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Five Top Gun Moves For New Vacation Homeowners To Make The Most Of Their Investment

Clark Twiddy is the President of Twiddy & Company, a hospitality and asset management firm along North Carolina’s Outer Banks.

With busy residential real estate activity across the country over the past few months, there’s a chance that the blurring pace of transactions has obscured the recognition of a knowledge gap for many new homeowners and investors. Now that you have an asset, how do you operate it in such a way to optimize revenues and minimize costs?

This operational challenge particularly applies to homeowners and investors of second or investment homes. With the coming IPO of Airbnb, this asset class is going to have renewed visibility and public reporting. As we learn from this IPO, we’ll also learn much about the industry as a whole. The sharpest investors, as always, will seek to make the expert moves early that lead to superior results and also avoid the common traps that frustratingly lead to common outcomes.  

Considering the work of Stephen M. R. Covey in his book The Speed of Trust, let’s build on his thinking around trust with an eye toward residential real estate operation. Imagine this formula as a road map to results:

AQ + Strategy + Execution * Trust = Superior Results

AQ is the quality of any asset (which includes location), strategy is the vision of the market, execution is the delivery of that strategy on a day-to-day basis and trust is the multiplier for the people relationships around the home. In this equation, trust is a multiplier, but as Covey points out in his book, in the absence of trust the multiplier can become a painful divider as well. 

Building on this equation, here are five top gun moves that new homeowners and investors can make to keep an enduring competitive advantage in the market:

1. Don’t Underestimate Risk

It’s easy for newcomers and rookies to underestimate risk. Think about any young person doing something for the first time — say, driving — and it’s easy to see how the first attempt at a new skill often means we underestimate what could go wrong. In a home, risks can be profound as a home fire or as small and common — think home Freakonomics — as a slip-and-fall. Professionals recognize risk early and plan ahead for risk when it materializes. Sharp professionals proactively transfer the risk early in the form of insurance or smart operational constructs.

2. Understand Variables Are Related

For anything complicated, we tend to isolate components for simplicity — imagine building blocks in a larger construction. However, in the operation of a vacation rental home, few things are isolated. It’s much more of a spider web, meaning everything is related. Using our earlier equation, the level of investment in quality is related to the service demand while the levels of trust for those service providers are related to the speed to market of the operator. Rather than isolate any variables, sharp professionals relate everything. 

3. Avoid Polarization In Customer Experience

Many new homeowners decide to share their new home via a home-sharing platform to help generate revenue. If you decide to do this, you may find learning how to deal with the human facets of subjective expectations to be expensive, time-consuming and frustrating. In practice, you’ll likely have two kinds of upset guests: those who are unsatisfied, but you can fix their frustration, and those who are unsatisfiable. Those guests are best helped to another home. The key here for your customer experience is to avoid any polarization between the homeowner and guests. While you may not agree, it’s the responsibility of the homeowner when any home is available to share to make every effort — through diligence — to understand the guest’s perspective. In our equation, this is distributed squarely across the variables.

4. Focus On Speed To Market

Speed to market, particularly in an increasingly digitally engaged customer base, is a critical competitive advantage for new owners and investors. In measuring speed, it’s easy to focus on specific variables such as supply chains or booking windows at the expense of on-the-ground relationships. In fact, as Covey mentions in his book, local trusted relationships both increase speed and reduce the costs of delay. In other words, for second or investment homes the ability to trust people who are there is a smart professional move. Newcomers discount trust as something ephemeral, and perhaps it is to a degree, but smart professionals know success is in many ways a reflection of trust in others to carry your vision forward.

5. Don’t Discount Maintenance

Over time, as we buy sophisticated things, we come to learn that the maintenance of many of these things over time is as expensive if not more so than the actual purchase price. For example, the cost of a car can be measured as the total cost of ownership in relation to the purchase price. The same can be true with an investment home. Although many new owners discount the actual amounts of maintenance over time. Smart professionals have learned, on the other hand, that ongoing reinvestment numbers should be a significant component in measuring cash flows. Too often, critical reinvestment is starved when the demand for cash goes elsewhere. Of note, this kind of deferred maintenance is best reflected in two ways: nightly or weekly rental rates. You can also include exit strategies measured in market pricing, which is to say deferred maintenance is discounted from the asking price in the minds of many would-be buyers.  

These ideas are simple in their conception and, when applied as part of an early road map to success, often mean the difference between average success rates for investors and superior results over the long term. The yellow brick road to our homes, in other words, is simple to see and yet hard to follow in the dim light of day-to-day execution.

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