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Join this webinar for an in-depth roundtable discussion on economic and policy trends impacting servicers as well as a look ahead at strategies servicers should employ in the next year.

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InvestmentsReal Estate

People now purchasing vacation homes for profit over pleasure

According to a study by Savills and HomeAway, two-thirds of vacation homeowners rent out their properties to cover costs

Over the past ten years, homebuyers motivations for buying vacation homes has moved from pleasure to profit.

According to research from Savills and HomeAway, for the first time ever, vacation home buyers now prioritize rental income over personal use.

Savills and HomeAway carried out this survey in February and March of this year.  Savills World Research surveyed 4,300 property owners who list their properties on HomeAway's sites across Europe, North America and the rest of the world.

"Global tourism continues to grow, with international tourist arrivals up by seven percent last year to a record 1.3 billion,” Tostevin said.

“At the same time, the rapid expansion of online vacation home platforms, such as HomeAway, opens the market to new target groups and makes it much easier for owners to make their properties income-producing," he added.

The findings of this survey signify a paradigm shift in the way home owners view their vacation homes from 1970 to now with rapid acceleration in trend taking place over the last 10 years.

According to the study, in the 1970s nine out of 10 owners kept their second homes to themselves, and that number didn’t change much over the next 30 years. In 2000, eight out of 10 owners never opted to rent out their properties to travelers.

That all changed over the last 10 years. Now, the number of vacation home owners who rent out their properties to travelers has ballooned to over two thirds of second home owners who say they rent out their vacation properties for some portion of the year to cover ownership costs.

"In a low interest rate environment, investors are seeking out income generating assets," says Savills world research Associate Director Paul Tostevin said in the report.

"Today's second home buyers want properties to work for them financially and they are increasingly looking not just to cover costs but to turn a profit," he added.

Of the roughly two thirds of vacation home owners who rent out their properties, one third makes enough to cover ownership costs, while the remaining third turns a profit on its properties. The average gross yield of the survey sample is 6.4%, or 3.9% after costs, excluding taxes.

The report attributes this strong performance largely to the Digital Age and its offspring, namely vacation rental sites like HomeAway and Airbnb. Their advent has drastically broadened the demand base and created a formalized market for non-hotel travel accommodations, which in turn is making vacation home investment look mighty sweet for many individuals with the means to purchase a vacation home.

In the U.S., our sunny states, Florida and California, have soaked up the majority of attention from vacation home investors, accounting for 14% of second homes and 7% of second homes, respectively.

"Over the past ten years, the online travel industry has changed significantly. Staying in a vacation home has transformed, moving from an alternative way to travel to a preferred way to stay," HomeAway Vice President, EMEA Christophe Pingard said in a statement.

"With the rise in the popularity of the category, vacation rentals are not only attracting more travelers, and perhaps most significantly, a new generation of younger travelers accustomed to booking homes over hotels for their trips."

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