Professional Vacation Rental Managers are Here To Stay

I recently had an opportunity to talk with one of the most successful and intelligent investors in Silicon Valley about the vacation rental industry. In a passing comment related to the rental by owner services, he said something to the effect of, “it’s always good to cut out the middleman”. As a entrepreneur and engineer, I love the idea of automating everything, so normally I would have nodded my head in agreement without a second thought. However, in this instance, because my wife owns a vacation rental management company, it caused me to stop and think.

If vacation rental managers are going to be obsoleted like travel agents, then it would be wise to step out before the music stops. However, if software and technology become tools that augment vacation rental managers, and provide a competitive advantage, then we should be investing in those opportunities. This is a trend I need to understand.

After thinking about it, I believe that professional vacation rental managers are here to stay for the foreseeable future and that technology will be built to augment them rather than replace them.

Here are the reasons:

Trend Toward Outsourcing Everything

Using a professional vacation rental manager is a choice to pay a fee to outsource the responsibilities of managing a vacation home. Owners who choose to manage their own properties must spend a significant amount of time responding to rental inquiries, taking payments, coordinating maintenance workers, and all the other logistics associated with vacation rentals. They also must be available 24/7 to respond to emergencies such as flooding or broken appliances. Although it may sound appealing to “do-it-yourself” and save the commission, many people find the rental by owner process too time consuming and stressful. Given the trend toward outsourcing everything from grocery shopping, washing your car, mowing your lawn, household laundry, and coffee delivery, there is clearly a growing number of people who choose to pay for time savings. For these people, using a vacation rental manager is a clear choice. With a professional vacation rental manager you just get a monthly deposit of money without any additional time commitments. That is an appealing proposition for people who value time over optimizing every last penny of their investment.

Local is Fundamental

Many of the tasks associated with vacation rentals such as cleaning, replenishing supplies, inspections, etc, require someone to be at the property regularly. For property owners who don’t live near their vacation home, this is impossible.

Some of these services can be contracted. For example, there is a startup called Proprly that is building a service for cleaning and key delivery. However, if you contract all these services, you are essentially piecing together a property management service out of parts. The owner maintains the burden of coordination as well as paying the commission fees to contracted services.

Property Managers Pay For Themselves

One of the key findings in the PhoCusWright market research for U.S. vacation rentals is that vacation rental management companies achieve significantly more revenue than individual owners because they can maintain better average daily rates. Property managers have the time and sophistication to achieve higher rates and better occupancy through rigorous competitive analysis and pricing optimization.

For many individual owners who don’t have the time or skills to optimize their rental revenue, they could make more money by putting their property in a vacation rental management program because the additional rental revenue is enough to pay for the manager’s commission. Even if the additional revenue can’t completely cover the cost of the manager’s commission, it will cover a significant enough portion to be appealing.

Software Augmentation Rather Than Replacement

While I believe that vacation rental management will continue to be a valuable service for the foreseeable future, I don’t think it will look the same in 5 years. Many existing vacation rental management companies look primitive compared to their sophisticated hotel counterparts. The industry needs the tools necessary to provide a great experience for both guests and property owners. Managers who embrace technology will outcompete their traditional competitors.

Examples of software enabled advantages include:

• Online Marketing Optimization: Give property managers the tools they need to do effective marketing online (including listing sites such as VRBO, SEO, and mobile)
• Price Optimization: Help people maximize revenue by analyzing the prices of equivalent properties and calculate an optimal price.
• Yield Management: Proactively adjust prices based both internal and competitor occupancy.
• Purchasing Power: Drive down rates for credit card transactions and liability insurance by aggregating customer buying power.
• Routine Maintenance Scheduling: Schedule maintenance reminders to ensure that you get the maximum life out of appliances, mattresses, etc.
• Owner Login: Give owners transparency into reservations and maintenance so they can see all the work that is being done by the management company on their behalf and really know their property is being well taken care-of. This is the number one reason owner’s typically want to manage on their own or choose not to rent their second home at all.

With great software tools, vacation rental managers will have a distinct advantage in marketing, owner relations, and corporate efficiency. The property managers who embrace this trend have a bright future.