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    Take a Bigger Piece of the Pie

    My last two articles addressed how the vacation rental pie is growing, and how to ensure that you do not end up getting a smaller piece of that pie. This article will discuss how you can move beyond maintaining your market share to growing your inventory, and also making more from it.

    Some of you may know my company, VacationFutures. We are relatively new, but an incident that occurred right as we were starting out is informative. In December of 2012 we had just started speaking to homeowners and property managers about creating a marketplace where homeowners could sell all the weeks they wanted to rent their property and get guaranteed income for it. They were going to be able to do this because on the other side of the transaction, property managers who wanted to add to their inventory would bid on the properties and the weeks they wanted to manage. At that time, however, it was just an idea. There was no marketplace, and we did not even have a website.

    Despite this, in December someone found my email address, and reached out to me on his own, I will call him Bob. Bob was representing a property management company in the Florida Panhandle, and had been tasked with looking into ways that the company could grow its business. As Bob explained to me: “The company simply hasn’t grown for more than five years. With the online listing sites, every time they get a new property, they lose two properties to homeowners deciding to manage their homes themselves.” Bob had reached out because he had heard about what we were doing, and thought we could help the company, which we were more than happy to do.

    Most of you are probably aware that the market share of vacation rental managers has slipped to 42 percent. Some of you may also be aware that the trend is continuing in that direction, with only 27 percent of homeowners saying they plan to use vacation rental managers in the future. In the face of these headwinds, how can property managers possibly grow their inventory, and thus their market share? Is the annual shuffling of homeowners from one company to another, with hundreds of mailers, and constant haggling over rates the only option? Absolutely not. 


    Getting the facts straight

    The first option is to show homeowners that they are not actually better off managing their properties themselves. As I touched on in an earlier article, the people who can afford these homes can do so because they have high paying jobs. As a result, their time is expensive. HomeAway estimates that the average homeowner spends 8.6 hours per week managing his or her home. If you are an attorney who normally bills at $200 an hour, and you are spending an average of 8.6 hours per week, do you really believe you are coming out ahead by no longer having to pay a vacation rental manager’s commission?

    Even if you come across a homeowner who does not value her time, and there are plenty who don’t, as someone who has been doing this professionally for years, you should be able to make a strong case for why they are still monetarily better off working with you than going it alone. Richard at Discovery Holiday Homes wrote a great piece breaking this out. Do the same for your homeowners, and leaving you will start to look much less appealing.

    Notice that none of this contemplates lowering your commission to keep your clients. Keeping your properties, but making less off of each one, is not any way to grow your business. In addition, the lower your commission, the lower your incentive to squeeze out the highest possible rate for each and every week (just see the studies on Real Estate Agents in Freakonomics). This isn’t good for you or for the homeowner.  Do everything you can to maintain your rates, and if you can make a strong, fact-based case, your homeowners should stick with you.

    Guarantee contracts

    Another option is to guarantee homeowners a certain amount of revenue. One of the most common complaints I hear from homeowners is that under the typical property management relationship, the homeowner takes all of the risk, but they get only a portion of the revenues. Showing them that you believe in the home, and will do everything in your power to get the most for it, becomes a lot more convincing when you have money on the line.

    However, this can be a risky proposition if you are not able to earn as much as you guaranteed. In addition, you need to think carefully about how you structure the agreement for any revenues earned above the guarantee. Will you still just earn your normal commission? Do you get a higher commission? Do you get 100 percnt of the upside? Obviously each has different implications for your risk/reward potential, so make sure you structure any guaranteed contract in a way that you feel protects your business.

    Own the properties

    To go to one extreme, another option is to actually own the properties you manage. The potential rewards are nearly boundless. Not only do you keep 100 percent of any revenues you earn, but also any upswing in the property’s value goes directly into your pocket.

    But as with many things, with a great potential reward comes a great risk. While you keep 100 percent of the revenues, if the revenues are not enough to pay your mortgage, taxes, cleaning, etc., this becomes a losing proposition. In addition, 2008 showed us quite clearly that property values can drop just as easily as they rise. Add to this the very limiting nature of relying on ownership for inventory growth (How many homes can you really buy outright?), and this, at least on its own, is not the most compelling option.

    Own the weeks

    Another option is to just own the weeks you want to rent on an annual, or even seasonal basis. This is similar to a guaranteed contract, but rather than guaranteeing money over the course of the year, and still having all of the back and forth with the homeowner during that period, you are instead buying the weeks upfront. This guarantees you will receive 100% of any revenues from the beginning, and it means you will have full control over management, as well as full pricing power.

    These kinds of deals can be negotiated directly with homeowners, but in our experience, few homeowners are likely to accept them if approached directly. This is because of the imbalance in information and sophistication between a professional vacation rental manager, and a homeowner who at best does this part time.  When an offer is made, the homeowner thinks: “What do they know that I don’t?”

    This is why we started VacationFutures. By creating an auction platform that enables homeowners to get offers from multiple property managers, they can be safe in the knowledge that they are receiving a fair market price. At the same time, by providing vacation rental managers with a one-stop-shop where they can easily find and access the kinds of properties they want to manage, we make the entire process for obtaining new inventory that much easier.


    This is not intended to be a shameless plug for VacationFutures. There are many non-traditional options out there, only some of which are addressed in this piece. I would encourage readers to use the comments section to share your own thoughts and ideas for how to grow rental inventory. Professional vacation rental management is better for renters and for homeowners. Let's work to make it the norm again, not the exception.

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