Short-Term Rental Execs Tell us Why Small Works, And Bigger Is Not Always Better

There is a lesson to be learned from struggling short-term rental companies: Bigger isn’t always better. 

As Charleston, South Carolina-based property management company Portoro enters Virginia and Oregon with two acquisitions, it is making sure to take it slow and steady. The two-year-old company manages 275 homes, most of which it got through acquisitions of regional property managers. 

Several companies, including Vacasa, follow a similar strategy. However, Portoro CEO Dustin Abney believes the difference lies in how companies execute that strategy: The cost of acquisitions and the integration of the units. 

“The reason that Portoro is different from, say Vacasa, is that it was using venture capital dollars to acquire their way through unit count,” Abney said. “They were trying to buy up their growth as fast as possible. And in one sense, they were paying over market value as they were doing this.” 

The second piece to this is how well it can retain homeowners after acquisition. 

Abney said that Portoro co-brands with the companies it acquires in a new market, and maintains those homeowner relationships. Portoro doesn’t change the brand and operations immediately, but rather takes time to integrate and onboard homeowners at a pace they’re comfortable with — which is usually 90 days.

That said, the pressures of a public company might be different than those of private companies like Portoro. Publicly listed companies need to show returns for shareholders. 

A Vacasa spokesperson declined to comment. 

Stay Small and Stay Local

There are a lot of small property management companies that never stray beyond their core markets, and when they do it’s about expanding to another zip code or the next county.

Michael Friedman, the former chief operating officer of luxury short-term rental operator Onefinestay, now heads Simple Life Hospitality as the CEO. The company manages 140 homes mostly in Door County, Wisconsin. The company is considering expanding to the Lake Geneva, Wisconsin area, which is three hours away from its main market.

“Having been in the industry as long as I have (35 years) in various roles, and now when I’m at a smaller regionalized company, I’ve realized that bigger is not always better,” Friedman said. “Onefinestay has a great brand recognition, but due to its size, there are layers of bureaucracy one has to go through to make decisions, and execute those decisions to build revenue and profitability.”

The need to be a recognized national brand often takes away control from doing the basic tasks that keep the business running well, Friedman said. He noted that his company, where the majority of its portfolio is in Wisconsin, deliberately chose not to expand beyond the state. 

Tight Operations, High Margins

Both Abney and Friedman said that staying focused on regional markets has enabled their companies to reduce inefficiencies. Moreover, incremental expansion to the next zip code, for example, has allowed them to do so without adding significant costs. 

“Once you go deeper into a market, the human capital needs to decrease at a pretty expansive rate,” Abney said. “Our margins get much better, and it costs us less to manage each home. I would argue that those who have a great local market scale have better margins than those who have one or two homes sporadically in all kinds of markets.”

Another advantage is no layoffs, Abney reckoned. 

“We have a team of 12 full-time employees who cover everything from portfolio management to housekeeping and maintenance,” Friedman said. “We look at some other companies who go into newer markets fast, how many rounds of layoffs have they had? They hire again, lay off again, it doesn’t make sense. I don’t get the strategy and leadership behind it.”

Consultants in the industry also warn their clients against rapid, expensive growth. 

“I personally feel that the majority of companies should focus on one market at a time. It’s hard enough to dominate one market let alone two. As soon as you expand into that other market, you are going to pull resources and one will suffer,” said Brooke Pfautz, who runs Vintory, a sales and marketing platform for vacation rentals. “I would say the only exception is when you’ve maximized market share, you have a great manager taking control of the initial market and then and only then, you can consider expanding. Even then, I still feel you have to have the right person in the right seat leading that expansion. ”