Retail

The Power Of Platforms To Make Rental Income A Sure Thing

Inspiration for innovators often comes out of the blue.

In the case of Rented.com CEO Andrew McConnell, that unexpected moment happened over lunch several years ago as he and two family friends discussed the emerging wonder of renting out their vacation homes on VRBO.com.

At the time, McConnell was confused because he had never heard of VBRO, but he was intrigued by his friends’ excitement about how “easy” it was to just list their Atlanta condo and Vermont ski house online — and reap the rewards of the rental income.

It sounded too good to be true, he said. And, in a sense, it was.

The problem was that it wasn’t actually easy to rent out those vacation properties. McConnell’s friends were still responsible for vetting potential renters to ensure they weren’t teenagers looking for a kegger venue, and for making sure the properties were cleaned between rentals.

“I said, ‘Wait you’re a dentist, [and] you’re a cardiologist — I bet you don’t change your own oil, [so] presumably there are professionals that could be doing that for you?’” he explained.

McConnell soon found out there were such professionals — property managers, to be exact — but both of his friends found them to be expensive, taking as much as 40 cents on the dollar for rentals. It also wasn’t entirely clear what value the professionals were offering for that massive charge. As such, neither friend felt it made sense to work with a property manager and were instead doing the labor themselves.

“HomeAway, which owns VBRO, even says right on [its] site that managing these properties takes about eight-and-a-half hours a week,” he said. “That’s a lot of time. Presumably, society has better use for a cardiologist for eight-and-a-half hours a week than managing a vacation home rental.”

McConnell felt there should be a better process so property owners could negotiate a better, more transparent deal with a property manager. But, his friends confirmed, that better way didn’t exist — yet.

He decided to build it himself, and Rented.com was born.

A Better Way to Make A Selection

There are no shortages of platforms in the market to help distribute vacation rental properties to consumers in 2017, McConnell admitted. Guests want to rent them, and that has created massive demand.

But for property owners and investors, the options for distributing those properties to those customers are a bit more limited. Property owners can either decide to do a lot of work themselves, or they can enlist a property manager to handle the logistical side of property rental that they don’t have time or want to handle. That, McConnell noted, often means paying a lot of money for an unknown commodity.

“There are 50,000 property management companies that say the exact same things to consumers,” he said. “‘Trust me, I’m going to make you the most money,’ [or] ‘Trust me, I’m going to take care of your home the best.’ [The] consumer has no way, on the front end, to be able to tell who is going to take care of [him or her] the best and take care of [his or her] property the best.”

The Rented.com platform was designed to make the choice clearer by creating a space through which property owners could connect with property managers who’ve already been vetted and rated by the site. The firm also decided to take the risk out of the decision for the property owner by guaranteeing him or her income on the rental, no matter which property manager he or she chooses.

“Given our marketplace, proprietary data and third party data sources, we can estimate what a property should be able to make in income on average in a specific market with appropriate management,” McConnell said. “So, instead of the homeowner taking the risk that there is a bad ski season, or a hurricane hits at the wrong time, and they lose money — Rented.com is taking the risk instead.”

The site is successful because it has a large footprint and works with property managers and properties all over the world, making that income guarantee a possibility because Rented.com is spread across so many markets.

“It’s something like an Index fund for the Airbnb space,” McConnell noted.

There are limits to that guarantee, of course. If the property is destroyed by fire, flood or some other act of God, for example, the contract is considered null and the homeowner should work with his or her insurance company. But, as long as the property remains rentable, the homeowner will get his or her income each month.

Given what McConnell called the “gold-rush” mentality at play in a lot of the home sharing space, players with varying levels of experience collide with each other frequently as everyone tries to capture maximum revenue. By taking the vetting and selection of a property manager off homeowners’ plates — and guaranteeing monthly income at a certain level, no matter what outcome (short of the house burning down) — Rented.com can take both the risk and uncertainty out of it for the property owner.

“What we do, our manager really have to plug in with their historical information so we can see what their performance is,” McConnell explained. “Some have been working with us for four or five years. Others apply to us and we say you haven’t been in business long enough, come back in 12 months and prove to use you can be a top quartile manager and that you can hold enough properties under management. When you can show us that, you can be a Rented.com manager, because this is what we do all day, every day. We’re very good at making the comparisons and knowing who performs and who doesn’t.”

Why Managers Sign Up

The value for the consumer — who essentially gets to sign up, turn over their keys and collect rental income — is pretty clear. But why do property managers sign on for such intense vetting, particularly given that Rented.com makes its money on charging the manager for the upside on their deal with the property owner?

“The thing is, a property manager can have a great track record, they still have to go out with the same pitch as every other property manager in their area,” McConnell said. “They don’t have a way to truly prove to the homeowner they are targeting. Managers love us because we allow them to prove to these prospective homeowners that [they] really [are] the best [for the job].”

Rented.com offers property managers a tool for their sales organizations to approach potential prospects and provide something more than an often repeated sale-pitch about how much money they are going to make. It gives them a data source to point to and back up those claims, and that greatly speeds up conversion times.

“We also let them work offer something that other property managers can’t offer — a guarantee on income,” McConnell said. “They can now offer a fixed sum every month, and the way they do that is through Rented Capitol: we finance those payments.”

What’s Next

Rented.com is ending the year with a bang, according to its CEO, and is preparing to announce the Rented Capital Fund. According to McConnell, that fund will allow the firm to do $125 million in guaranteed leases to homeowners.

“When we look at 2018, our whole focus is really bringing people into this platform where homeowners shed risk and managers get a better approach vector,” he explained. “It seems like it should be easy to just got sign $125 million in leases, but it is still a big number and it takes a lot of work and a lot of analysis to make sure we are not paying absurd numbers we are only going to lose money on, because we, of course, need to make money.”

Which means the rest of this year — and most of next year —  will be dedicated to Rented.com’s push for scale, and to finding the right managers and property owners all over the world to bring onto the platform.

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