STRA Episode 19: Pricing Your Short Term Rental 101 and John is Officially a Lord

The Short Term Rental Authority Podcast

Episode 19: Pricing Your Short Term Rental 101 and John is Officially a Lord

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[00:00:05] Hey everyone. Welcome back to the podcast. I am Wendy Williams, along with my husband, John Williams , the man, the myth, the legend. I am now a Lord. Oh, that's right. So I got an early Christmas present . Because it came in the mail and you can't hide it. Right, right. In a big envelope. It came in a big, giant envelope and you're the one in charge of getting the mail.

[00:00:28] Yeah. So I, I watch a lot of YouTube videos and I feel like I should be plugging this and I should have an affiliate link, but I don't . Right, right. I don't . But when you went to established titles and I now have a certificate, Proclaiming me as a Lord. I'm not calling you Lord. I'm just not. I am, I can now officially change my credit cards to Lord John Williams.

[00:00:55] Oh my God. I hope you do that. Yes, that would be so, yeah. So if you don't know, it's you can, you can buy these, they're called souvenir titles, but you actually have. souvenir rights to, oh, whatever that means, a one by one plot of land in Scotland. , right? . And you get the deed to it. And then because you're now a landowner in Scotland, you are a Lord.

[00:01:20] You are technically a Lord. So you now can refer to me as Lord. No. No. Well, not John Williams. But well you, that means you get to be a lady. Oh, well now, now that changes things. We can be like Lord and Lady, that changes everything. Yes, . It does. So you're gonna call me Lord, my my Lord, . Aha. Only if you call me my lady, my lady

[00:01:45] All right, my lady. I feel like you should be kissing my hand when you do that, my lady. Well, I'm the Lord . Oh Lord. Well, I believe that I have created a monster. Yeah, but it [00:02:00] was one of those fun novelty gifts. That's cool. I'll put it right over top of my diploma. . I'm no longer John Williams. Oh. Graduate of Appalachian State University.

[00:02:12] I am now Lord John Williams. Landowner in Scotland. , right? Oh wow. So . But anyway, there you go. There you go. So today on the podcast, the Short Term Rental Authority Podcast, we are here to help make you the best operator ever. So let's get down to the real business. This is pricing 1 0 1. This is the very basics of pricing.

[00:02:46] So we are going to be talking about the pricing tool that we use, which we have mentioned before. What type of pricing we use, the numbers that you need to know and why you need to know them. So let's get started, shall we? This is something that we get asked a lot about by just about everybody because.

[00:03:11] Pricing, I feel like is one of the hardest things to do in the short term rental space. Don't you think? It is. It's, it's one of the, the harder things because there, it's, it's not an exact science. Yeah. A lot of it, sometimes it's, it's a little bit of an art to it. Mm-hmm. and then there are different strategies.

[00:03:30] Right. that go along with, well, how do I price? Right, right. And how do I, well, let's talk about the basic strategy. So that's, that's where we should start, is just the basics. We should, yeah. And I, I think that really starts with knowing your numbers. Okay. And when I say knowing your numbers, we talked about this before, but bear's repeating.

[00:03:52] You need to know what is your baseline? Like, what does a night cost you? We call that your break even. [00:04:00] That's what we call that. Well, it's not in quotes. It really is your breakeven . Well, I'm, I'm saying that's what we call it. Well, that's what you call it in business, I think break even is your, but yeah, it's your breakeven number, right?

[00:04:10] Yeah. But it's your breakeven number and it's basically, if no one stayed there, if you had this house, you had this apartment, you had this, whatever, you got your, yeah. Treat helps. What does, what does that thing cost? on a monthly basis to just have and operate, then that could be either whether you own it or whether you are leasing it.

[00:04:35] Yeah, it doesn't matter. Doesn't matter. That's just what are your total expenses if no one stayed there. So here's the things it doesn't include. Cause that's probably easier to say. It doesn't include cleaning, right? It does not include cleaning. Cause nobody stays there, so there's no cleaning, right? It doesn't include supplies, right?

[00:04:52] Because if nobody stays there, there's no supplie. , but there are certain things you still have to pay. You still have to pay rent, you have to pay your mortgage, you have to pay your electric bill. Your utilities. Yeah. Which are technically a variable expense, but in this case, we've treat them as a fixed expense because you don't turn off the power just because nobody's there.

[00:05:12] Right, right. There's water. There's your insurance that you're paying. There's any software subscriptions that you have. Oh, that's, that's a really good point. You know, most of those charge per. or on an annual basis or something. Mm-hmm. . And you're paying that whether someone stays there or not. Right. So that's, that could be the, the pricing software that you are using, which is what we use as Price Labs.

[00:05:38] There are others out there, right? Like there's Price Labs Wheelhouse and Yeah. Wheelhouse Beyond Pricing is another, there are many others I've discovered, but we use Price Labs. We find it to be fairly accurate in our area. , do you want to go down the road of tools? Well, yes, but just Price Labs. [00:06:00] Okay.

[00:06:00] Well, when I hear the normal thing I would tell somebody is that Price Labs is a tool. You should be using it. What it does is it does what's called dynamic pricing. So instead of doing something simple like, Hey, my place is $150 a night every. Regardless of the night or doing something like, okay, well it's a hundred dollars during the week and it's 150 on the weekends.

[00:06:27] What this tool does is it actually prices out every single night differently, differently just about, and it bases its pricing on, first of all, you give it a a base price to work. It may suggest one, and then what it does is either takes that base price and either lowers it or raises it based on a number of factors.

[00:06:53] One of the primary ones being demand. So your holidays gonna be more your Monday and the middle of July, or not July, but January is gonna be. Right, using that. Cause that's our low season because January sucks. In general pricing days further away, meaning further out, or more days closer in or less, because it's tr what it's trying to do is get your days booked.

[00:07:22] Right. And that, that kind of goes back to the what is your strategy of pricing. So in general, , we need to then first discover what our expenses mm-hmm. , right? So we know how low we can go. What does a day cost us? Really critical number to know it is because if you think about it, it, you're basically taking what would be a wholesale purchase.

[00:07:49] Mm-hmm. meaning a, a whole year's worth of availability. Yeah. And you're dividing it up into. Probably and then selling nights. So it's, [00:08:00] it's much like the same thing as you would go to you know, a wholesale place like a Costco or a Sam's Club or whatever, and you would buy whatever it is in bulk. It could be water, it could be candy, it could be bullet paper.

[00:08:14] It could be ice cream. Ice cream. Huh? The the ice cream lady that comes around. That's right. Yep. And sells it outta the truck. She buys those at Costco. Yep. But she buys them in bulk, so she gets a little bit of a discount. Mm-hmm. . And then for the convenience of, she pulls up in the ice cream truck and it's cold, and you just go out to the end of the driveway.

[00:08:32] Well, the ice cream she paid 25 cents for is now a dollar 50. . Yeah. She just recently upped her prices. I noticed. . Oh, she did? Yes. Okay. Well, it used to be a dollar. Now it's a dollar 50. Everything's inflated. Everything's inflated. Everything's inflated. But the idea is you the ice cream truck lady, even the ice cream truck lady.

[00:08:50] Mm-hmm. . That's sad. I know it is. But anyway, , what were you talking about? I was saying buy it. Buy it wholesale. Right? Right. Sell it retail. Basical. And it's the same thing that we're doing with our pricing. So we need to know what is that wholesale cost and it's your expenses. You got a formula for that? I have a rule of thumb for that.

[00:09:14] Oh, okay. All right. A rule of thumb. Yeah. So the, the actual answer is what are your real expenses and do you have a bookkeeper? And do you keep track of that? Hmm. Ooh, right. So when I ask somebody, so a lot, a lot of times this comes up so, we'll, I'll have a coaching call. Somebody will book a coaching call with us, which you can do, by the way.

[00:09:35] Just DM us on social media, the word coaching. Well, you'll get an automated response and you'll be in the system. But when I get one of those coaching calls, and a lot of times it's for pricing this time of year. Yep. Right? And the first thing I'll ask is, okay, well what are your expenses? You know, if nobody stayed there, same, same idea.

[00:09:57] If nobody stayed there, what? What does this place [00:10:00] cost you a month? And somebody will tell me it's about 1800 bucks, or it's $2,000. And from the response, I immediately know that they don't know what their actual cost is because it's not, it's not an even number. Right. It's not an even number. Right, right.

[00:10:17] I'd rather someone tell me it's $1,732 and 86 cents. Right. , because now I know that you actually looked it up and know what your cost is. Right. Can I, can I just stop you right there? Yeah. Because as a practical matter, I feel like. it, it's important to tell people that, that that is actually something that you should be tracking and, and your bookkeeper will hopefully be doing that for you.

[00:10:49] So big, huge plug for go get a bookkeeper and, and if you're just getting started, there is a rule of thumb out there for. , right? So when you start a new unit is really what you're saying. Yes. Because it could be, Hey, we've been doing this for a while, right? If we go up, you know, open new units in a whole different market, we don't know either.

[00:11:15] Yes. Like there are tools out there that we've talked about like air DNA and things like that, and we've talked about why that's not as accurate as it could be. So for a rule of thumb, if you wanna take a rule of thumb, take whatever market rent for that property. as a long-term rental on a per month basis.

[00:11:33] So let's say, hey, normally, you know, if we, we put this house up and it was a long-term rental, it would, the rent would be 1500 bucks. And this, this holds true whether you own it or not, right? Just what's market rent. And then take that market rent and multiply that number by one point. . So if it was $1,500, I would multiply one by 1.3, I would get [00:12:00] $1,950.

[00:12:02] you already know this. I do know this. I've done this calculation a lot, . And we say that because generally your fixed expenses are going to be about 30% of your rent more then Yes. So that, that's the. That's the rule of thumb. Is it gonna be exactly right? No, because it's a rule of thumb, but it's gonna get really close.

[00:12:27] But it's gonna get really close after talking to people in all sorts of different markets, from everything from California to New York, to DC to rural Alabama, to Louisiana, to Oklahoma, you name it that that is generally true. To a, to a vast degree. And the, and I will give you a caveat. It assumes that you're paying market rent.

[00:12:53] Mm-hmm. . So if you are renting the place and you're overpaying for it, then that'll skew your number. . So if they, but if that is true market rent, then that's about right. Mm-hmm. , and that's about what you can expect, right? So market rent times 1.3 Yes. Will give you your fixed expenses, rent plus fixed expenses roundabout within a hundred, 200 bucks, right?

[00:13:15] And then what I do, then it would take that, cause I need to know how much the heck that cost me a day. Well, the average number of days in a month is 30, so I would take that 19, 50 or whatever it comes out to. or use your real numbers ideally and divide that by 30, and now I know exactly how much does each day cost me.

[00:13:36] When this place is vacant, what does it cost me in dollars? Because remember, I can't sell today, yesterday, right? Or tomorrow I should say. You can't sell today, tomorrow, today. Tomorrow. Right. And yesterday's gone. And yesterday's gone. So if it doesn't sell, yesterday's Gone. Is that a song? Mm-hmm. . Yeah. It's, it must be an 80 song.

[00:13:57] It is . Okay. [00:14:00] If I'm ever in a trivia thing and there's a music category, Wendy's on my team. Yeah. I, I gotta think about who sings it though. Yeah. I answer history questions. She answers. . Pop. Pop. Yes. Pop trivia. Pop trivia. Yes. But anyway, I'm gonna take those, the expenses of the month divided by 30, and that tells me what a day cost me.

[00:14:20] Okay, so rent times 1.3 divided by 30. Yes. And that tells me truly what a day cost me. Now that's not the true cost. because that assumes a hundred percent occupancy. Occupancy. I, I was wondering where you were going with that. Right. So we've left out an expense, and that expense that we have left out is vacancy.

[00:14:44] Vacancy, because you're going to have vacancy. You just are even on a long-term rental. If you don't account for vacancy, good luck, . Right, right. It's a, it's an expense. Right. So what we tend to do is, We shoot for 80% occupancy. So we would take that number and instead of dividing it by 30, which is a hundred percent of a month, let's divide it by 80% of a month.

[00:15:10] And that's now 24 days out of 30 is 80% of it. Mm-hmm. . So that raises the what each night costs you a little bit because now you're accounting for vacancy. A little bit of vacancy. Right? Right. So now it. rent times 1.3 divided by 24. Yes. Right. And now, okay, now I've accounted for all of my real expenses.

[00:15:35] Plus, well, a very real expense, which is vacancy. Mm-hmm. . Yep. Okay. I think a lot of people have missed that. Yeah. And you, and you may need to adjust that for your market. Mm-hmm. , you know, if 60% is your average over a year. right then. Okay. Use 60. Mm-hmm. use 60% of a loan, but that tells you what that night cost you.

[00:15:55] Mm-hmm. , that's what you're projecting at least. Right? And so that's [00:16:00] important because the pricing tool is very good at getting you the high, the the higher end days. Like if it's Christmas, it's gonna raise the price. If there's an event in your town, it's gonna notice that there's demand and it's gonna raise the price.

[00:16:14] But what it doesn't know is what your costs. , it doesn't know how low you can go. It doesn't know how low you can go. And you have to tell it that unless you tell it. And if you don't know your numbers, you can't tell it the appropriate thing. Right, right. And that's why it's important for you to know that.

[00:16:32] Yes. So now you know, okay, here's how low I can go. And now that I know how low I can go, and then I realize that I can't sell today, tomorrow, tomorrow, that means that today should always be at my. . Yes. So if today is vacant, it should be at whatever I calculate at my minimum or perhaps even lower or per, I was gonna say, cuz I noticed sometimes it is lower.

[00:16:57] Yeah, sometimes I'll put it lower because I would, cuz if I know that a day cost me, for example, 50 bucks, like I did the calculations, I figured out, okay, a day cost me $50. I would rather sell it for 20. then lose 50 Because if I sell it for 25, I only lose 25. Yeah. I mean, something's better than nothing.

[00:17:16] So it's kind of like, would you rather lose $25 or $50? Right. Because that's what it costs you. Right? Right. If it says vacant, right. But at least in the tool, I can set that minimum cuz I know I can always do that. I know I'm always willing to break even. . I, I like the analogy of bananas on the shelf. Ooh, this is a good analogy.

[00:17:35] Do this one. So when you're selling fruit, but I'm using bananas, they, they don't last forever. Right? They have a shelf life, right. And bananas. They sit out, they get brown, and eventually nobody wants to buy 'em. And then you throw 'em out. So if you can't, if you don't, then you can use 'em for smoothies. Oh my God.

[00:17:55] You're gonna sell rotten banana strips. They go rotten eventually. That's true, right? . . [00:18:00] The point is that the grocery store will almost give you the bananas. Yeah. That are bad. Cause they're just gonna throw 'em in the trash anyway. Right, right. So the price gets lower and lower. The riper they are. Right. And so it is with your, your nightly rate as well today is really ripe and it goes rotten tomorrow.

[00:18:20] Right, right. It's gonna go rotten tomorrow. So sell it for something. Yes. Something's better than nothing. And if you can sell it with a bunch of other days. you actually can reap some profit on, right? Sure. Right. But the, the goal is really for our first goal is always don't lose money. The second goal is, okay, if I gotta lose something, don't lose all of it.

[00:18:41] Right? And then the third goal is, okay, now let's go make our profit elsewhere. Right? Right. So today is going to be at cost. At least say at least, at least at cost. But tomorrow's gonna be maybe a little bit. Right. And then the next day is gonna be a little bit more than that. Mm-hmm. . And the day after, that's gonna be a little bit more than that.

[00:19:05] So it's incrementally, right. And if you look a month ahead, then okay, now those prices are way up. Mm-hmm. , right? Because they're a month in advance. Right. So that, that's the way it generally works. But what happens is people are afraid to go too low. Mm. because they're afraid. They're afraid. If I set my place for $25, then who is gonna stay there?

[00:19:27] Yeah. Somebody that you don't want . Right. And I, and I get the sentiment, but there are ways to get around that that I won't get in that right now where you can actually use that $25 day to get a week or a two week long booking that you wouldn't have necessarily gotten otherwise because you were afraid to go too low.

[00:19:49] Mm. Right. On a particular day. Right. So that it, that's why I say there's, there's a bit of science to it. There's a bit of an art to it. But if you wanna take something away from [00:20:00] that and you're using a pricing tool, go look at the calendar for one of your listings. And even if today is booked, it should tell you what did it calculate for today?

[00:20:10] Mm-hmm. as a daily rate. So if today was vacant, what, what number is it showing you? And it ought to be at your cost. And if it's not, or. Or lower, but the tool is only gonna go to the minimum. Mm-hmm. , which we gave it as cost. Mm-hmm. , right? So it should be at cost. Mm-hmm. . And if it's not, then the tool's not set up properly and you might wanna jump on a coaching call.

[00:20:34] So I can help you with that and get, get your tool optimized so it's actually working for you and not against you. Because if it's in those cases, it's actually working against you on the low end. Mm. . Yeah, and we, and we can definitely help you out with that. Let me, let me rephrase that. John can help you out with that.

[00:20:53] I can help you out to a certain extent, but John would love to talk to you. About your pricing. I would, I like talking about that stuff. That, that is your specialty. You , you were talking to a student just the other day and not 15 minutes after you got off the coaching call. She got a seven. Yeah, she got a seven.

[00:21:12] She got a seven night. Yeah, she got a seven night booking after y'all made those changes. So hop on a coaching call with us. We would love to, to help you out with with that pricing and that pricing tool and getting that tool set up and making sure that, first of all, You're using a pricing tool and you know why you're using a pricing tool and you know how to use it.

[00:21:35] It's an expert tool that you need to learn how to use. Expert Lee as our mentor, Jay Massey always told us, and we can teach you how to do that. So we would, we would love to to help you out. To help you out with that. Did we cover the three things? We did Indeed. Okay. Yeah. You, you did a great job. My Lord.

[00:21:56] My Lord. , my lady . [00:22:00] Yeah. Don't get you. I'm gonna be an affiliate link for that. Established titles, and we're gonna put it in the YouTube . There you go. There you go. I like it. YouTube description. Look for it. I like it. I like it a lot, . So we hope you found some value in today's podcast, and if you did go like and subscribe and you will get notified of all the fabulous podcasts that we have available so far, and the ones that are coming up in the future.

[00:22:29] And I have a feeling that 2023 is going to be spectacular. So we'll see. . Onto the next. Onto the next.

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