The only constant about real estate prices is that the price constantly changes. This is as true for the short-term rental market as it is for selling property.
Always question your own rental prices, because you can never tell for sure when the market is going to shift - or if it already has.
This blog post is going to help you, as a property owner, evaluate and re-price your properties in a way that maximizes your profit while still keeping them viable--and enjoyable--options for your renters.
Let’s start with the first stage:
Now, this might seem like a no-brainer. After all, how can you re-price your properties without reviewing how much they cost, right?
But there are a number of other factors you need to keep in mind as you go through this evaluation process.
It might be easy (and tempting) to just introduce a sweeping rent increase across all of your properties, but this is exactly the wrong thing to do.
Every rental property is different. Even properties within the same building can vary so much in layout, size, condition, and intangibles that it doesn’t make sense to lump them all together. If you have two identical corner suites, but one has a view of the beach and the other has a view of the dumpster, which of the two is more likely to survive a price increase?
Review each of them, and re-price on a case-to-case basis. It might take a while if you have a dozen or more properties, but doing so will protect your investments and increase your overall profitability.
As much as we would wish for it, renting a property is not a pure-profit business. Much like the difference in pricing, two properties with similar facilities, layouts, and locations might also have different associated costs.
Beyond the fixed costs like mortgages, insurance, and association dues, each property will have their own costs for supplies, furnishings, repair and maintenance, and the like. Utility costs like electricity and water will fluctuate depending on guest needs, and your price needs to take that into account. There’s no sense in pricing a property low if a guest eats your profit by leaving all of the lights and appliances on for their entire stay.
How popular is that property, really?
If the property is vacant 25% of the year, then you’re actually doing reasonably well and can probably afford to let the price lie for a while longer (assuming your expenses are within reason). But if this property has a tough time attracting visitors, you may need to play around with the pricing a little bit more to find the “sweet spot” of price and perceived value.
Once you know your properties’ essential figures of price, expenses, and vacancy rate, your job is done. Right?
Your property is a part of a shifting market inside of a living, breathing city. And that complicates matters a lot. You have to reassess your property’s place within this space.
One of the reasons your property might not be doing as well is that your competitors may have already adjusted their prices for the year, while you’re still stuck using prices from half a decade ago.
Hop onto AirBnB and scan competing listings for your area. Analyze their prices for both the short-term and long-term, and see how the rates fluctuate between weekdays and weekends. Also check their availability dates. Properties with limited short-term availability are probably doing well (although their hosts may have just blocked the date off) and are worthy of further investigation.
Certain cities like Boston and Austin are havens for all sorts of events like tradeshows, concerts, and festivals. And while COVID may have been a splash of cold water on the events industry, it won’t remain that way forever. Events WILL bounce back, and when they do, you need to ensure you’re pricing yourself competitively.
When reviewing each property, ask yourself the following questions:
All these factors and more can help you market yourself to event attendees and re-price with them in mind.
Every booking platform charges a different fee when a visitor rents your property. Do you pass this fee on to the renter? Or do you “eat” the fee as a part of doing business?
Many property owners choose to just integrate the fee into their property’s final price, but you that makes it a challenge to track how much you’re actually making per platform. This can involve a lot of manual calculation, unless your property management software can recalculate these fees so that your take-home price is the same every time.
Now that you’ve been able to see what your prices are and what they could be, let’s talk about the different ways you can actually re-price your short-term rental properties.
You could do it the simple way and just change the amount on your listing to whatever you feel is appropriate, but if you want to take a chance and attempt a different strategy, we have a few ideas for you.
Are you the type of property manager that prefers to monetize amenities? Towel service, toiletries, wifi access, and the like?
Charging extra fees for such things is a good way of having your properties generate extra cash. However, not all renters will appreciate this kind of setup. Not to mention that having this kind of arrangement may be difficult to manage if you’re running multiple properties. Keeping track of which renters in which property ordered which amenity may require a full-time person!
On the other hand, some property owners like to keep things simple and have one price that includes it all. It’s convenient for the renter and easy for you to manage, but there is less revenue potential and it may lead to abuse by some renters.
If you own multiple properties, use a few of them to experiment on a new monetization strategy for a month or so and see how it goes.
Once you know what your competitor’s rates are, you have the flexibility advantage and can re-price your property to differentiate yourself. But the question now is, in which direction will you go?
You could potentially undercut your competition and price much lower. Renters are always looking for a good deal, and if they see two relatively similar properties in the same area, they will almost always choose the cheapest option. If you truly understand your costs, you’ll be able to know how low you can reasonably go to be competitive and still be profitable.
Alternatively, you can raise your costs significantly higher than other properties. In this, you actively choose to become the “premium” option. You’ll then have to come up with a way to justify your higher rate. Perhaps a 24-hour check-in, free breakfasts, or something else of similar value.
If you would rather take a hands-off approach to your pricing, you could try using dynamic pricing tools like Beyond Pricing, PriceLabs, and Wheelhouse. These data-driven tools take into account local events and trends, as well as market demands and location availability. They’re a good investment for property managers that want to make a tidy profit but don’t want to micromanage everything.
Short-term rental properties rarely benefit from a set-and-forget pricing process. What was good a year - or even a few months - ago might not be the smart price now.
Always stay alert for market changes and set an appointment for yourself to regularly reassess property performances and pricing. If you manage multiple properties in different areas of the city (or even multiple cities), you can maybe build a rotating schedule where you review all the properties in a single area every month.
Find the right approach and pricing strategy that works for you. But the important thing is to never let yourself become complacent. Pay attention, review regularly, and price smart. You’ll be surprised at how much your business will grow.
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