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As Vacation Home Sales Stall, Owners Turn to Renting

When Karen Logan put her vacation house at Lake Tahoe up for sale last year, she received zero offers. It was then that she decided to rent it out.

“I'm retired on Social Security, and I need the extra finances,” she says.

Patti McConville | Getty Image

Logan now rents her 3-bedroom, 2.5-bathroom house for $1,800 a month, or $1,200 a week for prime time. She's saving the summertime for prospective buyers, when her vacation house will return to the market.

"If I haven't sold it by September, I might have to rent it out again," she says

Like Logan, more Americans are renting out their vacation homes, either because they can't sell them or are unwilling to sell for a loss. That allows them to pick up extra income while waiting for the vacation home market to revive.

The result: The vacation rental market is flooded with new listings, keeping rental rates largely unchanged and creating a wide choice for Americans seeking a summer rental.

While the overall housing market remains in a deep slump, the vacation market is in even worse shape. Sales of vacation properties have been cut in half from their peak in 2006, before the financial crisis hit. Just last year, median sales prices of vacation properities dropped 26.5 percent to a record low of $150,000.

CNBC Investor Guide to Spring Real Estate 2011 - See Complete Coverage
CNBC Investor Guide to Spring Real Estate 2011 - See Complete Coverage

Among the 80 vacation homes Sunburst Beach Vacation operates in Northwest Florida, around 20 are for sale. “But only a couple of them are sold every year,” says Steve Howard, Sunburst’s owner.

So second homeowners have been forced to consider renting.

“Instead of beating their head up against the wall, it is time to change the tactic,” says Brett Williams, Logan’s property manager at Agate Bay Realty Lake Tahoe.

Paid listings on the online vacation rental service HomeAway—which includes HomeAway.com, VRBO.com and VacationRentals.com— jumped nearly 22 percent last year, to 527,535. And according to Homeaway, homeowners earn more than $35,000 on average in annual income by renting their properties.

Besides the monetary benefit, vacation homeowners become landlords to avoid keeping properties on the market too long and lose their appeal to potential buyers.

Demand, although subject to seasonal fluctuation, is generally strong. In Sunburst Beach Vacation's case, most bookings made for June and July, the high season in Northwest Florida, are made by March, and about 95 percent of the properties are booked during that period every year.

Home For Rent
Home For Rent
Home For Rent

Travelers tend to favor rentals over hotels because they're often cheaper. A family can stay at a 5-bedroom house in Florida for $150 to $200 a room per night, Sunburt's Howard says. If they were to stay in a hotel, “it has to be a relatively low-end hotel for the same rate.”

Although price plays a major role in the equation, vacation rentals will stlll carry the same charm when the economy gradually picks up and consumers begin to reorganize priorities.

“The sensitivity to the value is not something that goes away immediately when the economy bounce back,” says Alexis de Belloy, Vice President of Homeaway, an online service that connects vacation homeowners and property managers with travelers.

People also choose vacation rentals because of the privacy, space and amenities, de Belloy says. “When a family experience a vacation rental, it is difficult for them to go back (to hotels), ...and it doesn’t matter if you have a little extra cash.”

Moreover, rental rates, stable for the past few years, are expected to remain that way this year. A Homeaway report shows that more than half of vacation rental owners are planning to keep their 2010 rates this year.

Cost of running a vacation rental varies greatly. Registering to connect with travelers via online services can cost anything from free to $300 a year. Maintenance fees are also on a case-by-case basis.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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