The annual "National Association of Realtors (NAR) Investment and Vacation Home Buyers Survey" came out on March 29, 2012. The good news is that the housing crisis is easing. The bad news is that more competition is on the way for those of us currently offering vacation rentals.

The NAR survey found that the number of homes purchased by investors rose 65% during 2011 to 1.2 million, accounting for 27% of all home sales. In 2010, in contrast, investment properties accounted for 17% of all sales. Many of the sales in 2011 were all-cash deals, leading to the conclusion that the market is being driven by investors with cash who, after sitting on the sidelines since 2008, have decided that housing prices are at or near the bottom.

Also, as NAR Chief Economist Lawrence Yun said in the NAR press release, “Rising rental income easily beats cash sitting in banks as an added inducement. In addition, 41% of investment buyers purchased more than one property.”

And speaking of rentals, the number of homes bought as second or vacation homes rose 7% in 2011 to 502,000. This accounted for 11% of all transactions, compared to 10% in 2010. And according to the NAR survey, 42% of vacation-home purchases were made with cash.

In fact, we can be even more specific, thanks to a proprietary survey that HomeAway arranged to piggyback onto the NAR survey. Here are some of the highlights from HomeAway's March 29, 2012, press release:

• According to HomeAway CEO Brian Sharples, “The purchase of vacation homes is moving back into the mainstream for a greater number of Americans who are attracted by low prices, rental income potential, and use as a retreat for busy families to get together every year. Although sales of vacation homes are not as high as historic levels, they are clearly showing signs of a sustained recovery.”
• Nearly all vacation-home buyers (91%) say they plan to rent their property within the next 12 months to either long-term or short-term renters or a combination of the two. Of those buyers, 71% cited rental income potential as a factor in their purchase decision, and nearly three-quarters (74.5%) of buyers believe they will make enough rental income to cover at least half of their mortgage.
• Based on HomeAway research conducted in the fourth quarter of 2011, of 4,905 owners listing their vacation homes on HomeAway’s U.S. sites, 70% generate enough rental income to cover half or more of their mortgage, and 51% cover at least three-fourths of their mortgage.

Conclusion: Let’s Get Busy!

It is certainly likely that at least some of the 502,000 vacation homes purchased in 2011 were previously offered as vacation rentals. But it is also likely that many were not. Shown nearby is a table with the results of HomeAway-sponsored surveys in previous years.

Notice the huge jump that occurred between 2009 and 2010 in the percentage of second-home buyers planning to rent their properties—from 25% in 2009 to over 90% in both 2010 and 2011. (It makes us wonder if perhaps there was some change in the way the question was phrased in the survey.)

Nevertheless, increased competition is clearly on the way. That’s great for HomeAway and its sister sites, but maybe not so great for those currently in the market. What to do? Here are a couple of suggestions:

• Review the Amenities You Offer. How does your vacation rental compare with competing properties? What can you do to make it stand out? Upgrades don’t have to be terribly expensive, like installing an in-ground pool. But how about adding an umbrella table and chairs for al fresco dining, maybe the latest game machine, or new bedspreads and luxury sheets and towels for the master bedroom?
• Freshen the Photos in Your Online Listings. Consider taking a whole new set of photos. And while you're at it, make sure you’re showing the maximum number of photos allowed on each site you list with. We’re amazed at how many VR owners have failed to take advantage of the fact that VRBO.com now allows 16 photos for a standard listing (up from a mere 5 prior to January 2012). Or that HomeAway boosted its photo limit from 12 to 24 photos in January 2011.

Years ago, when we were writing computer books, we predicted that the online world would be the focus of a Time Magazine cover story by 1984. We were wrong. The “electronic universe,” as we called it in those pre-Internet days, wasn’t featured on the cover until 1994, 10 years later. Something similar appears to be happening regarding vacation rentals.

The four big VR-advertising sites that HomeAway bought in 2005 and 2006 to form its core offering were founded between 1995 and 1998, 14 to 17 years ago. Huge developments in the online world (and in the world of real estate) have taken place since. It may just be that the vacation-rental industry is finally coming into its own. Don’t let this rocket take off without getting aboard!

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