Vacation Rental 101: Payments

Astrid LindstromLeave a Comment

vacation rental 101 how to collect payments

Once you’ve put a traveler through your screening process and decided you’d love to host them as a guest at your vacation rental, you can accept the booking and their payment.

Which means you’re going to need to decide on your personal payment policies.

Your payment options will be part of building your listing, but payment is a complex enough topic that we decided it needed its own 101 post. We’re going to dive into the various payment options available to owners and discuss what payment type is best for your vacation rental business.

Payment Types

Which payment type you should offer can be succinctly summarized in one sentence: almost everyone prefers to pay by credit card.

For the lengthier version, read on.

Vacation rentals began as a cottage industry, and most travelers felt comfortable writing an owner a check or money order as long as their property had 5-star reviews and no complaints regarding shifty payment practices.

Today, however, the scene online has changed dramatically. Vacation rental scams are quite common, and many unscrupulous people will create listings – complete with fake or stolen 5-star reviews – to collect checks from unwary travelers.

Travelers are aware of vacation rental scams where an “owner” accepts a deposit for a property that does not exist. Most of these scammers ask for paper checks because the money cannot be transferred back to the paying party, leaving the traveler with no recourse.

For this reason, travelers overwhelmingly prefer to pay with credit cards.

You will lose bookings if you don’t provide guests with a way to pay by credit card. You can do so either on your own personal website or through a major listing site, but without this option, you will lose travelers who are concerned with the security – not to mention the convenience – of their payment.

Because credit card processing involves a fee – generally around 3% – some owners prefer to accept paper checks from travelers for their rentals. However, travelers aren’t especially concerned with saving you a fee. They’re trying to save themselves the potential loss of hundreds of dollars, and they overwhelmingly choose rentals that afford them this protection.

Trying to save yourself a 3% fee and costing your vacation rental thousands of dollars’ worth of bookings is the very definition of penny wise, pound foolish. We strongly recommend taking credit card payments.

Payment Terms

When you sign up for a major listing site, you’ll find several different possibilities for when you will receive the funds for each booking.

On HomeAway and VRBO, you can accept a partial payment at the time of the reservation and collect the balance at a later date. You can also request the full amount up-front at the time of booking.

FlipKey and TripAdvisor have a similar structure – they provide an option to put down 100% at the time of booking, or to break up bookings into two payments. You can vary what percentage you collect up front and the date that you will collect the final payment.

Airbnb has a set policy on payouts. They collect the entirety of the payment from the guest up front and release it to the owner 24 hours after the guest’s check-in. That payment may take a few days to officially arrive in your bank account, depending on the method you use – you can see a full breakdown of Airbnb’s payout system here.

The benefit of collecting 100% up-front is that you can choose to keep the entire deposit in the case of a cancellation. If you only accept a 30% or 40% deposit, you would only keep that amount if a traveler cancels.

The downside is that travelers are less likely to make a booking when they have to pay the entire amount up-front. This can cost you bookings, and subsequently rental income.

Doing the Math

It’s tempting to choose the options that will save you money in the short-term without considering how it might affect your rental income over time, so it’s worth doing a bit of quick math to decide whether your policies are likely to cost you more than they’re saving you. (We also make this recommendation when it comes to setting your nightly rates.)

92% of travelers prefer to book online, and they overwhelmingly choose secure payments methods like credit cards, debit cards, or PayPal. At a conservative estimate, for every four travelers who will gladly book with a secure payment like a credit card, you’ll only find one traveler willing to pay with a paper check or a money transfer.

If your average booking is around $1,000 (to give a nice round figure), you’d get one booking without credit card fees if you didn’t accept credit card payments, for a total of $1,000.

With credit card payment, you’d get four bookings in that same time period, and pay a 3% processing fee, for a total of $3,910.

Pretty easy math there. Even if there were three travelers willing to send you a paper check and four travelers who would use a credit card, you’d still be looking at $3,000 in income vs. $3,910 in income – and why would you rob yourself of that extra nine hundred bucks?

Similarly, it’s our experience that owners lose out on bookings when they ask for 100% deposits up front (excepting on Airbnb, since all properties have the same policy and travelers aren’t given an alternative option). Since cancellations aren’t common, you’re likely to lose far more money in missed rental income than you are in uncollected cancellation fees.

Let’s take the example of a $1,000 average booking again, and assume you’ve set a 30% deposit. Three travelers are willing to book at that rate, and one cancels. You take home 2 full booking amounts ($2,000), and one 30% deposit ($300) for a total of $2,300.

If you collect 100% up front, let’s say only two of those three travelers are willing to put down the full amount. You take home $2,000 whether the travelers cancel or not, but that’s still less than the $2,300 you would have collected with your three bookings and one cancellation.

If only one traveler is willing to pay your 100% deposit, then the math becomes even more dismal – $1,000 where you would have earned $2,300.

Bottom line: in general, it’s best to offer the options that the travelers most want, even when they cost you a little more. Your total bookings will more than make up for the small cost of processing fees and occasional cancellations.

Need Help?

Evolve ensures you’re always maximizing your rental income by providing our owners with dynamic rates, traveler-friendly policies, and a full-time team of Travel Advisors to accept booking inquiries and answer questions 7 days a week. You can learn more about how we help owners get the most out of vacation rental here.

This post is part of Evolve’s Vacation Rental 101: The Expanded Ultimate Guide to Success series, where we discuss the ins and outs of vacation rental ownership for newcomers and experienced veterans alike.

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