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Over the last few months I’ve been working on developing Hyatus’ pricing methodology and pricing algorithms. When pricing our short term apartments we aim to create fair, affordable market prices that are not so low that they get booked immediately on listing but not so high that they remain empty. In studying the unique characteristics of short term rental pricing, I’ve learned what I believe to be three essential tips that I would like to share with other hosts or short term rental managers.
Having Some Empty Apartments Is Not Necessarily a Bad Thing
When deciding on the perfect price for their home or apartment, rental managers tend to overreact to the risk of vacancy or the probability that a price is so high that nobody books the place on a particular day.
However, while too many vacant apartments (30%+) is a cause for concern, a small percentage going empty is actually a sign that you are receiving a fair price for your rentals.
The reason this is the case is because the marginal increase in probability of booking per unit decrease in price is negatively correlated with price. Meaning — if you lower your price from $130 to $110 / night, you might significantly increase the probability of booking and as a result, significantly increase overall revenue. But lowering the price by the same absolute amount from $110 to $90 may not have as large an impact on your probability of booking.
Another way to understand this is to understand that as the probability of booking approaches 100% the cost of increasing this probability increases.
Now if some vacancy is good but too much vacancy is bad, what is the perfect number? Unfortunately, there is no perfect number that is true for every market. For example, in New Haven, Hyatus has found that lower prices with higher occupancy is the best way to go. While in New York, we’ve found that higher prices with lower occupancy results in greater revenue.
So the best advice we can give is to be open to experimenting with your occupancy rate, don’t worry too much about going empty, and work to find that perfect occupancy rate that maximizes total revenue from your vacation rental.
It Is Worth Sacrificing Some Revenue in Exchange for Longer Stays
Hyatus offers a very large length of stay discount, resulting in very long bookings. (Hyatus guests often book for 3 – 6 months or even longer!) Many rental managers are reluctant to sacrifice on price and as a result, tend to have an average LOS of 2 – 5 days. However, when deciding on your optimal LOS, it is important to keep in mind that there are many costs associated with shorter stays that must be factored into the price. The costs that we’ve found associated with shorter stays include the following:
- Increased apartment wear and tear.
- Increased risk of guests hosting events that may disturb a neighbor.
- Increased risk of vacancy (longer stays provide 100% occupancy for those nights).
- Increased operational costs associated with check-in logistics, customer service etc.
- Increased lobby traffic related to check-in and check-out, reducing your building’s overall residential feel. (If guests wanted to feel like they were in a hotel they would book a hotel.)
On the other hand, Hyatus’ focus on longer term guests means our guests are quiet, respectful of neighbors, and not just looking to host an event for a weekend. We also have very few check-ins and check-outs leading to a very homey residential feel in our buildings. And finally, long stays lead to higher occupancy rates, making up for some of the discount they require.
Focus on Local Market Data (Even if You Have to Buy It)
When Columbia University or Yale host their commencement, local demand for a short term rental near these universities skyrockets and our prices need to reflect exactly how much this additional interest changes the demand for your vacation rentals.
Hyatus keeps a close watch on local demand, events, and trends so we can update our prices daily and ensure we don’t overcharge for a cancelled event, or undercharge when most rentals have been booked and supply in our area is low.
That is all I have for now! I wish you good luck with setting the prices for your vacation rentals and please comment with anything you found to be helpful that you would like to share with us.