Real Estate and Vacation Rentals Relationship Status: “It’s Complicated”

Vacation rentals and real estate are two massive industries worth billions that have long existed parallel to one another. The juxtaposition of the two reminds me of my aloof neighbors whom I see only in passing going to and coming home from work. I don’t know their names, and they most likely don’t know mine either. We don’t converse or know anything about each other beyond the fact that we live on the same street. Every now and then we throw in a friendly wave to acknowledge each other’s existence. That is how I see the relationship between vacation rentals and real estate. I often wonder how two industries this huge, with so many similarities, have existed side by side without overlapping on a mainstream level.

As a real estate agent and marketer who has exclusively dedicated the past eleven years of my career to working in the vacation rental niche, I’ve had more than my fair share of opportunities to feel like the black sheep of the industry. My babbling to other agents and brokers at real estate events about the vacation rental niche being the next huge trend—maybe even bigger than the REO boom of 2011–2013—results in a lot of head bobbing, but their responses are always the same . . . an immediate need to place the transaction in a box in better hopes of understanding it. Unfortunately, there isn’t a box available to fit such a complex yet fascinating opportunity that is part of not just a single one billion dollar industry but two.

So those two industries have continued to exist in parallel universes—until recently. In only the past two years, the crossover between the vacation rental world and the real estate world has been impossible to ignore, even on a mainstream level.

Like most everything else in life, once something catches on, it spreads like wildfire.

That seems to be the case now in the real estate investor world. Vacation rentals have quickly become the shiny new toy that almost all investors want to add to their portfolios. It’s a sexy investment; it’s not the same old boring tenants-and-toilets long-term rental that investors have been throwing their money at for years. The vacation rental not only offers investors a way to double their income, it also adds an emotional component and humanizes what was, for the longest time, a stoic business model.

Because of the massive disconnect between the two industries, today’s vacation rental investors still have their work cut out for them. These investors are dedicated buyers, and they spend months doing their homework to try to sort out everything from regulations, locations, and management to transferable income, permits, listing sites, and expenses.

These people are not yesterday’s investors who would call an agent, receive a few MLS listings, and choose to buy a property based on cap rates. If only it were that easy. Those investors have to consolidate all that information on their own, and then they typically utilize the listing agents to make offers on properties they’ve identified as being good investments. But they don’t want to be doing that; they want the agents to handle it for them.

Here’s the kicker—nine out of ten real estate agents don’t know how to do it or how to structure those investments. So who should investors call?

The big push that has to happen right now is for education on the real estate agent/broker side and a simplification of the investment process on the investor side. For that push to happen, both worlds must form a more intimate relationship. There can no longer be such a huge disconnect and burying of heads in the sand. We need to see more real estate agents stepping up and learning this niche market, going through the educational models available to them, and putting themselves out there.

We need more property managers engaged on the sale side instead of running from it in fear of losing the home in their programs. I’ve experienced that disconnect on a microlevel, not having had any qualified real estate agents to refer my clients to who wanted to purchase this type of investment outside my own market.

Currently, there are more than 660,000 US homes listed on Airbnb, and about 400,000 are listed on HomeAway. If we take out the yurts, treehouse-type listings, and duplicate listings, we’re probably left with somewhere around 700,000 homes (and growing) that need to exchange hands at some point. All of those homes have rental histories, reviews, and transferable incomes that are gold to an investor.

Who and how many are going to be the ones pioneering these transactions is yet to be determined, but one thing is certain—the vacation rental industry just keeps growing. People aren’t going to stop traveling, and the demand for private rentals isn’t going to fizzle. Given that reality, a whole new pool of investors—lifestyle investors—isn’t going to shrink.

The question then becomes whether the two worlds can afford to ignore each other any longer. I predict that compartmentalizing both industries into boxes is going to prevent innovation on both sides. I also don’t see the overlapping of these industries as a bad thing because it paves the way for start-ups with unique perspectives to jump into the scene.