Master Airbnb & Vacation Rentals with Vacation Home Help – Transcripts. #36 Inflation and the Airbnb Economy. John and Tim share their outlook for August 2022 and beyond.

Announcer:

Welcome to the Vacation Home Help Podcast, the only podcast dedicated to helping vacation rental owners self-manage their properties. Your host delivers short and sweet episodes with actionable advice, tips, and strategies to level up your hosting skills. Whether you are a complete beginner or been in the vacation home rental business for a while, you are in the right place to get the tools you need to succeed. Here are your hosts, John Candelario and Tim Casey.

John Candelario:

So right now we all have seen in the headlines that inflation is super high. The economy’s not so hot. And we might be wondering, what does this mean for our short-term rentals go forward? How do we recession-proof our Airbnbs, and what do we need to know in this new environment? And Tim, you know in Orlando, August and September are historically slower months. What have you seen?

Tim Casey:

Yeah, so John, I think you’re right. I think the economy certainly is under a little pressure right now. Whether or not we’re going to go into a recession, who really knows, but we know inflation is high. And we certainly see that as school gets back in session, as we’re recording this in early August, in the Orlando area, that’s the down season. August and September can be the down season. So as owners, what can we do?

From my perspective, and this just key learnings that I’ve taken on over the last few years, is first of all, make sure the home is always really, really clean. Make sure you’re representing a home that has got some special factors to it. So the number of people that are coming to your area, make sure that you stand out as a home.

But also, every area of the country has an off season. In Orlando, certainly mid to late August, September, those are off seasons. And what I’m hearing more and more owners do is panic. They see the reduction in bookings in August and September, and they’re dropping their rates to very low rates, and they’re going to two-night minimums, and all of these things can have a long-term negative impact on your short term rental.

John, you and I both know that two-night minimums leads to partying, which can lead to destruction in homes. And if you price your home too low, it can really pull the entire market down.

So my advice would be, know what your seasonal times are in your area. What’s peak, what’s mid, and what’s low? Go into it understanding what that means to your bookings, and then always make sure you’re presenting a great home that’s going to stand out, so that even during the low time of year, you’re still going to attract some renters. But don’t fall victim to cutting rates to very, very low rates to pull the market down. And don’t fall victim to those two-night rental minimums that could lead to a lot of partying and destruction in your home.

John, what are your thoughts?

John Candelario:

I think you’re absolutely right. And that has to be built into the model when you buy the home. When you’re investing in the vacation rental, you’re not going to be occupied every month. That’s just not how things work. So if you’re investing or you’re thinking back on when you did that decision, sometimes that 85%, 90% occupancy that somebody told you, maybe that’s them, or maybe it’s not true. I don’t know.

But most businesses, just look at hotels. They don’t have close to that occupancy. I mean, that’s not a realistic number in hospitality. So what makes people think they can achieve that when there’s so much supply and so much inventory? I don’t know.

But a lot of it comes down to expectations and what you mentioned, that’s the right way to go about it. You’re taking a conservative approach. You understand how things work and you’re realistic with your expectations. But if you’re unrealistic with your expectations and you built these expectations in your head that you’re going to make all this money and you’re going to have high occupancy, that’s why in times that are tough, like right now, that knee jerk reaction is to lower your rates and run promos really low.

Your home is a large home and it’s pretty expensive. It’s a premium offering. But your competitors are less than a third of your rate. So it’s a big disconnect. There’s a lot of people that they panic and they just lower rates, and it’s a race to the bottom.

Tim Casey:

That’s exactly right. And I did make the mistake early on, during a period of time when I wasn’t receiving any reservations, I took the price to my home down lower than I was comfortable with. And I paid the price. Ended up with a couple of party events that I had to clean up after and repair some damage, and long-term, it costs more money than I made.

So John, you and I have talked about this. When I build my financial model now, I build it knowing that mid to late August through September is a slow period. And as owners, we all want to make sure that our mortgages and our expenses are paid first. And I build my model to make sure that I maintain a reserve from the months that are busy: May, June, July, and those months are at least offsetting some of my expenses in August and September.

So build a financial model. Make sure it’s got a holistic view of the seasonality of wherever your home is located. And in doing so, you’ll be able to cover your costs and still make a nice profit without knee jerking and cutting your price too low, or doing two-night minimums and ending up with parties and damage and so forth.

John Candelario:

And because we definitely don’t want parties, and we can’t ignore the effects of inflation, though. I mean, cleaning fees have went up. Maintenance fees have went up. Pool cleaners are charging more if you have a pool. Supplies are costing more. Toilet paper, right? Linens are costing more. So everything is getting more expensive.

So instead of reducing your price, you should be thinking about not jacking up your price, but being more realistic, at least keeping them where they’re at, keeping your rates, where they’re at, because you’re incurring as a host more costs to do business. I mean, it’s not getting cheaper to run your business with this economic environment. So-

Tim Casey:

No, that’s right. And hotels are increasing their prices as well. And John, you and I have talked about this. In the short-term rental industry, we’re competing against hotels, but we are providing families who want to stay in a nice home that has nice gathering areas for family events, kitchens to cook in. We present a really nice alternative for families that are traveling, but prices are going up. Hotels are taking price. And in some cases, we do as well.

Most recently, John, I had to increase the price that I charge my guests for cleaning because my costs went up. And they went up for the right reasons. Cleaners are having to pay more for gasoline to get from location to location. So we all have to be mindful of the economy. We all have to see what’s happening with price increases, pass as much onto the guests as we can without gouging. So it’s really just keeping a real fine eye on your financial model, the economy, and making sure that you’re taking necessary steps to protect your investment.

John Candelario:

Right, and Tim, you know who your customer demographic is, though. You know exactly who your customer is. I’d say that most hosts do not. Because if you look at the supply and demand in Orlando, many of the rentals look the same and they’re trying to target every customer. If you ask the property manager, or if you ask the host who their customer is, they’ll say, “Any family. Anyone who’s going to Disney.”

But that’s not enough of a profile of a customer. You have to think of stuff about income levels or reason why they’re traveling to Disney or age groups. It’s to know who your customer is so you could better market to them. And that will position you in this kind of economy to do better than your competition. And you know who your customer is, so that’s why you haven’t dropped rates.

But if the host is just advertising to anybody and everybody, it’s not going to be successful, especially in an environment like this. Then it’s … No, that’s the price. Whoever’s lowest is who’s going to get booked.

Tim Casey:

Yeah, that’s right. If you don’t know who your target audience is or your target guest, and you lead with price, then you will end up with the party house. You will end up with those that aren’t respectful of your home. So I think our advice to our listeners is just know who your guest is, price accordingly, make sure you’re aware of the seasonality of your area, build your financial model in recognition of the downtime, and I think you’ll have a great investment.

John Candelario:

Absolutely. The best is yet to come.

Announcer:

Thanks for supporting us. Be sure to rate, review and subscribe to the show. Visit vacationhomehelp.com and click podcast for more resources on today’s topic and more episodes that will help you level up your hosting skills. Let’s get social. Connect with us today by joining our growing community of motivated owners at facebook.com/groups/vacationhomehelp. As a member, you’ll have access to sneak peaks and exclusive free resources. You can also connect with other owners with shared interests, learn from each other, the community, and from shared experiences. Again, thank you for supporting us. Until next time, take care.

Transcript

Announcer:

Welcome to the Vacation Home Help Podcast, the only podcast dedicated to helping vacation rental owners self-manage their properties. Your host delivers short and sweet episodes with actionable advice, tips, and strategies to level up your hosting skills. Whether you are a complete beginner or been in the vacation home rental business for a while, you are in the right place to get the tools you need to succeed. Here are your hosts, John Candelario and Tim Casey.

John Candelario:

So right now we all have seen in the headlines that inflation is super high. The economy’s not so hot. And we might be wondering, what does this mean for our short-term rentals go forward? How do we recession-proof our Airbnbs, and what do we need to know in this new environment? And Tim, you know in Orlando, August and September are historically slower months. What have you seen?

Tim Casey:

Yeah, so John, I think you’re right. I think the economy certainly is under a little pressure right now. Whether or not we’re going to go into a recession, who really knows, but we know inflation is high. And we certainly see that as school gets back in session, as we’re recording this in early August, in the Orlando area, that’s the down season. August and September can be the down season. So as owners, what can we do?

From my perspective, and this just key learnings that I’ve taken on over the last few years, is first of all, make sure the home is always really, really clean. Make sure you’re representing a home that has got some special factors to it. So the number of people that are coming to your area, make sure that you stand out as a home.

But also, every area of the country has an off season. In Orlando, certainly mid to late August, September, those are off seasons. And what I’m hearing more and more owners do is panic. They see the reduction in bookings in August and September, and they’re dropping their rates to very low rates, and they’re going to two-night minimums, and all of these things can have a long-term negative impact on your short term rental.

John, you and I both know that two-night minimums leads to partying, which can lead to destruction in homes. And if you price your home too low, it can really pull the entire market down.

So my advice would be, know what your seasonal times are in your area. What’s peak, what’s mid, and what’s low? Go into it understanding what that means to your bookings, and then always make sure you’re presenting a great home that’s going to stand out, so that even during the low time of year, you’re still going to attract some renters. But don’t fall victim to cutting rates to very, very low rates to pull the market down. And don’t fall victim to those two-night rental minimums that could lead to a lot of partying and destruction in your home.

John, what are your thoughts?

John Candelario:

I think you’re absolutely right. And that has to be built into the model when you buy the home. When you’re investing in the vacation rental, you’re not going to be occupied every month. That’s just not how things work. So if you’re investing or you’re thinking back on when you did that decision, sometimes that 85%, 90% occupancy that somebody told you, maybe that’s them, or maybe it’s not true. I don’t know.

But most businesses, just look at hotels. They don’t have close to that occupancy. I mean, that’s not a realistic number in hospitality. So what makes people think they can achieve that when there’s so much supply and so much inventory? I don’t know.

But a lot of it comes down to expectations and what you mentioned, that’s the right way to go about it. You’re taking a conservative approach. You understand how things work and you’re realistic with your expectations. But if you’re unrealistic with your expectations and you built these expectations in your head that you’re going to make all this money and you’re going to have high occupancy, that’s why in times that are tough, like right now, that knee jerk reaction is to lower your rates and run promos really low.

Your home is a large home and it’s pretty expensive. It’s a premium offering. But your competitors are less than a third of your rate. So it’s a big disconnect. There’s a lot of people that they panic and they just lower rates, and it’s a race to the bottom.

Tim Casey:

That’s exactly right. And I did make the mistake early on, during a period of time when I wasn’t receiving any reservations, I took the price to my home down lower than I was comfortable with. And I paid the price. Ended up with a couple of party events that I had to clean up after and repair some damage, and long-term, it costs more money than I made.

So John, you and I have talked about this. When I build my financial model now, I build it knowing that mid to late August through September is a slow period. And as owners, we all want to make sure that our mortgages and our expenses are paid first. And I build my model to make sure that I maintain a reserve from the months that are busy: May, June, July, and those months are at least offsetting some of my expenses in August and September.

So build a financial model. Make sure it’s got a holistic view of the seasonality of wherever your home is located. And in doing so, you’ll be able to cover your costs and still make a nice profit without knee jerking and cutting your price too low, or doing two-night minimums and ending up with parties and damage and so forth.

John Candelario:

And because we definitely don’t want parties, and we can’t ignore the effects of inflation, though. I mean, cleaning fees have went up. Maintenance fees have went up. Pool cleaners are charging more if you have a pool. Supplies are costing more. Toilet paper, right? Linens are costing more. So everything is getting more expensive.

So instead of reducing your price, you should be thinking about not jacking up your price, but being more realistic, at least keeping them where they’re at, keeping your rates, where they’re at, because you’re incurring as a host more costs to do business. I mean, it’s not getting cheaper to run your business with this economic environment. So-

Tim Casey:

No, that’s right. And hotels are increasing their prices as well. And John, you and I have talked about this. In the short-term rental industry, we’re competing against hotels, but we are providing families who want to stay in a nice home that has nice gathering areas for family events, kitchens to cook in. We present a really nice alternative for families that are traveling, but prices are going up. Hotels are taking price. And in some cases, we do as well.

Most recently, John, I had to increase the price that I charge my guests for cleaning because my costs went up. And they went up for the right reasons. Cleaners are having to pay more for gasoline to get from location to location. So we all have to be mindful of the economy. We all have to see what’s happening with price increases, pass as much onto the guests as we can without gouging. So it’s really just keeping a real fine eye on your financial model, the economy, and making sure that you’re taking necessary steps to protect your investment.

John Candelario:

Right, and Tim, you know who your customer demographic is, though. You know exactly who your customer is. I’d say that most hosts do not. Because if you look at the supply and demand in Orlando, many of the rentals look the same and they’re trying to target every customer. If you ask the property manager, or if you ask the host who their customer is, they’ll say, “Any family. Anyone who’s going to Disney.”

But that’s not enough of a profile of a customer. You have to think of stuff about income levels or reason why they’re traveling to Disney or age groups. It’s to know who your customer is so you could better market to them. And that will position you in this kind of economy to do better than your competition. And you know who your customer is, so that’s why you haven’t dropped rates.

But if the host is just advertising to anybody and everybody, it’s not going to be successful, especially in an environment like this. Then it’s … No, that’s the price. Whoever’s lowest is who’s going to get booked.

Tim Casey:

Yeah, that’s right. If you don’t know who your target audience is or your target guest, and you lead with price, then you will end up with the party house. You will end up with those that aren’t respectful of your home. So I think our advice to our listeners is just know who your guest is, price accordingly, make sure you’re aware of the seasonality of your area, build your financial model in recognition of the downtime, and I think you’ll have a great investment.

John Candelario:

Absolutely. The best is yet to come.

Announcer:

Thanks for supporting us. Be sure to rate, review and subscribe to the show. Visit vacationhomehelp.com and click podcast for more resources on today’s topic and more episodes that will help you level up your hosting skills. Let’s get social. Connect with us today by joining our growing community of motivated owners at facebook.com/groups/vacationhomehelp. As a member, you’ll have access to sneak peaks and exclusive free resources. You can also connect with other owners with shared interests, learn from each other, the community, and from shared experiences. Again, thank you for supporting us. Until next time, take care.

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