Tips for Turning a Profit in a Tight Market

Everyone’s looking for a shortcut, a way to make more money and fast.

In the STR world, there are definitely tips I can share that will help increase the profitability of your rentals, but I’ll warn you that tips and shortcuts can never take the place of hard work.

Those things work in tandem.

In other words, if you’re looking for something easy, you’ve come to the wrong place.

But, if you’re willing to put in the time, effort, energy, research, and resources - I have some ideas for how you can get more bang for your buck.

Renting Instead of Buying

Let’s start with a scenario where you really want to get started on STRs, but you don’t have the money to buy property. I get asked all the time: Can I run an STR business without actually owning the property?

Here’s a video where I talk about it in more detail, but I’ll just say this: the short answer is yes.

I know how to go out there and creatively acquire real estate of all kinds. I remember a time when I use those same techniques and decided to go out and buy my first house. I found one, and we were looking at having to put in about $100,000 before furnishing the house.

I had to ask myself: Does this decision make sense? And compared to what?

What do I really need to make this STR business work? Do I really need to own the house?

In this particular case, I didn’t. All I needed to do was use and control it. At that stage of the game, Phase 1, the only thing I really cared about was how I could get control to use the property for the specific purpose I had in mind.

The advantage to not owning the real estate right off the bad is that you’re not putting yourself in a permanent position. You’ll be able to assess your ROI, how fast you’d get your money back if you actually bought the property. You can test out the location and see if it’s worth it.

You can use a normal lease to achieve your objectives and negotiate a first right of refusal to be able to purchase the property if and when you decide the location is one that will make you the kind of money you want to make.

Living By the Don’t Lose Money Number

My friend John Williams, who is an important member of our Cashflow Diary Team, along with his wife Wynde, talks about something he calls the Don’t Lose Money Number. 

Don’t Lose Money Number = Monthly expenses for a two-bedroom house (everything it costs you to own/operate, utilities, insurance, software, pricing tools, AirDNA subscription, whether someone stays there or not) divided by your expected occupancy each month.

So, let’s say your monthly expenses are $2000. Let’s say you expect to have your rental occupied 24 days out of the month. You divide $2000 by 24 and get $82.

But you’re not in the business to lose money; you’re in the business to make money. We’re not just doing this STR thing for the heck of it. We’re here for the cash flow. And the more the better.

I like to add $800 per bedroom per month. So, $2000 + $800 + $800 = $3600 divided by 24 = $150.

To see if $150 is a reasonable rate for your area, you can use a website like AirDNA that has all the data you could ever want - and more.

Find other businesses who are doing what you’re doing, serving the same people, and offering the same experience. What are they charging? Are you in the ballpark? Is your nightly rate realistic?

Forecasting Profits When Setting Pricing

Can you accurately forecast profits when setting pricing? Yes, but this is a skill that takes time to develop. And with our constantly changing economy right now, it takes a lot more research—and risk—that it ever has before. 

The bottom line is that you have to set pricing high enough to make a profit and low enough that people will be willing to pay.

John and Wynde are successful STR owners in Charlotte, North Carolina. They went LIVE on Cashflow Diary recently sharing their wisdom with us, and you can watch the whole video here.

One of my favorite parts of what they shared was when John admitted to being an analogy guy, someone who loves analogies to help make sense of different concepts. John has both a burger analogy and a hotel analogy for explaining STR pricing strategies.

Let’s start with the burger analogy.

When someone asks what they should price their STR at, John says it’s like someone asking how much a cheeseburger costs in Charlotte. It depends.

Are you a McDonald’s person or a Ruth’s Chris Steakhouse person? If you want a cheeseburger at McDonald’s, you can get one for a couple bucks. If you’re a Ruth’s Chris person, you’re going to pay $15

The hotel analogy is similar. How much is a hotel room in Charlotte? Well, where do you want to stay? At a Red Roof Inn or the Hilton? Most people who stay at one would never stay at another. Are you Red Roof people or Hilton people?

When setting your STR pricing, you have to know who your customer is and what kinds of prices they’re used to and willing to pay. And what kind of experience do they expect at that price?

A fast food experience or a steakhouse experience?

You need to know who you’re serving and what kind of experience you’re providing before you can set a nightly rate. There are many different levels of experience your business can provide.

John and Wynde serve families with children and pets who are in between housing, relocating to the area, or have an insurance claim on their property, or people visiting family. This is the customer they started with, and it’s still their customer base.

This is how companies operate. You figure out who will stay in your STR first, then figure out where to put it, so people will want to stay in it.

The Real Secret to Profitability

It’s not just the nightly rate where you can make money. That’s not even where you can make the most money.

I have a lot of other tips and tricks.

You can make money on your cleaning fee. Just charge your customers more than you’re charged by the cleaners and the linen service. You can set the extra aside for deep cleaning on a regular basis or use it for whatever else you want.

You can offer an early check-in (if the previous night is not booked). Tell your customer that, if they’d like to arrive before 4pm, here is your pricing. They could arrive two hours early for an extra fee, four hours earlier for a slightly higher fee, etc.

You can partner with a local car rental company and offer car rental service. You charge higher than the rental company. Some rental companies have gone out of business lately and are selling their cars at low prices. You could buy one and rent it out to guests yourself.

Partner with local businesses. Like a chef or a restaurant. A local chef could come into the home and cook or provide take-out services. Same with the restaurant.

Partner with local artists and furniture places. The local artists provide the artwork for the unit. The people staying there love the artwork. There’s a little plaque saying it’s for sale. You can ship it to them, or they can take it home. Who doesn’t love local artwork? It’s unique and special and a great souvenir from their trip.

You can partner with local coffee shops, local soapmakers, local florists, a local masseuse. Little bits of money at a time can become really big chunks of money by the end of the year.

Just because the market is tight right now doesn’t mean you can’t keep making a profit. You just need to get creative and think outside the box.

People like that can survive anything.

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