The 2015 ARDA study, The Management of Sold Out Resorts, reports that sold-out resorts generate 17% of their operating revenue from rentals and 76% from maintenance fees. Resorts in active sales report similar numbers: 18% of their operating revenue is derived from vacation rentals.
That statistic is certainly compelling to show that the timeshare industry is popular for vacation rentals, particularly in the shared economy, non-brand type travel popularized by concepts like AirBNB. In addition, those travelers renting out units at a timeshare property are excellent leads for an active on-site sales program.
However, for associations to determine if they are generating enough revenue from vacation rentals, that number isn’t necessarily a benchmark.
How to determine if your association is generating enough from vacation rentals.
Simply calculating the revenue your association is generating is misleading because the overall financial health of the association needs to be taken into consideration. For example, a resort with a 97% collection ratio is not going to have significant revenue from rentals because they do not have the available inventory to rent (and that’s a good thing.)
For an older resort combatting delinquency and a large number of HOA-owned weeks, a rental program can be a significant source of income. For delinquent weeks, the revenue is applied to that owner’s debt. For HOA-owned weeks, the revenue is considered income along with the maintenance fees.
Thus, it’s important to base your assessment on available inventory and maximizing revenue from that inventory.
1. Calculate available inventory and the percentage rented.
To really assess how much an association should be generating from a vacation rental program, the board members need to assess the available inventory and how much of it was rented.
For example, in 2015, one Myrtle Beach resort had approximately 12,000 nights available for rent – some were HOA-owned, some delinquent accounts, and some owner rentals. SPM’s revenue management department was successful in renting 32% of those weeks, which would have otherwise been unused.
2. Calculate the average daily rate (ADR).
The average daily rate will help you determine how the rental program is performing. If the rates were properly adjusted to meet market demand, the average daily rate should increase.
For example, the same Myrtle Beach resort has had approximately 12,000 nights for rent each year. In 2012, at 36% occupied, the resort made $20,000 less than it did in 2015 with 32% occupied.
So, the inventory remained the same and occupancy dropped slightly. How did the resort make more money? The revenue management department’s ability to maximize revenue.
Rental rates need to be continually monitored to match demand – if rates are too high for the area, the units will not be rented. If rates are too low, the resort loses money on the rental. SPM has a method to maximize revenue in our vacation rental program for timeshare resorts, which involves yielding rates to match market demand, creating marketing programs to promote the resort for vacation rentals, and using our online partners to rank our resorts high in searches.
The long-term solution is sales: of course, associations should want the number of available rental weeks to decline which means they have more current, dues-paying owners.