Tom Kelly: Rental option drawing second-home owners

Not only is the number of vacation home sales on the
uptick, but the percentage of those purchasers who intend
to rent out that vacation home to friends, family and
travelers also is climbing like never before.

Perhaps it’s the sluggish economy, coupled with the
chance to buy a bargain getaway, but 70 percent of
vacation homebuyers say they plan to rent out their home
in the next year, according to a survey from the National
Association of Realtors. Recreation home sales were up 7
percent in 2001 yet the median sales price dropped 19
percent to its lowest point in four years.

Of the 70 percent who said they intended to rent out
their properties, 39 percent said they planned to use the
rental income to help cover mortgage, taxes, insurance and
other costs while 14 percent stated they purchased the
property to make a profit.

These statistics probably do not surprise the 3.3
million vacation property owners in the U.S. who choose to
rent out their homes, condos and apartments. According to
Radius Global Market Research, the vocational rental
industry generated more than $85 billion in 2010 in the
U.S. and Europe

“Families and groups have just begun to discover the
value proposition that renting a home holds over renting a
hotel room,” said Jeff Mosler, a former group manager at
Microsoft and Amazon and now vice president, global
customer experience, at HomeAway. “People not only
appreciate the space but also the ability to use a kitchen
and laundry services plus the privacy of their own patio
and pool.”

HomeAway, the parent company of VRBO and dozens of
other international websites that allow owners to display
and rent out their properties, showed a revenue increase
of 37.1 percent to $330.2 million last year, up from
$167.9 million in 2010. The company has become the major
player in the vacation rental space and charges owners an
annual average of $300 to list their homes with pictures,
description and reviews.

HomeAway had 640,000 paid listings in 2011, up from
324,933 in 2008. The Austin-based company went public last
year and now employs 1010, 642 in the U.S. and 368 abroad.

According to NAR, there are approximately 7.7 million
recreational properties in the U.S. Of the second home
owners who bought in 2011, approximately 33 percent of
owners surveyed said that they purchased solely for
personal use, less than half of the number found a decade
ago.
That stat is mostly likely a reflection of a “luxury-
adverse” economy plus the addition of online tools making
it easier to locate and bill travelers and vacationers.

For example, HomeAway has negotiated deep discounts for
credit cards, rental guarantees and insurance while
streamlining reservations and providing customer profiles.

“There’s no way a person in the vacation rental
business could go into a bank and get a merchant credit
card rate of lower than 3.5 or 5 percent,” said Brent
Bellm, HomeAway’s chief operating officer. “All of our
owners can take credit card charges at 2.5 percent with no
additional fees which is a relationship you could not
receive as a single individual or small-business owner.”

Potential owners considering another purchase have also
been viewing online results in making their decisions to
get into the vacation rental business. For example,
HomeAway reported that 51 percent of its owners who
financed their vacation home were able to cover more than
75 percent of their mortgage by renting it to travelers.
In addition, owners averaged 19 rental weeks a year,
generating more than $28,000 in annual rental income.

Michael Smith, a vacation homeowner owner who
specializes in large groups who want to visit Disneyland,
said not only are his bookings on the rise, but so is his
competition.

“Two years ago, we were probably the only people with
homes that could accommodate 18-25 people,” Smith. “Now,
there are at least four other competitors just in the
immediate Anaheim area. Consumers now have more option
where we used to be their only call.”

Bellm said that HomeAway’s target market is groups of
at least 3-plus people, not individual couples headed out
for a romantic weekend or vacation.

“Those people often don’t require the size of a
vacation rental home,” Bellm said. “Often, they are
looking for specific services that a certain hotel offers.
We see that changing, however, as more vacation property
owners expand the creative services in their homes.”

Tom Kelly’s new E-book “Bargains Beyond the Border: Get Past the
Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a
Tearful Retirement” is available online at Apple’s
iBookstore, Amazon.com, Sony’s Reader Store, Barnes &
Noble, Kobo, Borders Books, Diesel eBook Store, and Google
Editions. It mirrors a recent article by CNN on the
benefits of the country, including increased rental
possibilities.