Vacation market heats up for second-home owners

Not only is the number of vacation home sales on the uptick, but the percentage of those purchasers who intend to rent out that vacation home to friends, family, and travelers also is climbing like never before.

Perhaps it’s the new economy, coupled with the chance to buy a bargain getaway, but 70% of vacation homebuyers say they plan to rent out their home in the next year, according to a survey from the National Association of REALTORS® (NAR). Recreation home sales were up 7% in 2011 yet the median sales price dropped 19% to its lowest point in four years.

Of the 70% who said they intended to rent out their properties, 39% planned to use the rental income to help cover mortgage, taxes, insurance, and other costs while 14% stated they purchased the property to make a profit.

These statistics probably do not surprise the 3.3 million vacation property owners in the U.S. who choose to rent out their homes, condos, and apartments. According to Radius Global Market Research, the vocational rental industry generated more than $85 billion in 2010 in the U.S. and Europe.

“Families and groups have just begun to discover the value proposition that renting a home holds over renting a hotel room,” says Jeff Mosler, a former group manager at Microsoft and Amazon and now vice president, global customer experience, at HomeAway. “People not only appreciate the space but also the ability to use a kitchen and laundry services plus the privacy of their own patio and pool.”

HomeAway, the parent company of VRBO and dozens of other international websites that allow owners to display and rent out their properties, showed a revenue increase of 37.1% to $330.2 million last year, up from $167.9 million in 2010. The company has become the major player in the vacation rental space and charges owners an annual average of $300 to list their homes with pictures, description, and reviews. HomeAway had 640,000 paid listings in 2011, up from 324,933 in 2008. The Austin-based company went public last year.

According to NAR, there are approximately 7.7 million recreational properties in the U.S. Of the second-home owners who bought in 2011, approximately 33% of those surveyed said they purchased solely for personal use – less than half of the number found a decade ago.

That stat is mostly likely a reflection of a “luxury-adverse” economy plus the addition of online tools making it easier to locate and bill travelers and vacationers. For example, HomeAway has negotiated deep discounts for credit cards, rental guarantees, and insurance while streamlining reservations and providing customer profiles.

“There’s no way a person in the vacation rental business could go into a bank and get a merchant credit card rate of lower than 3.5 or 5%,” says Brent Bellm, HomeAway’s chief operating officer. “All of our owners can take credit card charges at 2.5% with no additional fees, which is a relationship you could not receive as a single individual or small-business owner.”

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% of its owners who financed their vacation home were able to cover more than 75% 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.

Michael Smith, a vacation-home owner who specializes in large groups who want to visit Disneyland, says not only are his bookings on the rise, but so is his competition.

“Two years ago, we were probably the only people with homes that could accommodate 18 to 25 people,” Smith says. “Now, there are at least four other competitors just in the immediate Anaheim area. Consumers now have more option where we used to be their only call.”

Bellm says that HomeAway’s target market is groups of at least three-plus people, not individual couples headed out for a romantic weekend or vacation.

“Those people often don’t require the size of a vacation rental home,” Bellm says. ”Often, they are looking for specific services that a certain hotel offers. We see that changing, however, as more vacation-property owners expand the creative services in their homes.”

Tom Kelly’s new e-book, “Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement,” is available online at Apple’s iBookstore, Amazon.com, Sony's Reader Store, Barnes & Noble, Kobo, Borders Books, Diesel eBook Store, and Google Editions. It mirrors a recent article byCNN on the benefits of the country, including increased rental possibilities.