Not only are vacation-home sales on the uptick, but the percentage of purchasers who intend to rent out vacation homes to friends, family and travelers 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-home buyers say they plan to rent out their home in the next year, according to a survey by the National Association of Realtors.
Recreation home sales were up 7 percent in 2011 from the year before, 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, charging 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 1,010: 642 in the U.S. and 368 abroad.
According to the National Association of Realtors, 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 those surveyed by NAR 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-home 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 said. "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 three-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."
Next week: Vacation rentals get the cold shoulder in some communities.