The subject of pricing is very important.
I know of a cute little studio apartment where she only charges $1550 per month ... furnished ... on a very adorable block of Noe Valley ... and guess what, as of Feb. 3, 2012, she is booked solid through August 31, 2012.
Low rates and a cute place = BOOKED SOLID.
Nothing wrong with that, if she can pay the bills with that income, I say ..."Go girl!!!"
Meanwhile, we're renting our studio (which is twice the size of the one I mention above, but still it's just a studio) for $2700 per month, or $900 per week (+ tax), which comes to $2700 per month or $1035 per week. We were booked 52 weeks out of the year this past year. So we are booked solid, too, but not quite as far in advance. (Although ... as of June 1, 2011, we were mostly booked through Feb. 29, 2012.)
So ... the price you charge is very subjective, I think.
How much money do YOU need to pay the bills? This is very different for each homeowner; for some people, the house is paid off and they are paying next to nothing in property tax, so their expenses are very low. For other people, they recently purchased, so they've got very high property taxes and a big fat mortgage.
Another thing to consider in pricing is ... how much are you making at your day job, compared to the time / money you'd have to take off from work to run the vacation rental?
Another consideration is ... do you want to get it booked way in advance, so you've got things settled and you can just take it easy, or do you want to charge a higher rate but have to "sell your place" a bit more and hustle a bit more to get the higher-priced bookings?
You have to do a personal cost assessment and find a "sweet spot" where you are making enough money to pay the bills while making the TIME you spend on it worthwhile.
One more consideration in pricing is ... what length of time do you want to encourage or discourage?
We charge $200 per night (which is A LOT, for a studio) because we want to DISCOURAGE people from booking just 1 or 2 nights at our place. We charge $900 per week (comes to $1035 with tax) to ENCOURAGE them to book a whole week, which is our minimum anyway. We charge only $2700 per month (even though it is more than $4100 in revenue including tax when booked weekly) because we want to encourage the monthly renters the most.
Our personal reason for this pricing scheme is that my partner and I both work full time, so the less work we put into this, the better. We busted our butts for 18 months doing short-term rentals ... we laid out the red carpet for each and every guest, making each one feel like a King and Queen, on a very special vacation retreat. It was a lot of fun, but after doing it for 12 months, we realized we were EXHAUSTED!
Meanwhile we realized we were getting lots of inquiries for month-long bookings, which we could not accept, because our calendar was already booked for several months out, with one-week bookings here and there. So that's why we transitioned to accepting bookings of one month or more.
BUT: If we were doing this full time (i.e., no other job), then we'd be happy to take the higher-rate shorter-term (just a few days) bookings. So ... I believe, the price you charge depends on your own personal situation.
I think there is some trial and error involved with finding out what works for you. We tweaked our price / rates a lot during the first year we were in operation. It seems that about every 2 months, we kept coming out with new pricing schemes! Of course, to start off with .... we looked at the VRBO and HomeAway listings in our neighborhood, trying to find properties similar to ours, and seeing how much they were charging, and how booked up their calendars were. After that, finding some numbers to start with, we kept tweaking it, until about a year later, we settled upon the pricing scheme we have now, which makes sense for us.
We don't charge a separate cleaning fee because, according to my phone calls with the City of SF Tax Collector, we are required to apply the hotel tax to the cleaning fee. This is because in San Francisco our hotel tax is not a "sales tax" like in some jurisdictions ... ours is more of a "lodging tax," and the cleaning is considered part of the normal fee that we would pay as a hotel. So ... the lodging tax must be applied to the cleaning fee. In the beginning, we charged a cleaning fee, but we got complaints from some would-be guests who argued with us, saying WE SHOULDN'T be applying the hotel tax to the cleaning fee. I see why they are arguing, because in some other places, this is the case, but it is not so in San Francisco. I don't want to argue with my potential guests, so to avoid this matter entirely ... we made our rate $900 per week (instead of $800 per week plus $100 cleaning fee), and Presto! Problem solved. No more complaints.
Wow, that is a terrific response! Comprehensive, detailed, and really well thought out. I agree that it's going to vary depending on your property, your circumstances, your target market, and what works for you. A few comments based on my experience over the past few years:
My property is in the same submarket (Noe/Mission/Bernal) as SF Vacation Hut's, but I work from home so the frequent turnovers aren't that much of a hassle; also, I actually don't want to book up too far in advance because our parents/in-laws like to come and visit often, but don't want to have to plan six months in advance (or sometimes even one - but that's a whole separate issue .
We break our cleaning fee out separately. (We do charge tax on it; interestingly, no one has raised the issue of taxing the cleaning fee so far; I have had people question why we pay hotel tax at all and offer to pay under the table, which we declined.) We figure that breaking out the cleaning cost allows people who are booking for longer to spread the cost over more days, while still giving short-term renters the option to stay for a night or two (while covering the fixed cost for us).
We don't have a minimum stay (except holidays), and we tend to discourage long stays because we can get more revenue from several short stays than for one discounted month. Many of our visitors are grandparents visiting a grown child's new baby, so we get a lot of long weekend visits. On the other hand, while the unit can sleep 4, that means additional wear-and-tear, so our standard rates are for 1 or 2 guests and we charge extra for additional guests (unless they are infants or toddlers under 2 years old, who are likely to be in a port-a-crib or sleeping with their parents (=no extra linens), and are also likely either immobile, or if they are crawling/walking, they're still in the age range that their parents are likely to be supervising them pretty closely).
Unlike SFVH, we haven't done much tweaking of our rates but I am starting to play around with them this year. We were reasonably well booked last year, so I am experimenting this year with different seasonal rates (lowest in winter, medium for late March to late October, high for Thanksgiving and the winter holiday season); time will tell what gets us the most revenue with the least effort and optimal flexibility for our visiting grandparents.
Wow, tons of information, sfvhut and noeplace!
I'm just getting started and what I tried to do was survey the landscape in prices and try to generalize that to a "rule of thumb" price. I also tried to ignore factors such as overhead, debt service, etc etc...
Generally speaking (and I would love if someone did a reality-check and told me I was off-base) I think what I concluded was that the market prices are ---
Price of 1 week of VACATION rental = half of price of one MONTH of long term rental
Long term in this case means 6 months - 1 year. What I tried to do was survey all the long term rental rates on craigslist for specific neighborhoods and correlate that back to the pricing I saw on vrbo / homeaway. The reason why I tried to base everything on long-term rental pricing was because the pricing in that market seems to be a bit more efficient and transparent (and there are a lot more datapoints)
Perhaps what I'll do then is to set the WEEKLY vacation rate first, and then, over time, experiement with the delta between the weekly & monthly rate as well as the weekly and couple-of-days rate to encourage specific customer behavior....
ABOVE YOU SAID:
Price of 1 week of VACATION rental = half of price of one MONTH of long term rental
Personally, I don't agree with that.
We charge $900 per week + tax, and that is $1035.
We charge $2700 per month (no tax).
So our monthly rate is about 3X the weekly rate.
And ... apparently there are "calculators" out there ... I can't remember where I've run across them. It must have been on listing sites like AirBNB or maybe FlipKey or something ... I can't remember where ... but I've seen it .... for example, it will say, "For a $900 per week rental, standard monthly price will be $2700 - $3600" .. can't remember the details, but I remember going "Wow, either my monthly rate is low, or my weekly rate is HIGH!"
And I think it's that our weekly rate is high. But given the extra amenties we provide, we do feel it's worth it. And so far our guests have thought so, too, thankfully. There are a lot of much more "rustic" studios out there, and that's fine for them to charge a lower price. Or, if they are just as nice as ours, perhaps they are run by people who have owned the property for decades. Our case is entirely different. We have much higher costs, and we are providing a newly remodeled apartment that is very fresh and clean ... no musty "old building smell," etc, and the apartment has just got way more amenties than your average place. Well, given all of that ... I guess our weekly rate ISN'T that high ... so I guess we could charge MORE for our monthly rate ... but ... a suitable monthly guest is a lot HARDER to come by than a suitable weekly guest ... and so we are willing to discount the rate for the monthly folks.
My partner and I DO NOT work from home like NoePlace ... we both work full-time jobs, and I work in Oakland .. so it's a major hassle for me to be around to do the vacation rental change-overs. I did do that for 18 months, and by the end, I had zero hours of vacation time left. If you've got a good paying full-time job, it's really important to take into account the real cost of having to take time off from work to deal with the vacation rental stuff, that is, if you don't work from home, etc. I think NoePlace has the ideal situation, working from home. I hope to eventually find a work-from-home job, too! But for right now, that's not my situation, so ... each of us does what works for us!
Oh, I want to clarify one small thing ... above I said we busted our butts for 18 months doing short-term rentals, but after 12 months we realized we were exhausted and wanted to transition to month-or-more rentals. It's a bit confusing ... as in, is it 18 months or 12 months? TO EXPLAIN ... We realized we were exhausted and didn't want to do short-term rentals anymore, at the 12-month mark, but we could not actually TAKE a one-month booking because we already had quite a few one-week or 10-day bookings, etc, here and there, for the next 6 months. In other words, no month-long bookings were even POSSIBLE, until after the 18-month mark. So ... although we were exhuasted at 12 months, we had to soldier on for another 6 months of short-term bookings until we finally reached the FINISH LINE ... Nov. 1, 2011, which is when our first monthly renter checked in. HURRAY!
I realize this varies greatly market to market (I'm in this group as I may be expanding to SF) but I handle monthly rate very differently than you have mentioned. I have no formula. My formula is ANR x Expected Occupancy - Cost of expected cleanings - slight discount for decreased management cost. So in the high Season when rates are significantly higher, as are rents, so is the number of nights to monthly rate ratio. Peak for me my occupancy is pushing 93%. So my monthly rate might be 90% of nightly rents for the month.
You need to be competitive with other month rents, only if that is what you are going after. I encourage everyone to keep track of historical rents, occupancy, etc in order to maximize income. Many owners in my area charge significantly less than I for monthly rent, especially during the peak. My reaction when guests speak to me about this, thats okay, I know I am going to fill the dates anyway, and I do. So only give deals for month or multiple month stays if that will help you bring in more income.
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