Income property Archives - Christies Gulf Beach Rentals

Dynamic pricing for short-term rentals: Is this the answer?

Dynamic pricing for short-term rentals is not effective everywhere. Contrary to all of the recent hype about these great computer programs (for a fee) that will help you make loads of money, they may not. Then why is everyone on this kick now or “hack”? Using a dynamic pricing tool will help those who have properties in big travel areas. It does not always work with vacation rentals. Before you spend any money or jump to the conclusion that your current short-term rental pricing tools are inadequate read further.

Dynamic pricing comes from searching booking sites

Dynamic pricing software simply searches Airbnb and VRBO website data to determine what is listed for rent, when, where, and for how much. It looks at a specific area that you are interested in and tells you what you should price your property at for a given day, weekend, week, etc. The theory is that if you adjust pricing frequently you can capture a greater level of profit and obtain more bookings. The concept is great for many areas but not all.

Take San Francisco, Washington D.C., Atlanta, or other large metro area. A large number of travelers during the year are people on business trips. I know I was one of those for decades. Most stays are during the week for what I call “travelers”. Now “travelers” are not the same as “vacationers”. Travelers are moving from one place to another mostly on weekdays. They can stay for a few days or a week depending upon the situation. Others can stay for a few weeks, months, etc.

Travelers vs Vacationers
Both use short-term rentals, areas with lots of travelers can be managed with dynamic pricing

45% of visitors to Atlanta are on business. 56% of travelers to Washington DC are on business while 22% of travelers to New York City are on business. Needless to say, there is a very large market for business travelers to use short-term rental properties.

Vacationers except for major holidays and the summer will stay for two or three-day weekends. Vacationers tend to visit areas that are considered tourist destinations such as beaches. The difference between the patterns of stays between travelers and vacationers is that travelers tend to focus their efforts around big cities and big metro areas that are also vacation areas. The tourist spots such as the beach, receive vacationers during set periods of the year.

Hotels use dynamic pricing for travelers

Using dynamic pricing as hotels do in big cities allows them to charge more when for example a convention is in town and less when it’s over. For this reason alone, using dynamic pricing in these areas is a good tool. Let me try to explain why it is not always an effective tool for earning higher rental income from vacationers.

During the low season, there is little you can do except to reduce the minimum stays from 5 to for example 3 as in a weekend or even two. The problem is that fewer people are visiting. You and everyone like you have the same idea so they all reduce the number of stays for example. The next thing the first-time owners will do is to reduce rental prices. The thinking is that lower prices will attract more people. It’s possible but if everyone does the same thing, where does that leave you? Chasing the prices down. Again, remember fewer people are coming to the area.

Short-Term Rentals vs Vacation Rentals
Both are the same in most cases. Most guests (57%) search for the word “vacation” vS SHORT-TERM

During these low periods which can stretch for months, dynamic pricing will not generate more revenue or higher occupancy. It’s just as easy to determine market rates by going to Airbnb and VRBO listings. You would want to do this anyway to assure yourself that it’s not just your property that is not renting. Of course, negative reviews can have an impact, actually, one that is far greater than using dynamic pricing software.

Use a local property manager

Your best move is to use a local property management company. Good local property management companies know their markets far better than any software located in San Francisco. Short-term rental hosts are good at pricing owners’ property to obtain the best result. Local short-term rental managers have been using the concept of dynamic pricing well before computers have been offering it. Their approach is hands-on.

They know the market, block by block, and understand that some areas are more desirable than others. Computers do not catch the fact that during the height of the season, even a shed will rent. During the critical periods of the year e.g. fall and winter, the better properties will rent more often.

Customer support and return guests are very important. People who have rented a property and like it will be more inclined to return without price shopping. Also, property managers are in a position to offer a last-minute deal when someone calls requesting a stay with one hour’s notice. How about a few examples of how this works:

Last week, a guest booked a stay at the property management website because Airbnb and VRBO cut them off, within one hour of arrival time. They booked on the website and called the property manager. They were fortunate that the property had been cleaned and moved in. In another example, a very large party moved into a property where there was a water leak.

The property manager was able to move the large party to two adjoining condos at another property immediately. If it were not for the quick work by the property manager the 7-day booking would have been lost.

How does a local property manager arrive at pricing?

A discounted rate can be offered by the property manager for returning guests or friends of owners for example. Let’s discuss how a local property manager arrives at a dynamic pricing solution. At Christie’s Gulf Beach Rentals, the managers look at the entire year calendar. They mark out beginning and ending dates for every holiday that brings in more people.

Every event that does the same and any other periods that should be priced higher such as June and July. Prices are adjusted according to the calendar using competitive data that is obtained from third-party platforms and from talking to other property owners.

While this system does not raise and lower rates from Monday through Thursday for example (unless it’s an event or holiday), it does consider all opportunities for higher revenue based on the volume of vacationers coming to the area. When it is busy the prices are higher and when it is not, prices are lower. Pretty simple. As I mentioned above, in big cities when travelers are coming in for events, etc., rates can be adjusted daily.

During the low seasons in tourist areas, raising and lowering prices during the week makes no sense. Often our clients will make price recommendations which more often result in lower revenue. Recently a client asked that we lower their prices because they were not getting what they thought was sufficient rentals. Christies did what they asked.

Prices were increased and they earned more per stay

There were a few short-term rentals during the period but at a lower price than other Christies properties were receiving. They concluded that they needed more revenue and the prices came up. The occupancy rate did not change. What did change was that they earned more money.

Higher prices can affect the number of sales during most of the year. Some clients want higher prices and fewer stays because the theory is by the end of the year the total income would be about the same without the additional wear and tear on their property.

Property management companies understand pricing dynamics and adjust them accordingly. You can play with prices only so much. The key to any successful vacation rental property is guest count and price hitting that sweet spot. In some areas, there are so few rentals during some seasons that reasonable prices should bring in as many guests as any of the competition.

Fewer bookings are a trend in 2023 and will be in 2024

Fewer bookings have been the trend because of the larger number of vacation rentals hitting the market since 2021. Lower prices in this environment are not the best way to increase revenue. Of course the average base rate is lower during the low season, you do not need expensive software to accomplish this.

A great way to entice more people to stay at your property if you are an owner is to help the property manager by advertising to everyone you know. Push your property on Facebook and other social media.

The short-term rental market is in transition. Market demand is about the same but with more properties available, short-term rentals become more of a commodity. Short-term rental properties must be ready for the peak season. You can help your property by having everything repaired and doing preventative maintenance during the off-season.

Short-term rental owners should stay at their properties during the off-season to be sure that everything is ready for the peak season when more extended stays are in high demand. I have had issues with my properties during the peak season e.g. AC and had to move high-paying guests losing the revenue.

Local property managers know their seasons

Your property manager knows how to manage the peak season, this is the one time when even the dynamic pricing is exceeded by “what the market will bear”. There is no need to run numbers during this season as virtually everything is booked in these vacation areas. Getting back to the benefits of dynamic pricing, they fall into the big metro areas on a year-round basis where catering to both vacationers and travelers is the focal point of their efforts.

Beach Biloxi Crowd — Vacation locations receive crowds at the same times of the year every year

Real estate investors must understand the idea of the best price and a competitive price as explained by their property managers. Many look at the high season as the savior where most of the income is earned. This may be true for some real estate investors but not for all. The high-season income is not as great as it has been in past years so using that income to cover gaps in the remainder of the year is no longer a good strategy for many property investors.

Research using the free Bard AI

If you decide that you want to do some research, use Google’s Bard, AI to inquire. I asked the following question of Bard:

”How many 2-bedroom short-term rentals are being offered for rent on Airbnb in Gulfport MS” The answer is as follows:

According to the Airbnb website, there are currently 394 2-bedroom short-term rentals being offered for rent in Gulfport, MS. This number is based on the search results as of August 5, 2023, at 11:31 AM PST.

The average nightly price for a 2-bedroom rental in Gulfport is $129. The most expensive 2 bedroom rental is listed for $212 per night, while the cheapest 2 bedroom rental is listed for $88 per night.

A Bard search also determined that the number of searches for vacation rentals in September 2023 vs. September 2022 was 6.25% higher. Searches for short-term rentals were 9.09% higher for the same period. By itself, this data will not affect a property manager’s decision on pricing short-term rentals but it’s a factor to take into consideration.

If you use an AI, learn to use it first

If you have time, you can continue to dig using various parameters. The data is the same that is used by all of the dynamic pricing software models. Some include VRBO but the trends will be about the same so I stick with Airbnb. There are other service providers but they usually take their data from Airbnb and VRBO. You can obtain market data and market trends from Bard too. Or, you can just talk with your property manager.

A word of caution about using an AI like Bard. The data provided can often be incorrect. As a property manager, I know this when I see it. Many would not. It’s very important to tell the AI Where you want to obtain the data. For example, it may find data at a website that grabbed some from Airbnb and others. Aggregated sites are not always accurate. learn how to use an Air before you rely on its results. Another good reason to ask your property manager.

Property managers use a variety of management systems that help them manage their businesses and short-term rentals. Most property managers that I talk to manage their short-term rental business by doing local research which includes not only data on the web but also speaking to Cities that issue licenses to properties. Sales tax revenue data is also available that can provide indications of the health of the local markets.

short-term rentals price break down — listing on Christies Gulf Beach Rentals Site

Summarize: Dynamic pricing is good for some but not everyone

To summarize, Dynamic pricing is good for large cities and metro areas where travelers and vacationers create an almost year-round market. There are many markets in North America where dynamic pricing will probably not improve profitability. Beach areas away from big cities, mountain areas, and others that have seasonal business don’t need dynamic pricing for the busy season. Nor do they need dynamic pricing for the slow season.

Local property managers fully understand the dynamics of their market including the availability of properties, pricing, and activities that affect pricing e.g. special events.

Visit ChristiesGulfBeachRentals.com and read some of our blog articles about vacation/short-term rental management. Our clients receive access to their client portal which has a wealth of information to help them understand the market and value of their investment.

If you are interested in purchasing a property for use as a short-term rental or vacation rental/second home, click and see what is available on the Mississippi Gulf Coast.

Please stay with us on your next trip to the Mississippi Gulf Coast. Check out our great properties and reserve on this site. Vacation travel insurance is included at no additional charge.

William Anderson October 4, 2023October 4, 2023 Income property, Mid-term rentals, Property management, Real Estate, Vacation Rentals

Internet property managers can cost you big now

Thinking about renting your vacation home? Before you reach out to high-tech firms located in a San Francisco highrise office building with a view of the wall. Consider a real local property manager. You need boots on the ground. How do they drive by and check your property? Who responds when the police are called because of noise? Locals are best for managing your vacation rental property.

Several tech-based start-ups claim to have a national reach for vacation property management. Why work through a third party? Go directly to a property manager in the area where your property is located.

Vacation home in Gulfport MS locally managed — Vacation rental Gulfport MS locally managed

Regulations in some cities require a property manager to be located in the same city or at least within x miles of the property. Some vacation rentals have created a bit of a negative reputation and some cities even discourage vacation rentals even when they are currently allowed. All good reasons why locals are best for managing your vacation rental property.

I would like a local property manager

I recently spoke with a prospective client who is just completing a renovation on a property he purchased to place on the market as a vacation rental. He called around and we were the first to call him back. He also told me that the others were not located in the area and he wanted to deal with a company that was local to his property. This makes sense for so many reasons, let me illuminate a few.

If the property were to be flooded or damaged in a hurricane, who will advise you? A good local property management company can help you get the property back on the market. We make it our business to know people at city planning and other offices responsible for issuing permits. These relationships are important.

Should the police department call us for one of our clients, they know we will respond without hauling everyone off to jail. Sounds silly but this is true. Some of our principals know many police officers and this allows us to escalate issues with neighbors. Another reason why locals are best for managing your vacation rental property.

Have you obtained your short-term rental license?

Yet another new client contacted Christie’s to discuss a changeover from the big tech company. A large party took place at their new house and after thousands in damages, they decided to make a change. The police were called and there was no property manager to be found.

As it happens this property is located in one of the cities along the Mississippi Gulf Coast that require a property manager to be located in the area. The biggest potential problem was that the big tech property manager failed to tell the owner that they needed a local permit. The permit comes with fees of $750 initially. Failure to obtain the license and pay the fees to subject the property owner to large fines.

Christies stepped in and as part of our management agreement, we help the property owner with the application and submit it for them. The fire department may inspect the property and Christies will be there to let them in and answer questions. This is one area where a property manager is critical. if the fire department finds something wrong, they can suspend the permit days before a guest is to arrive.

Cleaners are not property managers or repair contractors

Many of the companies that operate the boiler rooms and claim to be your property manager find maid services in the area to clean the property after it is vacated. Often these are larger companies hiring lists of people. The same cleaner may not come to the property more than once. Our property manager works with independent contractors who are assigned to the same properties all the time.

Cleaners are not contractors meaning that they do not make repairs. Meaning that the distance property management company will have to find a local maintenance company to make repairs. I can tell you from experience a good handyperson is very difficult to find and keep. Distance companies will have to call larger contractors at more expense to you

Local property managers have their “guys” (no offense to all of the other genders) who are essentially on call when something goes wrong. The AC person we use is extremely reliable and will often be at a property and have it repaired within an hour. This person can diagnose almost any problem and find a cure quickly.

Zoning map of Long Beach MS sowing zones where vacation rentals are permitted — Zoning map City of Long Beach, MS

Local relationships

As mentioned above, in our business which is property management along the Mississippi Gulf Coast, we know many elected officials and this is a good thing. The subject of vacation rentals comes up often at the City council and planning department meetings. The local government can either allow your rental property to be there or they can cause you terrible financial harm.

We and other locals keep in touch with decision-makers and staff to be sure our clients are well-represented when the topic of vacation rental comes up. Recently in one city, there was a vote to change some zoning to permit more vacation rentals. The results could have affected our clients. Would your long-distance management company know this?

Managing your property is not just about getting exposure on third-party websites such as Airbnb or VRBO, it’s about many things such as keeping the property well-maintained and providing excellent on-site customer service.

Property owners should have a direct relationship with the local property manager

Our property manager has regular and frequent communication with our property owners. Yes, we offer a turn-key approach so that the owners are not needed on-site. Owners are not involved in disputes or maintenance issues other than to approve expenses. A good property manager can make all of this happen without a hands-on approach by the property owner.

On the other hand, the property owner wants to know the people that are putting their hands on the property. They want to speak to the manager who just checked out a reason for a high water bill for example. Why would you want to call someone in Seattle about your Mississippi Gulf Coast property?

Vacancy rates are up

The economy is slowing and vacancy rates are up particularly in the slow season. High seasons see higher occupancy rares with people coming and going. This keeps the bad element away because the properties appear to be occupied. What happens in the off season when your propery may go for weeks without guests? This is an open invitiation for someone to break in or for someting to fail e.g. water leak.

Who goes by and looks at your property when there are no guests? That corporate computer has no abilty to visit your home. Yes there are security systems but they do not see that rodents are eating inside, wasps are building a large nest or there is a gas or water leak. Only an on sight property manager can do this for you. Something to consider.

If you are not now a rental property owner and are thinking about it, please read some of the relevant articles on the RetireCoast website and the Logan-Anderson, Gulf Coastal Realtors website. You may want to read this article on our Christies website

William Anderson November 4, 2022June 11, 2023 Gulf Coast, Income property, New Property, Property management, Real Estate

Best way to profit from renting my vacation home:2023

What is the best way to make a profit renting my vacation home? To start, you can buy a property on the basis that you will stay there periodically but it is primarily for rental. Or, you can buy a home that is truly your vacation home and you just want to earn some money when you are not in residence.

The difference here is subtle but important. Some people look for a home that suits their style and they decorate it for their purposes. These people may use the property multiple times per year and for longer stays. Others just want a place for the occasional weekend and they would like it to pay for itself and possibly make a profit.

Still, others start out looking for a property that will become a full-time vacation home, and of course, that property should be profitable the first year.

Most vacation rentals are owned by individuals who have purchased a second home for vacations and decided to earn extra income to offset costs. If you already own a second home in an area that attracts visitors and are interested in earning some offsetting income you may be in luck. Renting your vacation home is something to consider.

I will expand upon this as you read on. Before getting into the second home issue, you should understand the difference between owning a vacation home strictly for earning income as a business and your second home used for the occasional family getaway with rental income supplements.

Purchasing as a full-time rental

Purchasing a property for the exclusive purpose of renting it out as a vacation rental is a completely different proposition than buying a property to use periodically (these are called second homes). You can pay cash for your vacation rental or you can finance it. If you are buying it exclusively for business purposes, you will be required to put at least 20% down and possibly 25% depending upon the lender and the property.

One of Christie’s Gulf Beach Rentals Vacation Rental Properties

If you finance, you will have a mortgage which along with taxes, insurance, maintenance, management fees, utilities, and other costs must be offset by income. Very few properties can generate sufficient income to cover the debt and ongoing costs plus generate an adequate return on invested capital. particularly if the property is financed.

I have owned many vacation properties, some were purchased as second homes intended primarily for our enjoyment with supplemental rental income. Others were purchased exclusively as vacation rentals.

Before you attempt to buy a property exclusively to rent it, consider the costs and weigh the income/loss against the use of your money elsewhere e.g. stock market. Aside from risks, you may be better off placing your money in other investments. Run an analysis to make this determination. Our real estate broker partners can walk you through the analysis with their exclusive KEYLADDER property investment system.

Paying cash is one strategy, and OPM is another

If you pay cash for your business vacation rental, you may turn a profit. Depending upon your ongoing costs e.g. taxes, insurance, maintenance, HOA fees, property management, fees, etc. Without mortgage debt, the picture is vastly different.

On the other hand, paying cash reduces your return on investment. Leveraging is the best way to obtain investment property. Your ROI will be higher since you are using other people’s money and your guests will pay off the mortgage. Again, this may not work for most properties even in ideal settings if the cost to operate can not be overcome by higher rental income.

Back to your vacation home that is rented for part of the year to supplement your income or reduce your costs. Frankly, this is the very best way to own a vacation rental that earns income. Starting with the fact that you can buy your second/vacation home with as little as 10% down. The main assumption should be that you can afford the costs of this property without any income. Start here with your math.

Example of Second Home Analysis

I was just researching to find a good example and found a newly built home one block from the beach in Gulfport, MS. The property is 1.750 sq ft with four bedrooms and two bathrooms and places to park four cars under the building. This is a single-floor building that is elevated to meet flood requirements and obtain lower insurance rates. The property is in an excellent location near restaurants and casinos.

The seller wants $319,000. I ran the data through the KEYLADDER system and found that with a 20% down payment the property would lose about $286 per month.

This means that as a second home that you can visit during the year and rent it the remainder of the year, you would be expected to pay $286 each month out of pocket after deducting the income from all expenses. Many people would look at this as a great investment. It looks better than I am explaining here when you deduct property taxes and interest payments as a qualified second home. With just 10% down the shortfall would be $443 per month.

Keep in mind that two other things are happening. The property is growing in value and the principal on the mortgage is being paid down. The estimated return on investment with 20% down is about 100% over five years. Not bad. You can see that this property is not a profitable investment on a monthly cash flow basis so I would not recommend its purchase as a straight investment if it is financed.

The hardest thing is determining the income

The hardest thing for a buyer of a second home who wants to rent it when not in residence is determining income. Two factors are the price per night and the number of nights per year. Prices will vary depending on the time of year.

You can take the time required to survey other properties in the area and determine what similar properties are receiving based on the season and other factors. You can also check their calendars to determine how often they are booked. Your research will not allow a look back as the calendars do not usually retain past data for you to see. Don’t be captivated by the high season income as the reason to buy your second/vacation home. Remember its peak income for a short period.

If you need the additional income that renting to others provides, avoid using your property during the high season or events. If you can afford the cost of the property without renting, by all means, use it when you wish. It’s hard to eliminate the emotional aspect of believing that your property is the best in the area and it should rent for more or rent more often. Your property as viewed by others is the key.

It takes time to build a reputation

It will take time on third-party sites e.g. Airbnb for your property to build a reputation. During that time, your rents will be lower than others with lots of reviews. You can help kick-start the process if you hire a property manager with a high status on third-party sites. People will look at a property and see that the managers have a high status and at least with Airbnb, they list other properties managed by the same company. People may find yours by clicking on those links.

Essentially, you ride the “coattails” of the property manager with a high degree of success. After a while when your property has earned high marks from guests, your property will rent more often and you can consider raising the rate. Guests want to stay at highly-rated properties and read what others have said.

Should you decide to use your second home as a vacation rental, be sure to lock up everything personal that may get broken or disappear. We recommend putting a lock on a closet door. This is also a place where the property manager can store linens if yours are used for guests.

The grounds should be kept in great condition. You should contract with a gardener or through the property manager to ensure that your grass is always looking good and weeds are pulled and plants are tended to. If you live in an area that requires watering, install an irrigation system.

How much of the year will my place be rented?

People ask, how much of the year should I expect my property to be rented? There is no magic formula. Every area is different. The best that can be said here is that if your property is located very close to tourist areas it has a better chance of being rented more often.

A good example is a 3 bedroom, 2 bath house that is within a block or two of the beach. This property would usually rent more often than properties a few miles from the beach or even a few blocks further away. Walking distance is important.

Swimming pools are great in areas where people expect to spend warmer days e.g. the South or West. Properties with pools offer more amenities than a condo without one for example. As mentioned above, the key season will generate the highest amount. Shoulder seasons will generate some income and low seasons will probably not generate sufficient income to cover costs.

If you are considering buying a property for a second home and renting it when you are not here or renting a property you already own on the Gulf Coast contact us. We would like to manage the property for you. Christie’s can also put you in touch with our strategic partners which include Logan & Anderson Gulf Coastal Realtors to help you find your dream second home.

We can help you create a budget and determine an approximate income for the property you desire to acquire. As mentioned above, very few properties will earn enough as a stand-alone investment to cover all costs if the property is financed. Should you desire to create a vacation rental as a stand-alone profit center, we can assist with a list of items you will need and the approximate cost to set up a property.

Second home tax deduction vs a business

A few list items. You will be able to deduct the mortgage interest and property taxes as an investment or a second home. Consult your CPA for the impact on your tax obligation. You may be able to deduct some costs associated with the property such as insurance, maintenance, and even periodic travel to the property. The benefit will depend upon your financial situation so again, seek help from your CPA.

Should you decide to purchase a second home and use it as a vacation home and also rent it with the intent of later retiring in the property, there are some great tax benefits to consider. As a full-time resident living on the property, you can receive a homestead deduction. If you are over 65 there is a larger deduction that is quite beneficial in reducing your property tax bill. Your CPA can discuss how to convert a second home to a permanent home if it was rented.

Keep in mind that non-residents must pay a tax when their vacation property is sold in Mississippi. If you decide to move here and have established residency here, you can sell your vacation house without paying that non-resident tax. Yet another reason to do some planning with your CPA.

A suggestion you may want to consider. Stay at a vacation rental or two or three in an area you like. Regardless of whether you are going to buy for your use or full-time income property, get a feel for the area and talk to professionals who manage vacation homes. Here comes our advertising.

Consider taking a course on investing in short-term rentals

If you plan to invest in short-term rental property consider taking the KEYLADDER Short-Term Rental Investment course. This course will take you through every aspect of investing in a short-term/vacation rental property. The cost of the course will be earned back many times over through the unique information provided. Click here

free Mini-course short-term rental investing

Gulf Coast Property Management can manage your vacation home and help you achieve your goals of earning income on that property. We can also fully set up a property that you have purchased from acquiring furniture to decorating. We offer turn-key solutions to people who do not reside in the area but who want to be sure that their property is well cared for.

Christies Gulf Beach Properties is the marketing arm of Gulf Coast Property Management and your property would be listed on the Christiesgulfbeachrentals.com website and VRBO and Airbnb and others as part of our program. Or if you just want someone to keep an eye on your vacation home when you are not there e.g. having the lawn cut etc., we can do that too.

One last point, if you are looking to purchase a property, please consider using our Real Estate sponsoring agency Logan-Anderson, Gulf Coast Realtors. We will work with them on a smooth transition from purchase to set up. Contact Bill Anderson at Logan-Anderson at 228-215-3234, he and Sean Logan are experts at finding vacation rental properties. Bill owns several that we manage for him.

William Anderson September 4, 2022November 25, 2022 Income property, Property management, Real Estate, Vacation Rentals