Experienced STR owners - is "some" money always better than "no" money?
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
Skyline Properties
Experienced STR owners - is "some" money always better than "no" money?
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votesThe risk you run by dropping rates beyond not getting much money relative to the wear and tear that you run a higher risk of getting undesirable guests who will not respect your property and could do damage.
31 Replies
- Cambridge, MA · Member since 2015 · 651 posts · 736 votes3y
I have the same issue when I list during our lowest season. One year I just kept dropping my rates and my ratings took a significant hit. I would get seriously dinged on "Value" of all things!
This year my January rates were in the range of 123 - 150 versus high season rates being 200 - 250. I got 5 star ratings on all my January bookings.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
The risk you run by dropping rates beyond not getting much money relative to the wear and tear that you run a higher risk of getting undesirable guests who will not respect your property and could do damage.
- 3ySarah KensingerPro MemberReal Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
I'm with @John Underwood! Plus, I would go off of a pricing software and not just randomly drop rates due to FOMO. Alot of times people's bookings are dropping because their property is lacking in some way, they need to educate themselves better on how to work the STR market, utilize softwares, and know how to relate to guests!
There is definitely a balance that has to be played out here. And that low rate may be different by season as well. Also, it depends on the client, I would go much lower on a returning guest that previously treated my properties well, than some random guest because I know how they treated my cabins. But there is a price point that once you go past heading downward, you definitely raise the risk of bad guests.
- 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Collin Hays:
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
Skyline Properties - Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Ken Boone:
There is definitely a balance that has to be played out here. And that low rate may be different by season as well. Also, it depends on the client, I would go much lower on a returning guest that previously treated my properties well, than some random guest because I know how they treated my cabins. But there is a price point that once you go past heading downward, you definitely raise the risk of bad guests.
How much lower for a good repeat guest - 10%? 20? 30? At what point would you rather have it empty than rent to a repeat guest at a cut rate?
Skyline Properties - 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @JD Martin:
Quote from @Collin Hays:
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
We have a software system that monitors all of this and pretty much tells us where rates need to be. We haven't seen anything that I would consider off the charts, high or low.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Collin Hays:
Quote from @JD Martin:
Quote from @Collin Hays:
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
We have a software system that monitors all of this and pretty much tells us where rates need to be. We haven't seen anything that I would consider off the charts, high or low.
Well that's kind of my question - not "where rates need to be" but "what rate is acceptable to you". Let's say everyone around you keeps cutting their rates to try to counteract a slowdown - where is your line in the sand? If you don't have one, that's fine - that was part of the conversation, that some money is always better than no money, which essentially says I'll go as low as I have to in order to stay occupied.
Skyline Properties - 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @JD Martin:
Quote from @Collin Hays:
Quote from @JD Martin:
Quote from @Collin Hays:
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
We have a software system that monitors all of this and pretty much tells us where rates need to be. We haven't seen anything that I would consider off the charts, high or low.
Well that's kind of my question - not "where rates need to be" but "what rate is acceptable to you". Let's say everyone around you keeps cutting their rates to try to counteract a slowdown - where is your line in the sand? If you don't have one, that's fine - that was part of the conversation, that some money is always better than no money, which essentially says I'll go as low as I have to in order to stay occupied.
There are minimums where we won't go below, but we manage a number of properties so that will vary widely. Your point is a good lesson: A 10-15 percent drop in demand can mean much more than that in declining rents. If there is more supply than demand, suddenly the supply is in a feeding frenzy of sorts, chasing after the demand with lower and lower prices.
Unfortunately, many first time vacation rental investors are learning this economics lesson the hard way, and it's painful.
- 3ySarah KensingerPro MemberReal Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votesThe best way to decide this it to pay for a pricing software. Otherwise, it's a stab in the dark which could be entirely off.
Quote from @JD Martin:
Quote from @Collin Hays:
Quote from @JD Martin:
Quote from @Collin Hays:
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
We have a software system that monitors all of this and pretty much tells us where rates need to be. We haven't seen anything that I would consider off the charts, high or low.
Well that's kind of my question - not "where rates need to be" but "what rate is acceptable to you". Let's say everyone around you keeps cutting their rates to try to counteract a slowdown - where is your line in the sand? If you don't have one, that's fine - that was part of the conversation, that some money is always better than no money, which essentially says I'll go as low as I have to in order to stay occupied.
- 3yKonstantin GinzburgPro MemberMember since 2021 · 376 posts · 242 votes
My ideal goal would be to generate the max revenue so would prefer finding a price point that creates the best combination of vacancy and nightly rate that would create the largest monthly revenue. It's a hard balancing act to perfect but I have personally lowered prices if I saw that my vacancy rates were slipping. I do try other things first such as improving listing, optimizing SEO, doing marketing campaigns, ext. but if vacancy is still high than I tick down price a bit to see if that improves things. STRs are still run on a supply and demand cycle. Compared with the last few years, it does seem that the demand for STRs has dropped to an extent once the post-covid travel craze reduced down. At the same time, a lot of areas became flooded with more STRs than there was a market demand for. That had a downward effect on pricing in those areas. So if an entire area had to lower their price in order to get bookings, I don't consider that pricing being below market rate; that is simply the new market-rate. We also use software to track competing prices of listings in our area and dynamically updates our pricing daily. As long as my expenses are still equal to my revenue; I can continue to operate. If there is a market saturation in an area, then eventually more STRs will likely leave the market if they are not able to make a profit which will likely allow for prices to balance out by that point. Just need to focus on keeping head above water until then.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Sarah Kensinger:
Quote from @JD Martin:
Quote
Quote from @JD Martin:
Quote
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
We have a software system that monitors all of this and pretty much tells us where rates need to be. We haven't seen anything that I would consider off the charts, high or low.
Well that's kind of my question - not "where rates need to be" but "what rate is acceptable to you". Let's say everyone around you keeps cutting their rates to try to counteracthe best way to decide this it to pay for a pricing software. Otherwise, it's a stab in the dark which could be entirely off.
That's missing my point. I'm not talking about setting your rates "correctly" based on your local market - I'm talking about your willingness to "keep up with the Joneses" in a race towards the bottom, as an investor. If your pricing model said your rates should be $20 when they were formerly successful at $100, would you accept $20?
Skyline Properties - For a repeat guest that treated my cabin well, i would drop it to 50% if I had too if it was last minute and we were not booking well. Why not make 50% off a guest that treats your cabin well vs nothing? I have never had to do this as of yet though. Keep in my mind my rates are on the high side typically. Most of my cabins have indoor heated pools so I start out much higher, plus I have low mortgages compared with those who bought in the last couple of years. In a normal scenario I would never consider dropping past 30% and that would typically just be for last minute bookings. There could always be exceptions I suppose.
Quote from @JD Martin:
Quote from @Ken Boone:
There is definitely a balance that has to be played out here. And that low rate may be different by season as well. Also, it depends on the client, I would go much lower on a returning guest that previously treated my properties well, than some random guest because I know how they treated my cabins. But there is a price point that once you go past heading downward, you definitely raise the risk of bad guests.
How much lower for a good repeat guest - 10%? 20? 30? At what point would you rather have it empty than rent to a repeat guest at a cut rate?
- 3ySarah KensingerPro MemberReal Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
Quote from @JD Martin:
Quote from @Sarah Kensinger:
Quote from @JD Martin:
Quote
Quote from @JD Martin:
Quote
This is going to vary by market, but in the Smokies, it's not uncommon for off-season rates to be half what they are in peak season. Supply and demand.
That's true, but what I'm talking about is you versus the competition, in a normal rate environment. Let's just say peak season for example, when "normally" everything would be booked but things are slow and you have a lot of open dates.
We have a software system that monitors all of this and pretty much tells us where rates need to be. We haven't seen anything that I would consider off the charts, high or low.
Well that's kind of my question - not "where rates need to be" but "what rate is acceptable to you". Let's say everyone around you keeps cutting their rates to try to counteracthe best way to decide this it to pay for a pricing software. Otherwise, it's a stab in the dark which could be entirely off.
That's missing my point. I'm not talking about setting your rates "correctly" based on your local market - I'm talking about your willingness to "keep up with the Joneses" in a race towards the bottom, as an investor. If your pricing model said your rates should be $20 when they were formerly successful at $100, would you accept $20?
Oh, I see...most of us running a STR business aren't worried about "keeping up with Joneses". We have our pricing SOP and stick to that but may slightly pivot as necessary for us, not because everyone else is doing it. We don't try to beat out prices, that never works! And no I would not accept $20, sometimes it's the opposite. You go higher than everyone else because your property is worth it and has those extras that no one else has. For example, I would rather 40%-50% occupancy with a $300+ rate then 100% occupancy with a $70 rate. And like stated earlier the lower you go the higher chance of your property getting trashed.
Personally, I wouldn't worry too much until the bottom line looks like it's going to be affected. But I still wouldn't jump to lower pricing, first I would evaluate the property and see what could be changed to make it more eye catching and "book worthy".
- 3yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
I would say right around 50% of base/average rate it becomes not worth it to rent (risk v reward). Caveat being a very long booking given that whatever the rate is is still higher than what LTR would be.
Vacation Rentals of Florida53 Reviews - Investor · Coeur d'Alene, ID · Member since 2023 · 20 posts · 15 votes3y
I know there’s mixed opinions about this, but I look at each of my properties as specific brands that I’m trying to attract different target markets to. By lowering my pricing below the range I think it’s worth, I risk going outside of my target market, which could potentially create more issues. This is more focused on the vacation rental model rather than urban properties , etc. could be different.
- Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes3y
I would calculate your break even and determine what it's truly worth to you. You will be renting for less per night and still having the same amount of wear and tear.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes3y
Quote from @Leslie Anne Morris:
I would calculate your break even and determine what it's truly worth to you. You will be renting for less per night and still having the same amount of wear and tear.
And that of course leads to the second part of the conversation - if you'd rather it be vacant than rented too cheaply, how long are you willing to do so? I suppose the easy answer is "until I run out of money" or "until the market gets better" but let's suppose there is no "better", but instead a market shift (i.e. oversaturation, market loses popularity, etc) or you're unwilling to actually run out of money - what then?
To some extent this seems to be playing out in my own market (Four Corners, FL), where there's a lot of inventory and still a lot of owners that are willing to chase the dollar to the bottom. My PM says all of her properties right now are somewhat slow. I'm not one of the bottom chasers - I'd leave my property empty completely than rent below what I feel is fair and reasonable, regardless of the "market" (I use this house too, so that is part of it), but a lot of my PM's owners feel opposite - they'd rather have $50 than no dollars. One of the side effects of this strategy is that it drives the market down for everyone, and I'm curious how many owners out there will see stagnant prices (especially the ones that just recently bought as Collin H noted above) and decide to jump ship or continue the race to the bottom.
Skyline Properties Quote from @JD Martin:
Quote from @Leslie Anne Morris:
I would calculate your break even and determine what it's truly worth to you. You will be renting for less per night and still having the same amount of wear and tear.
And that of course leads to the second part of the conversation - if you'd rather it be vacant than rented too cheaply, how long are you willing to do so? I suppose the easy answer is "until I run out of money" or "until the market gets better" but let's suppose there is no "better", but instead a market shift (i.e. oversaturation, market loses popularity, etc) or you're unwilling to actually run out of money - what then?
To some extent this seems to be playing out in my own market (Four Corners, FL), where there's a lot of inventory and still a lot of owners that are willing to chase the dollar to the bottom. My PM says all of her properties right now are somewhat slow. I'm not one of the bottom chasers - I'd leave my property empty completely than rent below what I feel is fair and reasonable, regardless of the "market" (I use this house too, so that is part of it), but a lot of my PM's owners feel opposite - they'd rather have $50 than no dollars. One of the side effects of this strategy is that it drives the market down for everyone, and I'm curious how many owners out there will see stagnant prices (especially the ones that just recently bought as Collin H noted above) and decide to jump ship or continue the race to the bottom.
We are seeing the same thing in the PF/Gatlinburg market. I have seen 6 bed cabins listed for cheaper than my 2 bedroom pool cabins. There are a lot of new owners that are panicked expecting the same thing we saw for the last two years and they bought based on those numbers. I don't think many of the new ones will be able to just ride out with the cheapest price strategy. Time will tell.
- 3yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Quote from @JD Martin:
Good morning all!
I was having a conversation with another investor a few days ago regarding short term rental occupancies and rates. In some areas right now it appears that bookings are "down", at least compared to the height of COVID, and as a result some owners in those areas are dropping their nightly/weekly rates to try to counteract it.
So my question is this: as an owner, at what point would you rather have vacancies than low-priced bookings? The gist of the conversation went something along the lines of "Well, it's always better to have some money coming in than nothing coming in" versus "I'd rather have vacancies than give my property away in a race to the bottom and get low-paying customers who are wearing my unit out at the same time".
As an example: let's say nightly booking rates have been averaging $200 per night where you are. How low would you be willing to go before you'd just leave the unit vacant - $150 per night? $100? $50?
I thought it was an interesting topic because I've had this same discussion on long-term rentals (my forte), and I might be willing to go 10% below my current market rates on my LTRs if I had to in order to get them rented, but if things went bad enough that I was looking at 20-30-40% drops in rates I'd probably just cash out at that point. But STRs work on much smaller timelines so it may not be the same dynamic there.
Thoughts?
I would drop to $150 at the most. I'm less concerned about quantity than quality....
- 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
That's missing my point. I'm not talking about setting your rates "correctly" based on your local market - I'm talking about your willingness to "keep up with the Joneses" in a race towards the bottom, as an investor. If your pricing model said your rates should be $20 when they were formerly successful at $100, would you accept $20?
That "race to the bottom" is occurring right now for June. Cancellations left and right, re-booking at cheaper rates. Rinse, lather, repeat. This is an interesting month so far. Ultra luxury cabins in the Smokies going for dirt cheap.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @JD Martin, great question. We don't discount at all based on slow occupancy. If I start doing that, I will get the dregs into our lake house which I really don't want.
I will say that 2023 has been slower to book than 2017-2022. Most of our current bookings were made in summer of 2022, a year in advance as per usual, just not as many. We were fully booked for the season by mid Jan most years. Now we are about 65% full. We just go the Memorial Day booking last week. Usually that is booked 9 months in advance.
I am still not dropping our rates compared to others. We aren't the cheapest lake house, nor are we the most expensive. From what I can tell, we are priced well. You get a lot for the money with our house and we are flexible.
We don't charge for early arrival or check out if it is possible. We don't charge for extra guests, but we don't over sell it. For example we got a booking for 15 when our house sleeps 10. They are 6 adults with 9 children. 3 are infants. Easy for us to accommodate them and that is why we got the booking. They get a great place to stay without worrying about going over budget.
Regarding repeat guests, we do offer a small discount, but nothing crazy.
I would rather the house sit than let folks that have no business staying at our home stay there. My 2 cents.
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3y
My 4 bed that I booked for $400 a night a few months ago had a cancellation for Memorial Day week. I set super strict policy back in January expecting a recession/slow down so I booked my summer up at high prices. Now just today I had a cancellation request, still got 50 percent but I’ll be lucky to re-rent it for $200 a night now.
I keep my strategy simple for STR. The lowest I go is $50 a bedroom. I won't chase any lower than that. My 1 bedrooms $50 and $200 on my 4 bed, $100 on my 2 beds etc. when I drop this low I also increase my minimum stay to 3-4 days.
If I happen to have a losing few years on the properties the loses will carry forward and eventually it will be made up. It’s important not to be over leveraged and have 3-4 years in reserves to weather storms. I think anyone who is overleveraged right now and can get out of their property at a small loss will be wise to exit now. Come September there could be steep loses in values. I’m not overleveraged and young enough to ride this downturn out. It’s actually a good thing to flush out this excessive leverage. Next winter we could be looking at banks selling off properties on some of these mansion cabins.
the big issue with people exiting the market deciding they won’t chase lower and they decide to sell..,,,well that window is nearing slammed shut. Once momentum shifts and it becomes obvious that revenues are collapsing, well the values will be repriced to reflect that, just like prices skyrocketed when we had Covid demand and 3 percent mortgages. The bubble has been pricked, it may be a slow drawdown. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
@JD Martin My line in the sand is vs similar quality standard conventional hotel in the area.
I generally go vs Hilton or Radisson. If there rate is at say $145 night for a double occupancy room (2 beds) and I have a 2bd/3bd house, I NEED to be getting at MINIMUM matching rate.
And similarly I can view and get a gauge of what there vacancy is pacing, or I just call and ask how many open units they have. If I can't get that rate, which is in theory because never been faced with such, I'd look at what I may be doing wrong in my marketing. And if despite doing everything on that front and having it dialed in, I'd pull trigger on changing strategy.
If I wanted to be open to seedy clients and that whole world of things I'd rent by the hour and focus on truck-stops, right. And that's just not my thing.
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