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PM Perspectives

9 Posts tagged with the property tag
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Thank you to everyone who took the time to join HomeAway in Las Vegas last month. RezFest 2013 went down in history as one of the largest vacation rental conferences on record. The nearly 900 registered attendees spent three days learning, networking and having fun together. The show was buzzing with energy, new ideas and product announcements poised to make professionally managed vacation rentals stronger than ever.

 

Across the keynotes, the software and listings lab, educational sessions, HomeAway lounge and countless one-on-one interactions over lunch, dinner, drinks, bowling and more – everyone learned from one another in a casual and professional environment. The active participation of each property manager in attendance helps drive continual growth and improvement in the vacation rental industry. View this quick video from property manager Roy Wiltshire who attended and greatly benefited from RezFest.

 

RezFest 2013 was another major step forward in demonstrating HomeAway’s commitment to helping vacation rental managers succeed.  Time and again we heard from customers about how innovative and informative the breakout sessions were as well as the demos conducted by Tom Hale (HomeAway’s Chief Product Officer) and his product team. From showcasing our newest Lead Management module to our new Housekeeping and Maintenance Mobile App and our new Reservation Grid, the words ”operational efficiency” resonated throughout the event.

 

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In addition to major software feature announcements, HomeAway CEO Brian Sharples unveiled two industry game changers:

 

  1. HomeAway’s new pay-per-booking listing model which enables property managers to advertise all or most of their inventory on HomeAway.com with no upfront fees under a pure pay-for-performance model at a 10% commission.
  2. The Professional Referral Network presents vacation home owners interested in listing on HomeAway.com with the option of enlisting the services of a vacation rental manager as an alternative to marketing and managing the home themselves. This major initiative gives vacation rental managers the ability to market their services to the millions of owners who visit HomeAway to list their properties.

 

Our sponsors provided enormous value to property managers by showcasing their products and services. Direct feedback from satisfied property managers who learned and signed up for a number of services from sponsors at the conference were rampant. And, several sponsors mentioned they sold more at RezFest in 48 hours than at all industry events combined! So, a big thanks to all sponsors for attending RezFest and delivering great value to property managers with a variety of new and innovative products and services.

 

Thanks again to everyone who made RezFest such a big success!

 

We are looking forward to an even bigger and better conference in 2014!

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Thanks to every customer and partners who took time away from their busy schedules to join us in Las Vegas in September for three days of networking, fun and tons of learning.  At its heart, RezFest is about educating our software customers on how to get the most out of their investment in our software products.  We offered over 80 sessions on a wide range of topics.  To our normal slate of stellar educational sessions we added advanced classes and a mobile app challenge to convey how important it is to develop products with input from our clients.  As always, the interactive lab was an unparalleled opportunity for customers to get face-to-face training with our experts.  Kudos to our unbelievable Support team for spending so much time preparing and presenting valuable information to our clients.


By measure of the 600+ attendees with whom we spoke at the event, combined with extremely positive post-event survey feedback, customers acknowledge RezFest as the premier technology conference in the vacation rental industry. 

 

At RezFest last year we asked the industry to “judge us by what we do,” not by speculation.  We told the industry we would develop a new tool to help them manage the explosion of leads from potential renters.  And we said we would not only develop that tool but would use it to demonstrate that we can build solutions that work with multiple platforms in our six-system portfolio.  With the demo of the lead management system (LMS), we did exactly that.  We added what is likely the biggest addition to our existing software products in years; all while constructing a new way to build our products. Without question, the LMS was one of the hot topics of RezFest!  Customers not only responded extremely well to what we demoed, but when asked what they want us to focus on going forward, the message from many of them was “do more of that.”  In other words, property managers see LMS not just as a new feature that will soon be available to them but also as a launch pad for a lot of features that will help them build stronger businesses for years to come.  Learn More about LMS here.

 

In the past nine months our product team has been hard at work making your software more effective and secure. With over 30 releases, 508 enhancements on six end systems and 1,000 defects resolved, we continue to make significant progress to deliver category-leading software to all clients. And, rest assured we have no plans to discontinue support on any of our legacy products.

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We’ve also heard property managers ask for improved integration between HomeAway Software and 3rd party distribution. Now, all of our customers can distribute inventory via their software interface on VRBO.com as well as HomeAway.com and all of our customers including EscapiaNET can participate in pay-per-subscription programs that allow them to take advantage of tiered pricing to maximize their visibility and Brand Boost to highlight their brands on our sites. Learn more about distribution here.

 

Lastly, we received feedback from HomeAway PM clients requesting to receive discounts when using both our software and the HomeAway Network of sites.  In addition to the new listing volume discounts, you can now “bundle” new listings with your annual software maintenance and support renewal and save on your annual fees. Your Relationship Manager will contact you about this opportunity prior to your annual maintenance and support renewal month.

 

Our goal for this year was to deliver on our promises to be “judged by what we do” and lay out our 2013 business strategy in order to heighten the level of trust and confidence PMs have in HomeAway’s people and vision.  We wanted to leave the “elephant in the room” behind and establish a trusting relationship with property managers to help grow this industry together!   Based on direct feedback from RezFest attendees (see testimonial videos here), the atmosphere was really positive with more and more customers appreciating that HomeAway truly is committed to helping property managers succeed in the world of online vacation rentals.  We feel our clients left Las Vegas inspired, excited and confident in choosing HomeAway as their strategic business partner not because of what we are but because of what we do.

 

Thanks,


Stephan.

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GMH3330-L.jpgWe are just weeks away from hosting RezFest 2012 on September 25-27 at the beautiful Red Rock Casino and Spa in Las Vegas! The excitement is building as we prepare for this incredible event where leading property managers gather to learn, network and have fun together for a couple of days.  To make this event even more fun this year, we are launching a ”Mobile App Challenge,” which consists of gathering ideas from our clients through a 5 minute survey.  Once at RezFest, you will have an opportunity to check out the best ideas from the survey, vote on them and work with our Product Managers and Software Designers to help them build a prototype, which will be presented to you during RezFest’s closing session. Whether you attend RezFest 2012 in person or not, you can contribute your ideas through this survey and automatically qualify for a chance to win some great prizes, such as an iPad, Bose Noise Reduction Headphones or a membership to the "Wine of the Month" club.  Take our 5 minute survey before August 15th for your chance to win!

 

If there is one educational event you must attend this year, RezFest is it! At this exceptional event, you will hear from Tom Flick, whose keynote sessions have inspired companies like Ritz Carlton, Starbucks and Boeing. You can also expect HomeAway® executives to make some PM-centric announcements you want to miss!  With almost 100 sessions and 9 concurrent tracks, RezFest is your once-a-year opportunity to sit down with your software trainers for free to see demos of our latest features.  As always, you can count on our social events to have fun while learning and networking with other leading property managers. So, make sure you bring enough staff at all levels of your organization, because your biggest regret will be that you didn’t bring more employees with you to take advantage of all the learning opportunities!


See you in Las Vegas on Sept 25-27 & may the best idea win!

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Due to the overwhelming attendee feedback from last year’s RezFest®, HomeAway Software for Professionals™ is proud to announce a repeat of the most vibrant and comprehensive software user conference for property management companies of all sizes on September 25 - 27, GMH3362-L.jpg2012 at Red Rock Casino in Las Vegas, Nevada. Join us for an incredible 2-day event where you will learn firsthand about the latest industry trends, imminent technology changes and most importantly, tangible ways to take your vacation rental business to higher levels of efficiency than you’ve ever imagined.  This year, we challenged ourselves to outperform last year’s success, which is not going to be easy after what we heard last year:

 

 

“RezFest 2011 was the best conference I have attended in 10 years,” said Doug Byron from RE/MAX Lake Travis & Co.

 

 

You won’t want to miss the most valuable industry event and miss an opportunity to spend 2 1/2 days learning and networking with the most innovative property managers in the industry while having fun at the Red Rock Casino, Resort and Spa with all of us.  This venue offers exquisite hotel rooms and suites with an unmatched combination of comfort, extravagance and value. Guests at the Red Rock Casino, Resort and Spa are pampered with every comfort and convenience imaginable, from luxurious bed linens to iPod jack sound system in every room and in-room spa treatments by appointment.

 

 

RezFest is not only a wonderful way to keep your finger on the pulse of the vacation rental industry, but also a terrific opportunity to network and interact with some of the most innovative minds in the field.” (Mark Carraway - Meyer Vacation Rentals)

 

 

In addition to over 80 educational sessions to choose from and evenings of fun-filled events, you will hear from two extraordinary keyGMH3781-L.jpgnote speakers.  Brian Sharples (CEO of HomeAway, Inc), who has lead the biggest revolution in the travel industry in decades, and Tom Flick.  Mr. Flick has provided guidance to world class companies, including Starbucks, Ritz-Carlton, Boeing, Marriott and dozens of others. His insights have inspired sales teams, executives and managers from some of the greatest companies in America—who have asked him to return year after year. HomeAway is excited to have Mr. Flick speak about teamwork, performance and growth to the greatest companies in the vacation rental industry. And as a hands-on owner and user of vacation rental properties, Mr. Flick is bound to surprise you with leadership ideas you can apply to your business immediately.

 

 

You can attend RezFest 2012 for less than $240 if you take advantage of our “early bird” pricing, a $260 saving over our rack-rate pricing!  So Register Today and receive the best possible value of any industry conference!

 


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I’m excited to announce Community for Property Managers, a new online resource for professional vacation rental managers. 

 

The vacation rental management business is tough because there are many ways of going about it.  The Community for PMs will share snapshots of how successful property managers grow and streamline their respective businesses.

 

The site is launching November 10, 2011, and will be seeded with a rich sample of content.  The variety of resources will increase rapidly over the next year with your contributions to its articles and forums.

 

Sure!  All sites want great content, but few achieve this.  Why should this Community be different?  Because resources will be contributed by members of the industry itself, making up the “Community.”  Users will learn and share content via forums, share and seek advice with one another and form groups with fellow users to pool resources on a variety of topics and issues.

 

How will we foster this? Community for PMs is designed around a “give-to-get” information exchange.  Members will give opinions and advice regarding their business experience with an interest to see others’ answers.

 

Key Features of the PM Community

 

How-To-Articles.  Vacation rentals are a complex business.  The Community will offer a continuing steam of “how-to” insights on discounting, growth and other common industry challenges and trends.

 

Forums are available for managers to exchange comments.  These will grow in lock step with content and participation.  We expect to see forums for industry trends, vendor products and relevant industry news.

 

Statistics (available in 2012) will provide perspective to the booking trends experienced by individual rental managers.

 

Vendor Showroom -  I am especially proud of HomeAway here: we are planning to include a Community Vendor Showroom that will be free and open to all—including HomeAway competitors to provide PMs the ability to browse and rate products and service providers for their managed homes.   This is a bold move.  But we are hoping this will provide an incredible value to our PMs

 

I’ll host Webinars where guest speakers share insights.  One of our first webinars, “Hybrid Business Models,” will show how a rent-by-owner business morphed over five years into a PM with five hundred homes under management by incorporating best practices of both PMs and rent-by-owners.  Subsequent webinars will address difficult industry challenges in the realm of rate setting, finding growth in maturing markets and channeling employee conflict.

 

Polls will be utilized to gauge opinions on topics such as booking trends, financial effects of discounting and the impact of social media on the industry.

 

Community will also offer business support tools.  Our first example is a spreadsheet tool that will help calculate the dollar value of a single home—illustrating how much is at stake when a homeowner is added or driven away.  Soon, our “What-is-it-Worth” valuation tool will help calculate the value of a vacation rental management firm.

 

Community for PMs Will Belong to the Industry.  Community is designed to attract and benefit all segments.  No cost.  No strings.  Our goal is to build this industry and welcome any efforts towards that goal. 

 

So come on in.  See what’s there now.  Let your imagination show what you can help it become.  Then contribute what you can, take what you need and help make this a fabulous Community.

 

See you there!

 

George

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Though today, I shared my perspectives on the vacation rental management industry under the title “Volsky’s View.”  I’m excited to report this will be my last blog under that title.

 

Going forward, my blogs will be supplemented by contributors (HomeAway Software for Professionals (HASP) employees) who are in a position to interact with vacation rental managers and observe industry trends. These blogs, along with mine, will appear under the title, “Property Manager Perspectives.”

 

It is our goal to enrich the content of blogs on HomeAway Community by addressing evolving industry trends, newly emerging issues that concern property managers and events that help rental managers make better decisions. 

 

This change is part of a new role I will be assuming at HomeAway.  I have been given an opportunity to help HomeAway provide new and meaningful resources for property managers on HomeAway Community. The planning phase of this new project will keep me busy for a good while. 

 

We hope to unveil some new online resources and services for PMs in the future.  Until then, I’ll keep contributing blogs to PM Perspectives, as will other authors. 

 

Best,

George

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Hotels must achieve higher occupancy rates to attract investors.  It is natural that hotels sometimes fill vacancies through aggressive discounting.

 

The first part of this blog addressed community interests in vacation rentals.  This second part discusses actions managers can take to defend against hotels and cruise lines.

 

What Community Leaders Should Understand About the Unique and Critical Role Played by Vacation Rental Homes in Local Economies and Why They Should Promote a Level Playing Field

 

As noted in Part 1, vacation rentals are well equipped to survive aggressive promotional discounts by hotels and cruise lines which, by virtue of their more demanding investor expectations, must always rebound to higher prices than are charged by vacation rental homes.

 

But when municipalities place unfair regulations on vacation rentals, long-term damage can result to both the local economy and the vacation rental industry.

 

It is important to recognize (and educate community leaders on this point) that vacation rentals’ unique investment profile generates economic benefits that—on a per-visitor basis—cannot be matched or replaced by hotels.

 

Large hotels are often not financially viable (and thus not present) in vacation markets that are just beginning to attract tourists or have short seasons.  Hotels in such markets would need to charge prices that are too high to generate the high occupancy rates required by hotels.  Here:

 

  • Vacation rentals bring the capital investment (housing infrastructure) that is necessary to lure tourism dollars to destinations that lack sufficient traffic to support large hotels.
  • Vacation rentals offer lower-priced or higher-value lodging than could be offered by hotels and motels.  This brings more tourists and primes the pump for tourism growth.

 

It is also important to recognize (and educate community leaders on this point) that vacation rentals bring economic benefits to a community that goes far beyond those traditionally generated by hotels and captured within the scope of tourism metrics. Vacation rentals typically:

 

  • Involve longer stays;
  • Involve larger travel groups;
  • Employ more employees per bedroom for maintenance and housekeeping;
  • Support larger numbers of small business;
  • Accommodate peak season overflow that hotels cannot cover;
  • Generate economic benefits beyond those embedded in “tourism” metrics:
    • Prodigious numbers of housing construction;
    • Large volumes of real estate sales commissions (5-8 year home turnovers);
    • Related volumes of mortgage financing and fees;
    • Home furnishings and housewares sales;
    • Indirect employment and sales measured as economic multipliers;
    • Tax revenues related to underlying employment and sales

 

Local leaders seldom realize the full range of benefits their communities receive by nurturing and protecting vacation rentals.  As an industry, we can’t expect community leaders to understand our industry until we do.  It is our responsibility to educate ourselves, then others if we are to defend against regulations that restrain vacation rentals at the prompting of competitors.

 

What Defensive Actions Should Managers Take to Compete with Hotels and Cruise Lines?

 

My advice:  educate yourself on the forces that actually threaten vacation rentals or dictate what we can and cannot achieve.  Engage where you foresee clear benefits.  Otherwise relax.

 

Cruise lines advertise some incredible prices for all-inclusive vacations that can include air fare, a cabin, entertainment and food.  What can you do in defense?  You could pass along articles that show how much cruise lines generate from drinks and gambling, but consumers probably sense that anyway.

 

  • Cruise ships require massive capital investment, and a small decline in bookings can be disastrous.  Unlike rental managers, cruise lines have to pay for empty rooms. 
  • It’s important for cruise lines to be full even if they have to give rooms away because cruise lines get revenue from liquor sales, gambling casinos, and shopping. Plus, ports often pay a fee for each disembarking passenger.
  • Cruise passengers don’t necessarily spend less, but they love the idea that they can spend less, eat endlessly, or put vacation money into shopping, drinking and gambling.
  • Cruise lines won’t supplant vacation rentals.  There’s room for both.  I believe vacation rentals offer more of a recurring lifestyle vacation embedded in family traditions. Cruises fit in the category of infrequent travel adventures, ala Las Vegas or Disney World.
  • For 2011, economic stabilization is allowing cruise operators to demand higher prices, and this should result in less competitive pricing pressure on vacation rentals

 

Periodically, ski resorts and high-end hotels steeply discount room rates to fill vacancies. 

 

  • Resorts and high-end hotels have higher fixed costs than vacation rentals and fight to cover those costs by getting “heads in beds” that generate additional spend from spas, lift tickets, restaurants and shops. When these entities discount lodging by 50%, their revenues drop just a fraction of that and could actually increase.
  • Managers and homeowners do not generate similar supplemental spend, and are hurt more by lodging discounts.  Managers should inform homeowners about steep hotel or resort discounts and give homeowners the option to defensively discount rents to retain renters—many homeowners will  discount rather than get nothing.
  • When resorts ask homeowners and managers to discount lodging to lure renters from competing destinations, do the math and raise the issue if it appears that private homeowners contribute 90% of the discounts but resorts reap 90% of the benefit.
  • Managers need only calculate how low rents can go for them to break even.  Profit is desirable, but it is better to help homeowners get some revenue through discounted rents (even if the manager makes no profit) than to lose the homeowner (and future profits from his home) because the homeowner thinks you didn’t try hard enough

 

Remember, the ability of hotels and resorts to meet fixed expenses depends on high occupancy rates.  This dictates that hotels deliberately keep capacity below levels required for peak demand days, leaving room for vacation rentals. 

 

Also keep in mind that hotels must charge enough to generate a return on investment, whereas vacation rentals need not even cover investors’ costs of home ownership. 

 

These facts, combined, make hotels and resorts vulnerable to vacation rentals, which deliver excellent value and lower prices. 

 

In other words, vacation rentals offer a better lodging value for the renter’s buck during normal times.  Hotels and resorts inflict the biggest pain on rental managers during periods when declines in demand make it hard for hotels to cover their larger fixed expenses.  But vacation rentals will always remain healthy competitors in the lodging market.

 

For 2011, U.S. hotels appear to be on pace to grow room revenue (RevPar) 7%, and this should alleviate the steep discounting of prior years. 

 

In all events, the threat from hotels and resorts is not great over the long-term. But I'd love to hear different perspectives if you have them.

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The best times to add fees are during good rental years when the market will allow an increase in rates.  In lieu of increasing rent that is subject to a commission split, a manager will create a fee to be paid directly by the renter.  When this approach can be taken, the homeowner does not get less revenue, lessening his opposition to the fee.

 

Obviously, these are not the best of times.  The Instant Software Research Center Monthly Report: December 2010 State and Regional Vacation Rental Trends, which I administer, reveals that the industry raised rents 1% in 2010 and arrivals declined 2%

 

There is a backup strategy.  If a manager lowers commission rates when he increases fees, revenue doesn’t decrease for homeowners or increase for managers—the first year.  This makes it easer to sell fees to homeowners.  But if discounting gets worse in the future, homeowners will shoulder more of that burden.

 

Does your company need to do this?  Not if you are making a healthy profit (10-15 percent of commission and fees for a small to medium company).  Yes, if expenses have crept up over the past few years, eroding profits below healthy levels.

 

Can you pull this off?  This depends on how well you communicate with your homeowners and on your competitive environment.  If you don’t communicate very well, key competitors who are either very smart or very desperate will steal your homeowners if you haven’t made a very compelling case to your homeowners.

 

What fees do you add?  It almost doesn’t matter.  Run through your key expenses to find expenses that are killing you (hot tub, bill-pay services, housekeeping; inspectors; maintenance, etc.).  And look closely at any fees already being charged by your competitors.  Its not so much what fee you add but how you sell it to customers.

 

Can you sell change to your homeowners?  I have worked with many managers over the years to help restructure their fees and commissions.  Homeowners always resist.  Managers always panic.  But you can implement change.  It’s just stressful (very).

 

How do you structure the fees?  Add language to your listing agreement that allows you to charge fees to renters and raise them periodically without further approval from the homeowner.  This way you can raise fees every year, but need only fight homeowners the first year.  Tell homeowners you are placing the burden of the services on the renter.

 

Look for expenses you currently pay with a view toward passing them on to the homeowner.  Or introduce new (high margin) services.  Or terminate old services “because of runaway costs,” but announce your willingness to do them on a fee basis for those homeowners that really want them.

 

Can you pull it off?  The question is, “Can you afford not to?”   If you do not earn a healthy profit or your profits are declining, and if you can’t compensate by growing your inventory, you are on a destructive path that will force layoffs and degrade service.

 

Look in the mirror every morning and repeat this:  “Profits are not selfish.  They are a necessity.  Companies must have a reserve to hedge against cycles in the marketplace and economy.  Growth costs money.  It takes money to find and implement efficiencies.”

 

If you still need motivation, let me offer this. Managers have an obligation to themselves, their families, their employees and their vendors to maintain their financial health.  You cannot share your cup if it is empty. 

 

If you forego the hard decisions required to protect your profits, you will eventually let down the people dependent upon you.  Your sacrifice will not even benefit your homeowners, who will ultimately end up with a manager who charges enough to buy the services required to attract and retain renters and homeowners.

 

Keep in mind that you can’t raise or add fees that are paid by the renter if that new fee will cause renters to look elsewhere.  The market sets a cap on rents.  You must match market rents or risk losing rentals.

 

There is of course more to be discussed.  This blog just offers an overview.  If you would like further information, let us know.

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The New Year brings to each rental manager the challenge of growing profits and responding to emerging competitive pressures.  Ideas are seldom scarce.  Resources usually are.  How can a manager best decide which promotion ideas will best grow your business?

 

As managers sift through their options, they need an understanding of the profit drivers for vacation rental management business.  The fundamental concept can be conceptualized with this question:

 

“What is more important to your business— inventory (homeowners) or reservations (renters)?”

 

“Why,” you may ask, “is it even important to ponder this question?  Shouldn’t we treat both groups as equally important? “

 

I’d illustrate the importance of prioritizing inventory vs. reservations in the context of budget planning.

 

For example, as your company puts together its 2011 budget, it might see opportunities such as the 12 that follow, but have resources to invest in just one.  How does your company decide which to pursue?

 

1.    Website enhancement;

2.    More money for paid search;

3.    Marketing consultant or staff;

4.    Database mining and email blast capability;

5.    Staff to respond more quickly to email inquiries;

6.    Phone systems that help monitor and improve call-to-booking ratio;

7.    Data mining that identifies homeowners;

8.    Lists of target homes;

9.    Email and postcard campaigns that solicit new homeowners;

10.  Staff time that can be dedicated to soliciting new homeowners;

11.  Studies of competitors’ commissions, fees and services;

12.  Decision support tools that monitor each home’s bookings year-to-date

 

It can be loosely said that the first six options target renters and the last six target homeowners. 

 

Certainly, you have to “treat” both renters and homeowners as though they are your highest priority.  But you can’t always invest in promoting both.   If you have a sense of whether it is more important to grow reservations or inventory, you are half way through a difficult decision.

 

So, which is more important?  (Let’s assume that you don’t already have enough of one group.)

Initially, the question appears to pose one of those “which came first, the chicken or the egg?” questions that has no definitive answer:

 

  • Without renters, there is no business.  Their rents and fees supply all the revenue.
    • If you bring in enough renters, you can attract new homeowners.
  • Without homes, you have no product to attract renters; your company profits depend on the number of homes you have.

 

But we need to look deeper.  Embedded in the very structure of the vacation rental industry are other facts that help prioritize these two customer groups.  A grasp of these structural facts will help managers better understand their business models, identify profit drivers, and decide how to allocate scarce resource to grow the business.

 

“What,” we need to ask, “is the product we sell?” Vacation rental managers sell lodging of course, like hotels, motels, cruise ships, and RV rentals. 

 

“Duh!” you might respond.  “What’s not obvious about that?”

 

The answer:  Lodging is by far the most expensive component of the vacation rental business. Many managers don’t focus on this because they don’t own the lodging they rent.  For managers, the greatest expense is usually labor.  But for vacation rentals to exist, someone has to invest capital in lodging.

 

“Okay, inventory is the most expensive aspect of this business.  Why is that important to know?”

 

Here’s the key.  Unlike investors in hotels, motels, cruise lines, and RV rentals, most homeowners do not expect to earn a profit on rentals!  Rental homes don’t have to generate a return on investment.

  • Homeowners are largely investors in real estate who profit when they sell their home at an appreciated price; they usually expect to have negative cash flow from the rental activity.
  • They are investors who use rental income to help them buy a more expensive home than they could otherwise afford (leveraging the potential appreciation on their investment);
  • They include investors who gain lifestyle benefits while rental income helps them pay for real estate that—during the history of the US—has always appreciated over the long term and is likely to continue to do so as the US population grows.
  • Investors supply the bedrooms we rent, allow us to sell the rooms below cost, subsidize the renters through negative cash flow (often losing $2000 monthly), and take all the risk.
  • Rental managers get to price these rental properties below cost (which hotels cannot do for long), take a percentage or every dollar spent by a renter, and expand or cut our expenses when the market expands or contracts.

 

When the economy was booming, a study I did for the North Carolina Vacation Rental Managers Association concluded that homeowners in NC subsidized renters by $251-500 million annually.

 

This subsidy makes vacation rentals a superb value to renters.  For each dollar spent, renters get more space and privacy than can be offered by hotels.

 

  • This single fact frames the business model depended upon by most rental managers:
  • Managers don’t have to pay for the lodging they rent;
  • They don’t have to charge enough rent to pay the mortgage as do hotels;
  • They don’t have to generate a return on the homeowner’s investment;
  • They can sell their product below cost, making it a great value;
  • They take a commission and fees on every rental;
  • Managers do not need a large capital investment to enter the business.

 

This gives rental managers some fairly unique advantages over other lodging providers:

 

  • Vacation rental homes offer such good value relative to hotels and motels that managers don’t need large marketing war chests to sell their product.  “Build it and they will come.”  (At least during peak season).
  • Managers can survive by spending just enough money to enable renters to find them. 
  • Promotion of the resort area can be left to State tourism agencies, County tourism development bureaus and Chambers of Commerce who represent hotels as well as rental homes. 
  • Managers need only compete for a fair share of those tourists who have already decided to visit.

 

And here is the wonderful part:

  • Good inventory will be found by renters.  

 

With these thoughts in mind, let’s revisit the question, “What is more important, inventory or renters?
It has been my contention for the past 10 years that inventory is more important, hands down:

 

  • If a manager can offer great inventory at a competitive price, renters will find it (good inventory = inventory in demand);
  • Competition in each market may dictate rent levels and limit the fees that a manager can charge.  But it is the quality and number of homes in a manager’s inventory that will determine how much profit a manger can generate.

 

Am I suggesting that managers need not dedicate resources to getting reservations?  Of course not.

  • A rental manager’s first priority is to attract and keep the best homes possible;
  • A rental manager often has more bedrooms than area hotels; he needs to build his hotel a few bedrooms at a time, and it is the number and quality of inventory that attracts renters.
  • Renters will find good homes (homes in demand) whether the manager has a large or small marketing budget.  Illustration:  in most markets, a great new home that is not yet constructed can book up fully for the peak season shortly after it is advertised on any manager’s web site.

 

Managers must also focus on getting reservations because homeowners want to be in rental programs that maximize rental income.   Even one extra rental per home per year can help managers retain and attract the most desirable rental homes.  But the key to profits lies in attracting and retaining inventory.

 

There are of course other things that must be considered in deciding whether to pursue renters or homes at a given point in time:

  • How fast can you grow without degrading service levels or diluting rentals for veteran homeowners? 
  • Can you finance this growth (growth costs money) or survive it (most small business failures arise from growth, not from lack of customers)?
  • Is one of you key competitors growing (can I afford not to grow);
  • Is your market maturing or can we count on growth?

 

We’ll cover some of these issues in future blogs.  Hopefully this discussion will illustrate the structural elements of the vacation rental industry that set it apart from other lodging segments, and bring into focus the core importance of inventory in driving profits for vacation rental managers.