Your Piece of the Pie: How Vacation Rental Managers can capture a fair share of industry growth

Currently losing market share

For many, the story of vacation rentals over the last several years has been the story of the rise of the listing sites. Much of the attention has been focused around how these companies contribute to the “sharing economy.” It is largely due to the growth of these kinds of sites that has led to professional vacation rental managers going from managing virtually 100% of the supply 10-20 years ago, to managing just over 40% today.

Who is better off?

But for all of the hype, there are real costs associated with this shift. For renters, the downside of working directly with a homeowner as opposed to a professional manager is pronounced. Does the homeowner offer instant booking, or does it take several days for him to respond only to tell you the dates you wanted are no longer available?  When something goes wrong during the stay, is there a helpline the renter can call knowing that there is someone local on the other end who can immediately remedy the problem?  How much does the renter really know about this homeowner, and will the photos they see really match the property when they get there? And on top of all of this, is the property they are booking even real, or just another scam?

For the homeowners, this shift can be just as damaging. The day they decided to manage their homes on their own, they essentially became small business owners. By HomeAway’s estimate, owners spend an average of 8.6 hours per week marketing and managing their homes. Homeowners who can afford these vacation homes typically have high paying, and demanding jobs. Those 8.6 hours a week have to come from somewhere, and whether it is less time to spend on their full-time job, less time to spend with their family, or less time being able to play golf, it is a tradeoff many in retrospect wish they had not made. Add to this that their lack of scale means they undoubtedly face higher costs (cleaning, etc.), and they rarely get as many weeks rented, or receive as much per week as a full-time professional vacation rental manager could, and self-managing the property looks to be a clearly losing proposition.

How to win

Given all of this, how best can professional vacation rental managers compete? Is the best course of action to compete head-to-head with RBOs and make the entire space a race to the bottom (on costs, service, and quality)? Unequivocally the answer is no.

We live in a society that is more than happy to pay for convenience. There is a reason so many restaurants have valet parking – most people would rather pay a few extra dollars than have to park their cars themselves. There is a reason that branded products can charge more for essentially the same offering as non-branded ones – most people associate known brands with the quality of their prior offerings, and rather than risk purchasing a cheaper alternative, they stick with the known entity.

The answer for vacation rental managers follows the same line of reasoning: become more professional; offer more, not less.  

There will always be people who do not value their time, they just want a deal. This applies as much to the homeowners who do not care that they are spending over 400 hours a year managing their properties as to renters who do not mind rolling the dice to save a few hundred dollars per week on their rental. Are these really the homeowners and properties you want to manage? Are these really the renters you want in your properties?

No, you want the best homes, with the best owners, and you want to fill them with the best renters. Don’t keep lowering your fees.  This just encourages you to offer less and less service and undermines your brand. Play to the strengths that come from full-time professional management.

Given this, what can you offer that RBOs cannot?

Brand – You have a name and a history behind your company. Make it mean something, and the renters who value that over the discounted online deal will flock to you.

Customer service – Increase your customer service.  This becomes part of your brand.  Offer services that others, cannot.  This starts as early as initial inquiries, and carries over through the rental and beyond.  The renters you want will pay a premium for it.

Scale – Take advantage of the fact that you have a company focused solely on this business.  Your costs, spread across your entire portfolio, should be a fraction of the individual homeowner’s.  Your efficiency in advertising, marketing, sales, and everything else should far exceed what a lone homeowner can do.  Use this to your advantage.

Focus – The RBO homeowner typically only has one home he is focused on renting, and some managers argue that this gives him an advantage in earning more off of it than a property manager with tens or even hundreds of properties under management.  DON’T LET THAT BE THE CASE.  Treat each home like you own it (more on this in the next article), and make sure you maximize the potential rental value for it.

Others – I am sure you have some strong opinions on this.  Please use the comments section to add other offerings that vacation rental managers can provide to further set themselves apart from the competition. 

Conclusion

All of this to say: play to your strengths, not your competitor’s. If you do, you will have a superior offering, and be able to charge a premium for it.  If you don’t, you will likely see market share slip as RBOs take an ever-larger slice of the pie. My next article will address different ways to take an even bigger piece of the pie by growing your inventory, and making more off of it.

Note: This post was originally published on the Vacation Rental Managers Association's blog on October 10, 2013.

Guaranteed Vacation Rental Income With No Work? Here’s How!

By:  Mickey Kropf

The vacation rental industry is on fire. This is an industry that has seen tremendous growth for more than a decade - nearly doubling in size from 1999-2011.

This growth has been spurred by the rise of listing sites, such as HomeAway and its affiliate websites, which have improved visibility of and access to this lodging option.  But there has been an inverse correlation between the growth of these sites and the number of professionally managed vacation properties, with the percentage of professionally managed properties dropping from nearly 100% 10-20 years ago to approximately 40% today.  Every year, vacation homeowners are faced with the same dilemma:  should the property be managed by a professional property manager, or should I manage it myself with the help of advanced online tools?

There are pros and cons to both approaches, and until recently, these were the only two options for owners who wanted to generate income from their vacation properties.  But this is now a false dichotomy thanks to the advent of a third option that allows homeowners to receive guaranteed income from a property manager with just a tiny fraction of the time investment of self-management.  Let us examine the three options in detail.

PROPERTY MANAGERS

Placing a property with a vacation rental manager is a fairly straightforward process:  offload all management responsibilities to a licensed, third party expert in exchange for a commission on all rentals.  In a traditional management agreement, the manager will take care of marketing, reservations, cleaning, maintenance, and more.  The homeowner can still use the property, and if it rents, the owner will receive his share of income after expenses and management fees (often 20%-50% of rental income) have been deducted.

But there are at least two major issues with this approach: 

●      No Guarantee - there is no guarantee of ANY income, only a guarantee that 20%-50% of any income generated will go to the manager

●      Lack of Investment - the manager has little invested in any given property.  Incentives are aligned with owners in general (i.e. if a property under management rents, the manager receives income), but not on any single property in particular 

This lack of investment can manifest itself adversely in the forms of tenant screening and property repairs because managers only earn income if properties rent, so they may be less discerning with guests than an owner would be, especially if the manager is not responsible for the cost of any damages caused by poorly screened tenants.  Moreover, the manager may even charge the owner a margin on repairs made to bring the property back to form.

Rental By Owner

The second vacation rental management solution, rental by owner, now comprises the majority of U.S. vacation rental supply.  The internet is increasingly empowering homeowners to handle vacation rentals by themselves.  In terms of benefits, the advertised value proposition is clear:  do all the work and keep 100% of the income. 

This approach also affords owners the opportunity to maintain control over their properties, from tenant screening, to owner usage, to repairs, and everything in between. 

But there are major disadvantages to this approach too: 

●      No Guarantee - there is still no guarantee of income

●      Time - owners have effectively taken on a second job - HomeAway research states that vacation owners spend an average of 8.6 hours per week marketing, booking, providing customer service, hiring and managing contractors for cleaning, maintenance, and capital improvements, accounting, and handling any other issues that may arise at any time of day

●      Competition - increasing competition from other owners within the rent by owner community and versus professional managers who have better online distribution for their rentals as well as lower cost bases for management compared to their amateur counterparts

Renting by owner is a great solution for some, including those who simply do not trust third parties to manage their properties, and those for whom there is no more lucrative or otherwise enjoyable use of their time.  But the income generated can still vary from one year to the next, thereby making it difficult to count on the income to cover property costs or living expenses.  Though U.S. vacation rental managers manage less than half the supply of rental properties, they account for more than half of the vacation rental market’s total revenue.  While rent-by-owner websites may advertise that homeowners need only pay a small yearly fee to list their properties, the truth is that additional marketing investments are often necessary to match the number of bookings brought in by a property manager.

Included in this group is the so-called “hybrid” arrangement, which includes various forms of shared management between owners and professional managers.  Ultimately, this arrangement  can make both parties worse off.  Owners spend their precious time performing management duties often to lesser standards than their professional counterparts, and managers earn less income and have even less invested in such a property. 

A Better Way

What if there were a better way - one in which a homeowner could count on rental income no matter what occurred with the economy, weather, or other external factors while receiving professional property management services from a management company that was co-invested in the property and responsible for maintaining the property’s condition at its expense?

There is, and it can be achieved by selling a property’s rental rights for a discrete period of time to a vacation rental manager, in other words, a guaranteed contract. 

Major advantages:

●      Guaranteed Income - guaranteed income, whether the property rents or not

●      Time - save all the time and hassle of renting and managing the property

●      Co-investment - manager co-invests in the property’s performance and condition, and is typically responsible for maintaining the property’s condition at its expense (except for capital expense items such as roof repairs) throughout the term of the agreement

Not all managers enter into guaranteed contracts, and those that do have inventory preferences that may or may not fit a given homeowner’s vacation property.  Furthermore, soliciting a single management company for an offer would mean that an owner would have little assurance that the guaranteed contract amount was fair market value. 

Enter VacationFutures, the only online marketplace that allows homeowners to receive guaranteed contract offers from professional property managers who compete against one another for the right to manage properties.  This service is completely free for vacation rental owners, and there is no obligation to accept any offer.  

For example, a homeowner may use her property four weeks every year, leaving 48 weeks available to rent.  She can list those 48 available weeks (for free) with VacationFutures and receive offers from professional vacation rental managers.  The top offer may look like this:

Total contract amount: $50,000

Management duties/expenses: marketing, booking, cleaning, linens, minor maintenance, all local occupancy taxes

Owner duties/expenses: utilities, capital expense items, preventive maintenance, property taxes, HOA, mortgage, property insurance

Terms: 5% paid at closing; remainder paid in equal monthly installments

Term: 48 weeks beginning August 1, 2014

In the example above, the property manager would likely expect the property to gross approximately $70,000-$75,000, thereby providing enough in revenues to cover the guaranteed contract payment to the owner, the agreed upon expenses, and a return on its investment. 

If the offer does not meet the homeowner’s expectations, she can simply decline the offer and carry on with her normal rental activities.  If the homeowner likes the offer, she can move to due diligence with the manager, during which time she can interview the manager, review references, and close the deal in person or on the website.   

Through this example, it is easy to see how the guaranteed contract approach can make vacation rental owners and managers better off, and that the VacationFutures online marketplace is designed to create true “win-win” scenarios for owners and managers. 

If you are interested in receiving a free, no obligation quote for your property’s rental weeks, visit VacationFutures or email mickey.kropf@vacationfutures.com today.