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Industry News for Vacation Rental Managers

Trulia CFO talks vacation rentals and long term rentals

Trulia CFO talks vacation rentals and long term rentals
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VRM Intel Staff
September 13, 2014

By Sean Aggarwal, Trulia CFO

In April, Airbnb raised a $475 million round of financing, which valued the company at an impressive $10 billion. Some might point to a frothy venture capital market, but it’s undeniable that Airbnb has disrupted the massive vacation rental market, which PhoCusWright valued at $23 billion in 2012.

And with the share of online sales in the space doubling from 12 percent in 2007 to 24 percent in 2012, the market is headed in the right direction for Airbnb and others.

Sean Aggarwal Trulia talks vacation rentalsThis got me thinking about a similar market, which I think is in a similar position as vacation rentals were just a few short years ago: apartment rentals. Not only do I think the market is ripe for disruption, I think that a comprehensive offering that addresses opportunities across the value chain will be the key to unlocking this market, much like we have seen in the vacation rental space.

Because it is relatively fragmented, understanding the rentals market can be challenging. But there is plenty of evidence of its scale and potential. For example, we know that in the U.S., there are currently 100 million renters, who move on average every 18 months.

Rental inventory is broken up into several segments, with large multi-tenant units at one end of the market, then a middle range of smaller, multi-unit buildings and ultimately a very large, fragmented long tail that is comparable to the makeup of the vacation rental market. With almost 80 percent of inventory centered in the long tail of the market, let’s focus there.

Clearly, we are seeing some telltale indicators of category formation in apartment rentals, highlighted by numerous new rounds of funding and a slew of venture-backed companies in the space, such as Zumper, ApartmentList, Urban Compass and others. The market is attracting the attention of the entrepreneurs and capital necessary to address the opportunity.

 

Here are a few different companies and business models that are currently in place.

One model that several companies are trying right now is based on charging consumers one time to create a secure account that takes the friction out of the application and credit-check process. For example, Lovely charges consumers a one-time fee of $20 per application.

RenterResume charges consumers a one-time application fee of $35 per applicant. It’s unclear how much traction this model has generated thus far. On the flip side, companies such as AppFolio generate revenue from landlords by automating the application-processing and tenant-screening function.

“One thing we know for sure is that there is no clear national leader right now. Nobody has cracked the code … especially on mobile.” -Sean Aggarwal, Trulia CFO

 

Another approach is providing a service to landlords that removes some of the uncertainty around getting their monthly rent payments on time. Cozy charges $9 per month per unit to the landlord for accepting the tenant’s online application and/or collecting monthly rent from the tenant. Zumper recently released a universal rental application and is making it easier for small landlords to upload and market listings.

Craigslist continues to be the dominant player, particularly for long-tail single-family rentals, for both landlords and prospective renters, but it has yet to establish a meaningful mobile presence. Though Craigslist has made some attempts at improving accuracy, fraud continues to be a major concern for consumers using Craigslist for finding an apartment.

 

A new landlord landscape

One thing we know for sure is that there is no clear national leader right now. Nobody has cracked the code as to where the future lies, especially on mobile, which is why there are opportunities for companies that can nail the right business model and build the right product.

That’s why I think there is more innovation ahead that will eventually lead to growth. As we have seen with companies that are successfully innovating right now in various industries (Airbnb, Uber), a consumer focus is essential. For example, Airbnb sent photographers to a number of properties on its site to help make the listings look great and more enticing for prospective guests.

You could argue that there is a similar problem today when you look at rentals with either lifeless stock photos, bad landlord photos or, even worse, no photos at all.

 

For investors

As an investor, you should be looking for companies that are thinking across the value chain and building services that deliver better experiences by addressing these types of challenges.

One approach would be a company that can take the pain out of scheduling times to see apartments as part of a mobile app, like you do with OpenTable today. They could also provide an automated and frictionless application-processing service, generate reports on prospective renters to help landlords screen tenants, and provide a seamless rent payment–processing platform.

The company that distinguishes itself in the sector will do it by combining these or a similar collection of rental services, bringing the pieces of the value chain together and creating a great experience for people on both sides of the transaction.

 

Mobile Emphasis at Trulia

At Trulia, we are building an integrated rentals offering. Today Trulia’s rentals business is led by a popular, purpose-built mobile app that is driving 100 percent year-over-year visitor growth.

The accelerating traffic rates are generating a rental lead every 1.5 seconds for landlords and property managers that post their properties on Trulia. Our goal is to build an offering that meets the needs of apartment hunters on one side of the market and property-management professionals and owners on the other side.

I encourage you, as an investor, to spend time digging deeper into the rentals market to explore what I view as a significant long-term opportunity.

 

By Sean Aggarwal, Trulia CFO and member of the CNBC Global CFO Council, courtesy of CNBC

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Industry News for Vacation Rental Managers
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VRM Intel Staff

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