Natalia says, “I have a property that is my personal residence that I’m looking to rent out as an entire property on a short-term basis. I also have several condos that I own that would do better as a short-term rental than as a long-term rental. How do I decide on pricing a nightly rate?”
Natalia this is a great question. It’s also a huge question and I’m going to try and condense about an entire day worth of content into about 5 minutes.
Your question is more about marketing and digital marketing in particular.
The whole process starts with understanding who your target client is. Let’s imagine you’re buying chocolate. You could go to the grocery and purchase a giant bag of Hershey’s kisses. You can buy the 4-pound bag for about $23. You could also go out and buy a specialty hand-made box of three unique truffles for about $20. These are vastly different products. They’re targeted at different customers. The difference in price on a per pound basis is more than 20:1.
The same is true for a short-term rental. If your property is a commodity, then you’re going to be positioned in the market as a commodity. You’re going to be one of those Hershey’s kisses in the bottom of the bag, indistinguishable from the next hoping that you’re the one who is going to get picked today.
But if your property has distinguishing features, then you’re set apart from the rest. If your property is a ski-in ski-out property, 300 feet from the base of the gondola that takes you to the top of the mountain, that’s a unique product. There might be 500 short term rentals available at the ski resort. In that case you’re chance of being picked is 1 in 500. But if your product is that unique ski-in ski-out chalet, then your chances of being picked improve to 1 in 3 or 1 in 5. I like those odds a lot better.
If you’re serious about being in the short term rental business, then you want to think about dynamic pricing. This is similar to what the airlines do. It’s no secret that it’s less expensive to fly on Wednesday than on Monday or Friday. Likewise, you may price weekends higher than weekdays.
There are tools that help that process of determining the best pricing. One that I recommend is a company called Airdna. The have over 25 performance metrics for over 80,000 cities worldwide. They examine thinks like market occupancy, number of active listings, average daily rate, revenue per available room, booking lead times and so on. You can also get customized competitive data sets which allows you to get a much more accurate perspective on your specific segment of the market.
Some properties are seasonal with a peak season, a low season and two shoulder seasons. Your pricing strategy is going to vary depending on which season you’re in.
I own a portfolio of short term rentals in a seasonal market. We know that the highest nightly rate is in the 16-20 weeks during the summer. Demand is good during ski season, but a fraction of what it is during the summer, hence the lower nightly rate.
This is where the importance of product positioning comes back into play. I want my properties to have the best positioning in the market. I want the vacancy to go to the junk in the market. I want more than my fair share of the market during those periods of softer demand. Key to that is the reviews. So we will spend extra on a few items of furnishing. We will buy the most comfortable king sized mattress that money can buy. I don’t mind spending extra on that. I want you to get those guest reviews that say “Wow, this was the most comfortable bed ever.” If you have those reviews for your property, then you will get more than your share of the market.
Finally, I want you to make sure that you show up as a superhost in AirBnB. All these little things separate you from the rest of the properties that are just commodities in the market.