Can you sell more resort homes, second homes, vacation homes, or vacation condos in a recession? Probably not. But sell them, you can. Definitely. Near the end of the first year of the current recession, the leading online vacation rental advertising site, HomeAway, raised an additional $250 million in venture-capital funding. That was on Novemember 11, 2008.

Annual NAR studies--the 2008 edition is due out in April--have repeatedly shown that second homes may blow hot and cool, but they don't blow cold.

HomeAway raising a quarter billion dollars simply has to tell real estate pros something. And in this investment environment. No wonder some publications have called it a "staggering" feat. Indeed, this is being reported as the largest fund-raising round for a tech company since November 2000, when MetroPCS, a wireless phone service (ever heard of 'em?) raised $350 million. That would be near the peak of "the dot-com bubble," which Wikipedia puts at March 10, 2000, when the NASDAQ hit 5,132. 

What does it all mean for anyone who owns a second home--like your present and prospective clients? In our opinion, it means at least three things, all of them significant: 

• The future for vacation rentals is bright. Since its founding in 2005, HomeAway has persuaded venture capitalists to invest a total of $459 million. It started with $49 million. Then it got $160 million in 2006. And in 2008, it got $250 million.
  
  In screenwriter William Goldman's famous phrase, "No one knows anything." But, venture capitalists don't deploy their own or other people's money without thoroughly investigating the target of their investment. To invest a quarter of a billion now, when banks are refusing to lend to even their best long-term customers says... well, it says that at least one group of money folks thinks vacation rentals are "safe as houses."

• HomeAway is going to completely dominate the VR market in years to come. Success in business is like success in any other field of endeavor: It depends upon luck, of course, but it also depends heavily on having the right assets/resources in the right position at the right time. The VCs have voted to supply the rocket fuel that HomeAway needs to obliterate any competition and to completely dominate the field. As one reporter noted, HomeAway is now a "category killer" when it comes to vacation rentals.
  
  This is of interest because after buying all of the leading "Mom-and-Pop" sites (the ones we dubbed "The Big Four" back in 2003), plus other top-tier sites, HomeAway could have either gone public or sold itself. After all, it had rolled up, aggregated, and rationalized the leading firms in the sector.
  
  This round of funding says that they and their VC partners see an even bigger market out there, and they're going for the giant enchilada. In the company's press release, president Brian Sharples noted that there are some 3 to 4 million homes for rent in the United States and Europe, and HomeAway currently lists only 325,000 of them. Lots of room to grow.
  
  We haven't seen the details behind the figures, but a much-anticipated report from the travel-industry research company PhoCusWright will apparently show that the vacation-rental marketplace in the United States is valued at $24 billion. (There's the "B" word again.)

• HomeAway will very likely raise prices. As longtime observers of the vacation-rental field, and as VR owners ourselves, we continue to feel that it's absolutely essential to advertise on the HomeAway Network and on HomeAway's VRBO as well. Doing so currently costs just $528 a year-$299 for HomeAway plus $229 for a basic listing with five photos on VRBO. (If you spring for the full complement of 16 photos on VRBO, your HomeAway/VRBO combined cost will be $792.)
  
  Certainly that seems reasonable. Relatively inexpensive, in fact. Even knowing that the cost to VRBO of including one additional photo in a given listing is next to zero, and the extra photo charge is levied year after year.
  
  But consider this.  Brian Sharples has said that the typical vacation rental generates about $20,000 from an ad on HomeAway. (Our own VR experience comports with this figure.) So you can see what's coming.
  
  Question: What would you expect to pay for advertising that brings you $20K in gross income? Answer: A lot more than $528 a year. A rate hike won't happen right away, of course. But no one should be surprised when HomeAway begins behaving like your friendly (monopolistic) cable company. You know, the one that raises rates every year without demonstrably increasing the services it offers.
  
  And, by the way, you pretty much have to use HomeAway sites. The $250 million in new funding virtually guarantees that in the years to come, HomeAway will own just about all of the VR advertising sites worth owning.  

Conclusion

Once again, "No one knows anything." But, clearly, at least some of the so-called "smart money" has concluded that vacation rentals have a very bright future. Which is a comfort to contemplate as you watch your savings evaporate on Wall Street.

We adapted this article from recent a News & Commentary posting at www.fullybookedrentals.com.