For Owners in Popular Vacation Markets, This Is Prime Time to Rent Out Your Home
Record-high demand and low inventory mean that vacation rental landlords are commanding a premium, and setting their own terms
Even as more of the U.S. population receives the Covid-19 vaccine and pandemic-related restrictions are lifted, housing trends that have dominated the past year remain intact: Demand in popular vacation areas is soaring, while inventory hovers near-record lows for both sales and rentals.
“What we’re seeing is there’s no inventory from a sales standpoint, but I’ve never seen a year like this rental-wise, either,” said Ryan Huck, an agent with Goldcoast Sotheby’s International Real Estate in Ocean City, New Jersey. “Typically we start booking [summer] rentals around the Super Bowl [in February], and this year by the Super Bowl all of our high-end rentals were already booked for the season.”
With many wealthy Americans still putting international travel on hold for the summer, rentals in vacation markets that are within driving distance of major cities (such as the Hamptons for New York, Lake Tahoe from the Bay Area, Ocean City, New Jersey, from New York and Philadelphia, and Cape Cod from Boston and the New York tri-state area) are seeing unprecedented demand.
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“We’ve got people coming in from New York, New Jersey, Connecticut, New Hampshire, Maine, and Vermont,” said Jennifer McCartin, an agent with Sotheby’s International Realty in Cape Cod. “All those people are looking for a place to go, but don’t necessarily feel comfortable getting on a plane, so they’re going to where they can get with a tank of gas. Houses with pools were booked [for the summer] by Thanksgiving.”
Dramatic levels of demand have collided with a confluence of factors that are shrinking rental inventory, including the high number of would-be rental homes that have been snapped up for personal use by buyers over the course of the pandemic.
(A
March report from Redfin showed
U.S. vacation markets as having the strongest price growth in the nation, including a 36% year-over-year median sales price increase in the county where Lake Tahoe is located, and a 31% year-over-year increase in the county where Cape Cod is located.)
“Owners are using their homes more frequently,” said Breck Overall, an agent with Sierra Sotheby’s International Realty in Lake Tahoe. “What shifted was that a lot of people could work from home and do remote learning here full time, so they started using their homes more than usual and didn’t rent them out. It shrank the available rental properties.”
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The same holds true this summer, as vacation homeowners face limited options for their own summer travel plans.
“We have less inventory because owners aren’t going to Europe, and they need that house,” said Robert Nelson, executive managing director of Brown Harris Stevens’s Hamptons office. “As our sales have skyrocketed, none of those buyers are buying to rent it out their first year, and those homes might have been [rentals] before.”
All of which means that owners who may not have previously considered renting out their properties may want to reassess this summer, as they’re likely to command significant premiums and strike deals on their own terms.
“If there was ever a time to rent, now is that time,” said Joseph De Sane, a broker with Bespoke Real Estate in the Hamptons. “The pandemic really paved the way for an incredible amount of pent up demand, specifically in the luxury segment.”
“It’s the perfect storm,” he added.
Rentals Command Higher Prices, Longer Leases
For owners who once considered renting out their properties to be more trouble than it’s worth, this year, the cost-benefit calculus may skew in the other direction, for a very simple reason: Vacation-rental prices have increased.
“I’m seeing people get 20% to 30% more than what they could have gotten for the same week last year,” Mr. Huck said of Ocean City’s vacation-rental market. “A beachfront client of mine had rented [their home] during a prime week for $13,500, and I’m now seeing comparable properties go as high as $17,000 for the same week, due to the lack of inventory.”
In the Hamptons, rentals are going for 10% to 20% premium over what they would have cost pre-pandemic, in summer 2019, Mr. Nelson said.
“I have a first-time landlord who rented their house for the first time last summer for $90,000 from Memorial Day to Labor Day,” said Ashley Farrell, a Corcoran broker in Westhampton Beach. “This year, we put it up again for $115,000, and it rented for full asking by January.”
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In addition to shelling out for higher prices, affluent renters are also often looking for longer-than-usual stays, meaning that in many cases, owners can set a minimum length of rental that they’ll consider and have their terms met.
“We’re seeing more long-term rentals, and owners have that on their side as a bargaining chip,” said Khal Pluckhan, an agent with Sierra Sotheby’s International Real Estate in Lake Tahoe’s Incline Village. “They can say, ‘My minimum is a week or two,’ and that’s definitely a marketable product.”
In Cape Cod, “Most of our landlords won’t even consider a one-week rental at this point in time,” Ms. McCartin said. “They want a minimum of two weeks, and a lot of them want a month. And we have people who are booking through the fall again. The rental season has gone on much longer than any of us ever anticipated.”
Renter willingness to extend stays through the spring and fall shoulder season also creates further opportunity for owners to max out the value of their rental properties this year.
“We’re seeing months out here that haven’t been popular in the past—May, April and June—people are renting those because they’re more affordable, and they can still get a taste of Hamptons summer,” Ms. Farrell said. “I think we’ll see it in September and October, too.”
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Demand Rising for Previously Overlooked Properties
The rush to lock down summer rentals has also resulted in high demand in areas that aren’t typically as busy, creating a moment of opportunity for owners who may not have previously found summer tenants for their properties.
“Prior to Covid, our beach side of town was really the hot market for rentals,” said Emily Wilkins of Goldcoast Sotheby’s International Realty in Ocean City. “Now, single-family homes in bayfront communities are becoming great properties for people to rent for longer periods of time.”
The bayfront, where there is more availability, is popular among people looking to spend longer hauls in Ocean City, Mr. Huck added.
“A bay-front home that might have gotten $3,000 or $4,000 per week previously, this year would be $6,000 or $7,000 per week,” he said.
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Faced with a lack of options, many renters are now unusually willing to compromise on both location and amenities.
“I’ve talked to people who ended up going to Truro, which is pretty far out [on Cape Cod],” said Myrna Rothman, a Massachusetts-based agent with Douglas Elliman. “[Renters] don’t have choices. Some properties that might not be so attractive will be rented out this year, and never would be any other year.”
In the Hamptons, renters who would previously have searched strictly south of Montauk highway—in areas that are closer to the ocean and considered to be more prestigious—are now more flexible in their searches.
“People are renting on parts of Long Island that didn’t have much of a rental market before,” Mr. Nelson said.
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While becoming a vacation-home landlord isn’t a responsibility to stumble into without performing one’s due diligence—owners should consider factors including local taxes on rental income, how tenants plan to use their home, and any local restrictions on short-term rentals, such as recent crackdowns in South Lake Tahoe—the potential value proposition this year is hard to deny.
“I have one to two new landlords calling me per week saying, ‘My buddy rented out his place for this much, I’d be crazy not to do it,’” Ms. Farrell said. “If you’re an owner and have any comfort at all in renting, this is the year to try it out. You can make a decision somewhat late, and still have demand.
“There are renters who can’t find anything,” Ms. Farrell added.