3RD HOME was launched in 2009 in the wake of the economic downturn. Whereas the business climate at the time made it almost impossible for most new businesses to get started, it was the perfect environment to set up 3RD HOME. The main reasons being that in the good times, the affluent owners of luxury second homes used to fit loosely into 2 camps:
- They either did not mind that their properties were sitting empty for most of the year;
- Or, they were generating enough rental income to enable them to both cover the mortgage/running costs and have enough left over to allow them to rent other places when they traveled
The economic downturn has made everyone look at what they own through different lenses. Second home owners are now asking themselves, am I getting the most value out of these assets? Property prices have dropped so much that owners cannot sell – they would not get the price they want or, in many cases, even paid for their homes. However, they still want to maintain/enhance their lifestyle as best they can and therefore, they need to make their assets work harder for them. 3RD HOME membership is the perfect answer.
Whether these properties are rented out or not, there is still a good proportion of downtime in peak and shoulder seasons that remains unused. Like a hotel room or a plane seat, weeks in these properties are perishable goods of real value. 3RD HOME membership enables luxury second home owners to turn this unused downtime into value that allows them to take their vacations without paying rental rates to do so.
Also, if these properties are currently rented out, the drop in the number of renters taking the property means that there is more unused downtime and less generated revenue. Yes, owners who rent their second homes firstly want enough income to cover their costs and they know how many weeks they need to rent out to achieve this. However, for their personal travel, using rental income is inefficient. Once agency fees (anything between 20% and 50%) and other rental costs are taken into consideration, the proportion of the weekly rental rate that an owner gets to keep is comparatively small. This means, in order to rent something of a similar level to your own property, owners need rent 2 or 3 weeks of their own to take 1 week somewhere else.
3RD HOME’s Key system allows members to make like-for-like exchanges and either trade up or down in a very efficient manner.
By establishing ourselves and growing in this economic climate, 3RD HOME will be in a great position to benefit even further when the good times return. Who is going to go back to paying $10,000-$15,000 for a ski week in Vail when they can use the downtime of their own property and pay just $495 per week? We can safely say, very few people. By doing this, we are changing the way people view the value of their second homes and the way they take vacations both now and in the future.
The Business-to-Business facet of 3RD HOME is even more compelling.
The economic downturn has hit all industries, but it can be argued that the luxury vacation real estate industry has been hit harder than most. Developers of resort real estate are having great difficulty either getting or extending their lines of credit and foreclosures are commonplace. Even the projects that are relatively sound financially are struggling for buyers. The pool of buyers is smaller and the reluctance to buy anything that is not ‘essential’ at the moment means that sales are really tough.
Developers and Sales/Marketing companies are fighting for the same buyers. In order to realistically compete, they need a meaningful point of difference that truly adds value to a purchase. Bar/restaurant credit or free gym/golf passes are not enough to lure a buyer to your property because such offers have become commoditized.
Even before the downturn, the major question or hurdle that second-home buyers had to overcome is – If I invest $x million into this particular property we, as a family, are going to have to want to spend the vast majority of our vacation time in this particular place.
What 3RD HOME membership offers these owners/buyers is the freedom to travel the world in the way that they want by using the downtime in their second home to do it. This is a true benefit of real value provided to them by their developer.
Our relationship with these developers enables them to use their fully built-out but unsold inventory to allow highly-qualified potential prospects to experience their product. By putting some of their unsold inventory into 3RD HOME, the developers build up an account of Keys that they can use as part of their sales incentives. One of our developer partners has already taken this one stage further buy pre-booking weeks for potential buyers already. As opposed to just giving 3RD HOME Keys as part of a sale, he is in a position to sell a unit at his property with a booked ski week in Vail in March already thrown in.
Whereas exchange components for developers were a ‘nice-to-have’ in the past, they are increasingly becoming more essential as they effectively answer the main question raised when buying a second home.
3RD HOME has the platform, experience, infrastructure and existing partners to turn the company into the only realistic exchange option to have as part of a luxury development. This will only increase at the market becomes more competitive. Again, when the good times return, buyers will then be expecting a great exchange component as part of their purchase and at that point, we will be so entrenched, that our positioning will only help to fuel our growth.
In short, the worse the economy gets, the better it is for our business. As the appeal of our offering to both individual owners and developers widens, we are able to establish great business relationships with products and brands now that would possibly not have taken our calls pre-2007.
If we can carry on to cement these relationships now (both with individual owners and developers), we will have built a very solid foundation to continue to grow regardless of what happens to the economy.