation. STR management companies are not regulated like real estate, hospitality, or commercial property management industries. As with any cash-flow contract business, there will be very good players and there will be very bad players who effectively hide in the legal shadows to lock you into long term-contracts, provide poor service and demand expensive buy-outs. This article will not attempt to analyze the legal implications, but hopefully any one of the perils identified here is enough to raise your suspicions so you can avoid the worst of the worst STR management companies out there.
In the end, you are handing the keys to your most valuable asset over to a stranger. They best Vacation Rental Manager for you is the one that has nothing to hide.
General precautions:
First, collect all of those personal letters, blog posts, and glossy card stock mailers that you constantly receive and throw them in the trash. Ignore any and all slick sales persons. These approaches are brilliantly designed to flood you with superfluous information and divert your attention away from the only piece of information that really matters – the Terms and Conditions (T&Cs). Your first goal is to obtain a copy of the exact terms and conditions that they require you to sign for each firm that you are considering for your property. With so many variables, this is the only way to reliably compare competing management companies against each other.
The primary objective of the predatory STR management company is to manage YOU, the homeowner, so they can collect up to 30% commissions on your property. In order to maximize their profits, they need to get you out of the way. Don’t be fooled by fantastic claims of fat profits, “dynamic pricing algorithms”, a well-managed home, anytime owner usage, secure web portals, and promises of guaranteed satisfaction. None of these things are guaranteed and any one of them can be retracted at any time for any reason at their discretion. If you receive terms and conditions that are 7500 words long on six pages of double column 4- point text, drop them from your list. Every word has a very good reason for being there and you should assume that few of those reasons are in your best interest. The predatory vacation rental management company preys on those who do not carefully review the T&Cs. The buy-out costs that they demand to terminate your contract can greatly exceed the money they could earn operating a legitimate business. Do not skip over the T&Cs like your latest software update or social media app – this is serious business and you must take them seriously.
Do not assume that the predatory STR management company will act in your best interest. First and foremost, they are brokers – they hold and enforce contracts. The Terms and Conditions of the predatory vacation rental manager tell a story of how you are relinquishing complete and exclusive use of your asset over to them to serve their sole interests in taking commissions. The predatory T&Cs claim dominion over your property while offloading all liabilities on you. Anything that goes right is theirs to profit from. Everything that goes wrong is yours to lose. If you resist or complain too much, rest assured that they have well-disguised clauses that permit them to punish, entrap, and expose you to greater hardship – in your own home! There are scenarios in which they can encumber your assets or maybe possess your home. YOUR home.
You are responsible for maintaining the home to “hospitality grade”. If for some reason you have a life change such as a medical condition, or a family emergency, or you need to sell your home and need to stop renting or terminate the contract for any unpredictable situation – forget it. Prepare yourself to meet their attorney and be extorted for a sickening amount of money. From our research, we have seen predatory STR management firms exploit weakness – their cruelty is astonishing. You let them do this when you sign their contract.
Many of the clauses that you may find in the T&Cs are tightly integrated and easily weaponized. If you trip over one, that could trigger another clause without warning. It is recommended that you find the most cynical attorney and pay them full rate to review the T&Cs … twice. Of course, the cheapest and easiest thing to do would be to just pick the company with the shortest, simplest and easiest T&Cs to understand. And, still have an attorney review them.
As mentioned, AirBnB and VRBO and others provide many useful tools such as guest vetting, integrated calendars, accounting, payments, local services and damage insurance. There is almost no reason to hire a 4th party “full stack” property manager who charges 30% or more for commissions touting redundant, trivial, or superfluous services. There are many local real estate agents using tried and true real estate contract templates who can do a wonderful job managing your property with AirBnB and VRBO integrations. There are many traditional commercial and condominium property management persons and companies who are members of large trade groups with licensure credentials and relationships with cleaning and maintenance professionals that can easily and effectively manage your property. There are many people in the community with the skills to set up manage your AirBnB / VRBO accounts for a reasonable fee under reasonable terms.
Being an STR owner can be a profitable and enjoyable experience. The VAST majority of guests are wonderful families just looking for something different. Modern technology platforms like AirBnB and VRBO make the process as simple as it can be. You have the opportunity to share the joys and memories that your vacation cabin has provided for your own family with others. Nothing could be more noble than that. It is unfortunate that there will always be predators who will take advantage of well meaning people and communities such as you and yours. Our research for this article is based on actual documented experience and case studies. Part 2 will identify 19 T&C contract clauses that can really hurt you.