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The Vacation Rental Hypothesis

Matt Landau
2 min read
The Vacation Rental Hypothesis

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I probably don’t need to tell you all that much about the vacation rental industry.

Skyrocketing companies like HomeAway  (click here to list your place for free on HomeAway—only pay when you get a booking), AirBnB (rent my room for your vacation) and HomeExchange (use my home for vacation while I use yours) have indicated a decisive shift away from traditional hotel travel.

I probably don’t need to introduce you to the vacation rental industry industry because if you have ever rented a beach or a lake house for a few nights or a week: if you’ve ever used an agency to find your family a ski condo: if you have ever browsed classified ads and randomly stumbled upon a flat that fit your short-term needs: if you’ve done any of these things, then you’ve already participated in the marketplace. And whether you realized it or not, on the receiving end of your participation sat an investor (just like you and me) somewhere going cha-ching.

Vacation Rentals are the New Kid on the Block.

From a travel perspective, they’re gaining in traction because they offer cost-effective options for groups (no longer does Uncle Jerry have to rent the entire hotel floor to accommodate his family).

Immersion-wise, rentals provide a more authentic and “local” experience than sanitized hotels, giving travelers the ability to cook their own meals, shop at the local market, and mingle with real-life neighbors.

Rentals are also sitting on the cusp of popularity bringing with them an underground buzz (“We found this amazing rental nobody knows about in Vienna”): which is to say, as a lodging option, vacation rentals are still not entirely mainstream and to a bulk of early-adapter travelers, this makes them indisputably cool.

Investment Benefits of Vacation Rentals

But from an investment perspective, the upsides of owning a vacation rental are even more pronounced…

The evolution of the industry has spawned a new breed of property manager – the Super Property Manager – allowing owners half-way across the country to sleep well at night knowing that everything – from marketing to maintenance to bill pay – is safe, sound, and in supremely capable hands. Armed with strong internet connections, online reservations systems, and remote controlled locks, owners can now do “virtually” everything to keep their rental in tip-top shape from practically anywhere on the globe.

While the ROI of vacation or “short term” rentals can vastly surpass that of traditional real estate returns, herein lies an inherent challenge: finding enough guests to fill one’s vacation rental…consistently. But not to fear: directory sites such as FlipKey (TripAdvisor’s newest vacation rental venture) generate unlimited inquiries for fixed annual fees and similar marketing agencies tend to cap their commission fees at 10-20%.

And it’s not like the properties don’t exist! According to Radius Global Market Research, of the roughly 18.5 million households owning second residences or investment properties in the US in 2011, a mere 3.9 million (or just over 20%) actually rent those properties out to vacationers.

Related: Buying a Vacation Home as an Investment: Fun, Sun, and Income?

Meaning, many investors are sitting on potentially lucrative vacation rentals – rentals that, with some love, would cater perfectly to a massive growing demand – and they don’t even know it.

Have these numbers piqued your interest?

Good! I probably don’t need to tell you much about the vacation rental industry, but I’m going to anyway. This blog series will focus not just on the rapidly-evolving industry as a whole, but also on the myriad of beginner’s resources available online to assist first-time owners in marketing their property and earning maximum returns.

Photo: msprague

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.