Could buying a second home be the secret to planning for a happy retirement, funding college tuition, saving money for an amazing family vacation, or all the above?
- Thousands of vacation rental owners around the world would agree.
- Could buying a second home be the secret to planning for a happy retirement, funding college tuition, saving money for an amazing family vacation, or all the above? Thousands of vacation rental owners around the world would agree.
Cinnamon Shore Port Aransas Mustang Island Texas
1. People aren’t waiting until their golden years to buy vacation homes
You can call it a midlife crisis, but people aren’t waiting around until retirement to jump right into owning their dream destination home. According to the National Association of Realtors, the median age of vacation home buyers decreased from 55 years old in 2004 to 43 years old in 2015.
Buyers are taking the plunge into the vacation rental business at an earlier age, and this allows for more years to enjoy the benefits of owning a second home.
Harry Dent Demographer
2. More people are opening their doors to travelers
According to HomeAway, only 7 percent of vacation home buyers in 2004 said the primary reason for their investment was to rent to travelers whereas most people were purchasing second homes exclusively for personal use. Today 23 percent of buyers say the number one reason they purchased their second home was to start a vacation rental business.
A whopping 89 percent of newly purchased vacation homes will be rented out within the first year. This statistic shows that the growing popularity of vacation rentals is making a big impact on buyers’ investment intentions.
3. Vacationing and running a business are no longer mutually exclusive
Owner can cover about 75 percent of their mortgage by renting out their vacation home for as little as 18 weeks per year. This gives them 34 weeks to enjoy it the way they originally planned: with friends and family. With this incredible flexibility and annual return on investment, homeowners are able to run a manageable business with plenty of time to enjoy the hard work they put into their vacation home.
4. People are investing in homes far, far away
Distance from home no longer inhibits buyers. In fact, the further the vacation rental is from an investor’s home base may be more of a motivation to buy than a deterrent. It’s finally possible to properly manage a property remotely thanks to online tools and technology, so buyers everywhere are searching for a second home where they can truly escape on vacation.
5. Owners are turning to property managers to help run their business
Hiring property managers is on the rise as more people begin to invest in vacation homes further away from home. Property management companies help provide personal services to enhance the guest experience that owners are not able to offer remotely such as 24/7 customer support lines and timely local tourism information. Managing rentals remotely has become easier over the past decade thanks to technological advancements, but time is still a commodity to most vacation rental owners. Property managers are increasingly becoming a go-to resource for owners who don’t have a lot of extra time to care for their home and guests.
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. 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.
Love them or hate them, third party distribution channels have fundamentally changed the way consumers shop for vacation rentals and the way property managers find new guests.
When HomeAway purchased VRBO.com in 2006, the idea of paying a third party to market homes to guests seemed like a feasible idea to boost shoulder season bookings and fill hard-to-sell inventory.
Fast forward through a plethora of fundraising, acquisitions, successes, and failures including: Orbitz’s failed entry into vacation rentals via a partnership with Zonder, HomeAway’s transition into a publicly traded company, Expedia’s spin-off of TripAdvisor, the VRMA’s defunct Switch initiative, TripAdvisor’s purchase of FlipKey, Booking.com’s 2012 introduction of vacation rentals, Expedia’s 2013 slow-moving partnership with HomeAway, the launch of metasearch via Tripping.com, HomeAway’s partnership with Kayak, Airbnb’s steady and uninhibited ability to raise capital, and Expedia’s purchase of HomeAway.
Now we find ourselves in present-day 2016 with third party channels that are almost essential in attracting new guests to vacation rental properties.
A variety of pricing models exist among the four major vacation rental marketplaces. Airbnb charges a 3-5% transaction fee to owners/hosts/managers and a 6-12% fee to the traveler. Airbnb collects money from the guest upfront and released payment to the “host” 24 hours after check-in. Booking.com also operates solely on a performance-based pricing model with owner/manager fees of up to 15% of the transaction.
HomeAway and TripAdvisor offer both subscription and performance-based pricing to vacation rental managers, and as of August 2015, TripAdvisor also still offered a Pay-Per-Lead Model, a model HomeAway phased out earlier this year.
With the rising costs of listing on third party channels, it is critical that vacation rental managers formulate a solid plan for making the most out using these middle-man marketplaces.
A successful strategy for the use of third parties for bookings involves maximizing the use of the channel, implementing a plan for lead capture, and retaining guests obtained through the channel.
- Partner with the channels that appeal most to your target audience. It is not necessary to list on every channel in order to be successful.
- Find ways to maximize your presence on the channel with upgraded listings, promotions, advertising, and deals.
- Promote your individual properties. Invest heavily in high quality photos and outstanding content. Make sure all of your amenities are being attributed to the property, and test listing titles frequently and seasonally.
- Monitor the channel’s ranking criteria and your individual rankings. Most channels in the vacation rental industry publicly list and update their ranking factors. Think of optimizing your listings on channels in the same way you optimize your web pages for SEO.
- Capture and retain lead information whenever and wherever possible.
- Acquire guest emails and find ways to capture the names and emails once a guest books with you. For example, require wifi sign-in access or collect emails to send keycodes.
- Send special offers, promotions, and event announcements to leads and guests.
- Create an automated communications plan based on the guest/lead’s first contact with you, the booking date, and dates of the stay.
The AirBnB Factor
Practitioners who specialize in second homes, resort, and vacation properties are now faced with a more savvy buyer because of Airbnb, says Holly Mabery, RSPS, SRS, an agent with Realty One Group Mountain Desert in Sedona, Ariz. “Traditionally, short-term rentals were held behind the magic curtain, and you had to work with an agent who specialized in them to get a feel for values and return on investment,” she says. “Now, with Airbnb and VRBO, that curtain is gone.”
Airbnb posts rental prices, service fees, and taxes for its listings, making it easier for investors to see the competition in the area and what the market will bear.
source: homeaway.com, cinnamonshore.com, vrmintel.com/amy.hinote