Mom-and-pop lodging options are popular among vacationers on a budget. Vacant foreclosure rentals on the other hand are a novel type of short-term accommodation that may soon add to a traveler’s list of inexpensive options. If only REO managers embrace the idea.
Marketing vacated REOs to seasonal tourists may seem like a stretch, but the upswing in the number and management costs of vacant REOs requires out-of-the-box management in areas that happen to be tourist attractions close to popular vacation sites.
Is it at all possible?
Christine Karpinski, author and director of owner community for HomeAway Inc. of Austin, Texas, which represents over 540,000 paid vacation rental home listings in 120 countries and operates BedandBreakfast.com, told this publication it certainly is.
“As long as they are fully furnished,” she said, vacant properties can be rented. However, “other issues” that should also be worked out include “making sure HOA dues are current so the guests can use the amenities.”
Apparently the thought has crossed the minds of at least a few pioneers who are offering short-time rentals in Florida.
“I’ve seen it in Panama City Beach and Destin City” in South Florida, Karpinski says. “I heard of a couple of HOAs renting the REOs so they can recoup some of the back and incurring HOA dues.”
It is untraditional, yet this approach offers an opportunity to minimize losses and upkeeps vacated properties in strategic locations.
While scattered across the country the nation’s REO inventory is higher in Nevada, California, Florida and Arizona—the states hardest hit by the foreclosure crisis.
All four have impressive travel attraction resumes.
Nevada takes the lead in all national foreclosure reports. It also leads lists of the nation’s unique destinations.
Besides the famously bright lights of Las Vegas, the crystal clear waters of Lake Tahoe, or magnitude of the Great Canyon, the Great Basin National Park in the desert region on the border with Utah, there are many less-talked-about attractions.
The Hoover Dam in Boulder City, completed in 1936, is considered by various travel websites as the best known of Nevada’s unique landmarks. It means that any of the 144 REO properties currently listed for sale on the Boulder City foreclosures website could be rented out to curious travelers.
Lovelock is another unique attraction in rural Nevada. A city with a population of barely 3,000, it has earned a place on the National Register of Historic Places because it hosts one of only two round courthouses in the nation built in 1919. It also is the city that built the Lover’s Lock Plaza to honor its 19th century Chinese immigrants’ tradition that believes lovers can make their love endure for eternity if they lock it into the chain of love. It is the only place in the country where one fastens a “lovelock” to the plaza chains.
Lovelock currently lists 14 delinquent properties and two REOs, according to roost.com. The same website describes Nevada’s 20,091 foreclosures for sale as a mix of mountainside retreats, lakeside getaways, towering townhouses and gorgeous planned home communalities—among which are properties that with a little imagination can turn into a traveler’s delight.
Those interested in traveler renting strategies, however, need to do their homework.
Karpinski’s book, “How to Rent Vacation Properties by Owner: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment,” offers insights that can be recycled for use in the REO management market.
Booking possibilities are abundant given the variety of traveler types.
Karpinski categorizes these travelers as leaf peepers looking for scenic drives to admire the changing colors of the fall foliage; warm weather seekers who typically see snow by the foot in winter; sports enthusiasts, or college alumni who travel to their alma maters to attend football games and other sporting events; fishermen and hunters, who are not looking at what is inside the home but rather what is near the home; treasure chasers, who see shopping as the highlight of their trip; pet lovers, who cannot bear to leave their pets behind; and corporate retreat planners looking for “outside the cubicle walls” healthy mix of brainstorming sessions and rounds of golf—along with wildlife and bird watchers, bargain hunters, so-called empty nesters, honeymooners, special-event seekers, early skiers and couples.
Karpinski finds semi-local travelers represent an emerging new trend. They are budget-conscious (or time-strapped) travelers taking short trips closer to home. “Make sure your listing reaches out to those travelers” looking for a long weekend out of town.
"Whether your home is surrounded by nature trails for viewing leaves is located in a town that hosts local festivals and fun gatherings or if it features romantic amenities,” Kaprinski says, the fall is the best time to attract these kinds of travelers. “You may be pleasantly surprised."
Given the popular belief that everything is location it is easy to think that some places are not rentable. Wrong, Karpinski says, “Virtually there are no places that it is not possible…from small towns in the middle of nowhere to major tourist destinations, renting on a weekly basis is successful for many people in many levels.”
Vacant REO renting is an opportunity that comes along with another untraditional task banks are dealing with in today’s market: owning property. “You can sit back and complain about it or sort of make lemonade out of the lemons you’re holding,” argues Karpinski.
She admits, however, it is a challenge.
In certain states, such as Florida, renting REO condominiums means the bank must pay homeowners’ association dues that can be anywhere from $300 to several thousand dollars. “I don’t think the banks have to pay all the back dues on a foreclosure but they have to pay at least one year,” she says. Yet, sitting on a vacant property for an extended amount of time also costs.
The dilemma for the banks is that they can only rent homes on a nightly or weekly basis if they are at least minimally furnished. In some cases banks turned the property over to the homeowners association to rent it. It is doable, Karpinski says, because properties in popular travel destinations usually have on-sight or nearby rental managers who can rent furniture and rent out the REO unit. The revenue is used to pay for the taxes and homeowners’ association dues plus the property has a better chance of appreciating. It is how some banks are getting into the vacation renting business.
“It would be a brilliant business strategy not to dump REOs for such crazy losses,” she says, allowing banks to “sit on them for a little way until the market rebounds.”
Karpinski does not expect Bank of America or the other megabanks to get involved in this market. It is more likely to happen with smaller banks that have higher executive decision flexibility and smaller REO inventory.
As to where, Karpinski is certain Florida is not the only place, “I’m sure it is happening elsewhere.”
It must be true because an abundant REO inventory is matched by the thrifty consumer behavior inspired by the crisis.
Moody’s has reported the current vacant housing supply “is well above the norm.” If in the past 20 years the share of vacant homes averaged 6% of the total housing stock, this year it has consistently been above that average. For example, in the second quarter it reached 7.7% or 1.8 million. The U.S. Census Housing Vacancies and Homeownership quarterly survey shows the number of housing units that have been vacant for at least one year, are listed for sale or rent, or that owners hold off the market for unspecified reasons—increased another 100,000 from the estimated 1.7 million in the first quarter.
Market demand is changing in other ways.
If until now REO purchase demand from neighborhood stabilization federal grantees, other housing providers and independent investors was mostly based on availability, now these entities are trying to identify for purchase strategically important vacant properties in a neighborhood. Craig Nickerson, president of the National Community Stabilization Trust, says lessons from the front lines of acquiring properties for neighborhood stabilization include that of learning earlier in the foreclosure process who the buyers are.
The new focus is on building strategies that use public funding in more creative ways.
