Rented’s New $125 Million Arm Aims to Give Steady Income to Vacation Home Owners

In the past two years, investors have been funding vacation rental property managers left and right. Vacasa has raised $143 million over two rounds, while Turnkey, Hostmaker, Vacation Rental Pros, Stay Alfred, Evolve, Pillow, GuestReady, MyVR, and others have taken significant investments to fuel expansion.

Many owners of vacation rentals are left scratching their heads. Which company should they pick? Small markets may have dozens of managers. Large ones like Orlando often have hundreds.

Some homeowners — especially new ones — may also worry about receiving enough income to make renting out a good financial decision.

Attempting to address these homeowner concerns is Rented.com, an Atlanta-based wholesale marketplace for property managers.

Cash Guarantees

On Wednesday, Rented publicized it had put together a $125 million financing arm. It will use the money to give owners of vacation homes a “guaranteed” income if they sign up to pay the manager’s commissions for terms typically lasting one year. Owners who rent out their apartments short-term can’t apply.

Rented raised the financing from Parkwood, a Cleveland-based, high-net-worth investment firm led by the Mandel family.

Since the startup’s founding in 2012, homeowners have gone to Rented.com, entered their offer to rent out their homes, and waited for managers to compete to win their business.

What’s new is that Rented has begun to make bets on the performance of specific management companies.

Rented picks the manager it decides is best for the property in exchange for paying the homeowner the same amount every month for a year — regardless of whether the manager is successful in filling all of the vacant weeks. It will back the best managers with higher guaranteed incomes for homeowners who work with them.

It judges management companies by how well they put heads in beds by marketing on platforms such as Airbnb, HomeAway, and Booking.com and by how well they otherwise manage properties.

Rented has 1,100 managers participating on its platform worldwide, including Vacasa and Oasis. That’s far more managers than the Vacation Rental Management Association has members. Rented will only back a slice of those with the new guarantees.

Fracking for New Vacation Homes

The vacation home sector has been hot in the past five years, but some have worried that the pace at which large volumes of inventory have become bookable online is bound to slow.

Offering financial guarantees may lure new business — a bit like how fracking has boosted U.S. fuel supplies while fossil fuel reserves begin to be tapped out.

Rented estimates that “millions” of vacation rental transactions fail to occur each year for reasons that could be mostly smoothed out by a guaranteed income.

Versions of this model appear elsewhere. A couple of property managers have experimented with guarantees. Sonder offers fixed income to owners. Stay Alfred leases properties, so in effect does the same thing.

In a not wholly unrelated financial technology spin, Loftium, a company in Seattle, said it will give potential home buyers up to $50,000 for a down payment on a mortgage if they promise to list an extra bedroom on Airbnb for a few years and give most of the income to the company.

Rented said its financial tech model is more diversified than others in that it is exposed to markets across the world and does not manage homes itself.

Startup’s Contrarian Growth Plan

Rented is betting that managers will see it as an effective tool for lead generation because homeowners are more likely to sign up if they feel they’ll have a guaranteed income.

It offers its marketing materials, such as direct mail and email, to management companies to sell to their customers either with or without Rented’s branding. Some managers white-label Rented’s offer. Vacasa, for example, uses the company’s financing arm to back its offer of a guaranteed income to homeowners without Rented’s branding.

Unlike other sector players, Rented hasn’t disclosed raising any eye-watering funding rounds. Andrew McConnell, co-founder and CEO, said his company had closed an equity round this year, but he declined to give details.

He said that potential financial backers could think of his company as something like an index fund. If investors aren’t sure which of the rental property tech companies will make it big, they can, in essence, buy the sector’s growth average growth by backing Rented instead.

One risk that investors might flag: A global economic downturn could imperil Rented’s ability to pay out the financial guarantees. McConnell noted that in a down economy consumers traditionally demand vacation rentals more frequently as a substitute for hotels while owners become more willing to accept lower income guarantees.

Another risk: if Rented’s model of financial guarantees is successful, it is vulnerable to being duplicated by bigger players. Rented has seven of the largest management companies in the U.S. on its platform, any of whom may notice the program’s potential effectiveness.

McConnell dismisses such concerns about competition, saying the market potential may be as much as $20 billion a year in untapped business that could be converted with financial guarantees, giving room to many players.

He cited industry association statistics that every year about 15 percent of vacation homeowners are new to the market in the U.S. He said there’s a stream of new prospects are struggling to decide if they should sell their properties or rent them out to vacationers. Those, he believes, could be wooed by this new financial model.