4 The Next Evolution of VRP Management by LRR President

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to adjacent resort-condominium complexes and entire communities of homes. These communities are now off ering daily vacation rentals through very large Vacation Rental Management companies. Owners of the units within these complexes enjoy a portion of the rental income their property generates. An example of this type of community is the Margaritaville Resort that just opened in Kissimmee, Florida in early 2019.

Traditional hotels generally do not include vacation properties. However, the industry has exploded in the last fi ve years, and as a result, many new resorts are building homes nearby in shortterm rental-zoned communities. These resort communities provide booking and services to the homeowners. These homes, villas, and condominiums can be either rented through the hotel/resort or rented out by their owners, directly or through agencies.

VRP v. Timeshare The VRP market is as large in Europe as it is in the United States, and Florida is a popular destination for VRP stays for Europeans. Consumers unfamiliar with the concept of a VRP may confuse it with the seemingly similar, but distinctly diff erent concept: the timeshare structure.

Timeshare development runs parallel to VRP development, so it is worth mentioning here. The fi rst thing to understand about the timeshare model is that it’s wildly profi table—for the developer. Not for you, the owner.

For those individuals and families who “invest” in a timeshare, they’re just buying use time. While some people do have bad experiences with timeshares, the model is actually very popular, has been around for many years and is still growing. Most people who have timeshares are perfectly happy about it. All 14 countries that I have worked in have giant populations of timeshare users. Timeshare development and investment is not going to slow down. It can be an effi cient way to vacation if you use it right, but it does NOT have the potential of making you wealthy.

WEALTH AS A VACATION

What is Your Goal? With VRP, you get use time of a vacation property free and clear. You’re not paying for it at all if you’ve done it right, because your renters are paying you. In addition, that investment is building wealth for your family over time as it is an appreciating hard asset. The goal of any VRP buyer should be to build wealth. Yes, this certainly makes “vacation” more complicated. You have to do your due diligence when you invest in a VRP and it’s not a hobby, as we will discuss in great detail later on in the book. But VRP IS a path to wealth.

If you don’t want to even think about building wealth, and if you don’t want free vacation time, then yes: go buy a timeshare. You’ll pay every year, and your dues will go up over time. Some of these timeshare companies even have a payroll deduction; some of them take money right out of your bank account. But a timeshare can make vacation planning a little bit simpler. It’s going to save you a little bit every year, meaning your vacations are going to cost a little bit less than they would if you simply booked a stay somewhere new each time you travel. But you will be limited regarding where you can go and when you can go.

Do you want to pay a little bit more and have no limitations? Do you want to pay nothing and build wealth? Consider the Rich Dad, Poor Dad concept put forth by author Robert Kiyosaki: the wealthy buy assets, the poor and middle class buy liabilities. A timeshare is a liability, in the accounting sense of the word. I am not opposed to the timeshare model, but I am not enthusiastic about it, either.

A timeshare can still be made available as a vacation rental should an owner decide to put his or her owned week(s) on a vacation rental program, but the owner of a timeshare week, again, does not own a hard asset.

Vacation Rental Property Statistics Statistics point to a rapidly growing VRP industry. The global vacation rental market is project to grow by about 63 billion through

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2024.2 The industry is strongest in Europe and North America, as the awareness of the concept of a vacation rental is widespread in these two markets.

• In 2020, vacation rental home sales grew 16%, as opposed to the 5.6% growth experienced by existing-home sales.3 • In 2021, demand for vacation rental leases was 10% higher than pre-pandemic levels.4 • Millenials, who make up the largest population demographic, take more trips than members of other generations and appreciate having space to accommodate their children. • From April 2019 to April 2021, demand for vacation stays in vacation and resort settings (coastal, mountains, lakes) increased 25%.5 • From July 2020 to July 2021, average nightly rates for vacation rental properties increased 29%.6

This is just a small sampling of all the available data out there. I’d encourage you to do your own research regarding the growth of VRP in your area. A good place to start is VRMA.org, the industry association for the vacation rental market.

2. https://www.yahoo.com/now/vacation-rental-market-size-grow-100000519.html? guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_ sig=AQAAAKmEHlS_Rlh5l52XwMXqgqeSC7mX3kbSFRs2rcDuELj3kqJUeR72-WmoQ2 VtefuGzKAwINAV7APkZiasYXY2BWABmJbzOekW1g3EbPyMfn4axfl PWMDTFZYOQ6 hRI-SjebVEkWRCJPDzC7YBhw7yP3u6g8yYKTV5rk-MvSeW6Go4 3. https://www.cnn.com/2021/06/17/homes/vacation-home-sales-increase-covid-feseries/ index.html 4. https://www.rentalscaleup.com/2022-us-vacation-rental-trends-airdna/ 5. https://www.airdna.co/blog/2021-us-short-term-rental-outlook-report 6. https://www.msn.com/en-us/money/realestate/vacation-rental-rates-are-booming-3ways-to-command-top-dollar-for-your-property/ar-AAMic5s

WEALTH AS A VACATION

In the Beginning In the very early years of VRP, cabins on lakes were the standard. This was pre-internet, and you could fi nd these properties in brochures in bait shops. You might also have seen some pioneers of stand-alone rental homes near amusement parks, ski resorts, and certainly on beaches. For the most part, if you had the money to stay in a hotel, you would steer clear of these rentals unless there were no rooms available or no nearby hotel.

In those times, there was no standardization, no online ratings, no way of telling if a particular vacation home was even fi t for habitation. Early in the growth of this industry, travelers would avoid these vacation rentals for fear of what industry insiders call SNAD: “Signifi cantly Not As Described.” This refers to a property that looks like paradise in the photos, only to reveal leaky roofs and blocked views upon the traveler’s arrival.

Once the internet was widely in use for booking and accepting payment, another major concern was that people could create false accounts and advertise vacation homes which they did not, in fact, actually own. This led to unsuspecting customers booking and paying for a vacation, only to fi nd on arrival that the rental did not exist. Given that the accommodation was booked and paid for many months in advance, the scammer was able to disappear without a trace, leaving the “customer” out of luck.

A New Paradigm As the industry grew and online resources became more accountable and sophisticated, the likelihood of this kind of a scam lessened signifi cantly, and business took off . Still, the VRP industry had—and still has—room for improvement. The new online marketing systems can, at times, fall short of total transparency. There still exists the occasional booking based upon beautiful online presentation, which vacationers are dismayed to fi nd falls far short of expectations. Additionally, management of Do-It-Yourself VRP can vary widely in terms of both function and customer service.

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Fortunately, with the growth of the VPR-specifi c resort communities and their powerhouse rental management companies, vacationers now have solid data with which to make their vacation home choices. At the same time, VRP owners can partner with third-party management companies that off er sophisticated screening, booking, and security to protect their vacation home investment.

We will discuss third-party management companies in greater detail later on in this book. I would like to note that whenever I refer to third-party management companies that handle VRP in these pages, I am referring to those that operate using generally accepted best practices, unless otherwise stated. We will explore exactly what these best practices are in Chapter 9.

Regulation and Zoning Issues In many counties, towns, and cities, local authorities have attempted to regulate or ban vacation rentals in response to complaints from local residents or competing lodging businesses. In the United States, New York City, Chicago, and other cities have introduced restrictions on short-term rentals, though regulation is not always strictly enforced.

In most American cities and counties, zoning ordinances prohibit any type of lodging business in areas zoned for residential use. In some areas, zoning allows limited lodging use provided the units are secondary to the primary residential use of the property. In Los Angeles, for example, the city council passed a law in December of 2018 that restricts hosts to 120 days of short-term rentals. Hosts can also only rent out their primary residence where they spend at least six months a year.7

Fortunately, there are now options for VRP owners who don’t want to risk running afoul of the law—and want to rent out their properties for more than 120 days per year. With the growth of VRP-specifi c resort communities, short-term rental zoning is preprogrammed into

7. https://www.2ndaddress.com/research/short-term-rental-laws/