The vacation rental market is in a period of massive growth. More vacation homes are being purchased; more owners are planning on renting; and more tourists are finding that this new mode of accommodation fits their needs better than a hotel or resort.

This surge in supply and demand is demonstrated by the trends in acquisition by the major vacation rental listing sites — HomeAway, VRBO and Airbnb — while online travel agencies such as Expedia and Booking.com are climbing on the bandwagon and listing vacation homes alongside hotels.

And while that has been happening, strength in the second-home market continues to surge:

  • The 2014 National Association of Realtors’ “Investment and Vacation Home Buyers Survey” revealed that 717,000 vacation homes were purchased in 2013. Although we have not yet reached pre-2008 levels, the upward trend shows the potential in this market.
  • Further research commissioned by HomeAway Inc. showed that 89 percent of those owners planned to rent the property within the following 12 months, with 86 percent of them expecting to rent to the short-term market (vacationers, business travelers, and so on).
  • According to HomeAway, nearly 8 in 10 buyers said that the potential of rental income influenced their decision to buy.
  • Once people have bought a property, 52 percent of them were somewhat likely or likely to buy another home in the next two years.
  • 14 percent of the HomeAway survey responders were preretirement buyers (those buying with the intention to retire full time to the property in later years) — and they are getting younger; the average age of new vacation-home buyers is 47 years.

Factor in the upsurge in urban short-term rentals as the massive success of Airbnb shows and you have a market that is poised to explode far beyond traditional vacation destinations. Popular Airbnb strongholds such as New York, San Fransisco, Nashville and Portland are booming as short-term accommodation locations, and it is rare to come across a city that is not showing growth in this market.

This all sounds exciting, yet the evolution of vacation rentals has brought with it many issues involving regulations and restrictions. From outright bans and limits on occupancy periods to tougher licensing laws and requirement for permits, there is a growing movement to legislate the industry, from the smallest community housing association to city zoning and bylaws.

A different mindset

Selling to buyers who want to take advantage of vacation rental opportunities requires a different mindset. These clients have value in their potential to purchase again and are powerful referrers, but it may take you some time to nurture the leads — up to two years is not unusual.

They have greater demands in terms of the information they need, so you should know almost as much about inbound tourism and short-term rental legislation as you do about local infrastructure. At a minimum, you need to have knowledge and understanding of:

1. Patterns and trends

Patterns and trends help you note the number of inbound travelers to a location — and thus the potential for a property to generate income. Many factors come into play here, such as seasonality, competition and the potential for saturation in a market. Tourism statistics are relatively easy to source and can deliver powerful information contributing to a client’s decision to buy.

2. Regulations and restrictions

What zoning and bylaws are currently in place? Is there any news pending or brewing in the media? What might impact a buyer’s potential to rent a property in the future? The legislative impact on vacation rentals is significant, and in-depth knowledge of what a specific location allows or restricts is essential.

3. Property management provisions

Average vacation rental buyers live 180 miles from their second homes, so you will need to refer them to property management companies in the area. In some popular locations, these are plentiful and of a generally high standard; in others, you might need to do thorough research to find companies that you want to refer.

4. What attracts rental guests

Selling a home that subsequently does poorly as a vacation rental will not endear you to the buyer, so it’s vital to be aware of the inbound traveler demographic. What needs do they have that the property could fill? It could be as simple as a parking space in an urban location or proximity to a notable attraction in a vacation destination. In major tourist areas, the top criteria might be a property with two master en suite bedrooms, and this could be a deal-breaker for a guest.

Knowing what vacation renters want and guiding your buyers in the right direction to a home that appeals to the target vacation market makes you the go-to expert.

5. Costs of running a vacation rental

Contrary to popular belief, this is not easy money. The income potential can be excellent and an owner may be able to cover a substantial amount of a mortgage, but the costs can be significant. Marketing, housekeeping, maintenance, heat and light, emergency management and so on all add up, and the rental income is not guaranteed. Working out profit-and-loss and cash flow projections is a part of the selling process.

Does this all sound arduous? Maybe it requires some extra work in the beginning, but once you have established yourself as a vacation rental sales expert, the benefits are enormous.

Heather Bayer is a vacation home investor and the co-founder of CottageBlogger.com.

Email Heather Bayer.

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