Greetings from the Grand Strand!
The residential housing market has remained robust but resort real estate sales, including oceanfront sales, have still been pretty sluggish over the past month. On the bright side, I have seen signs of life in the last two weeks with 7 new contracts personally, all on resort condos (6 of which were oceanfront) in that time period. Hopefully this streak will continue. There are, however, still a number of well-priced listings on the market that should have sold by now - including a few of my own. Lots of lookers but no offers. I get the impression that many of today's lookers will buy next spring or summer but I'm afraid some of them are missing out on great deals in the meantime.
If you're planning to buy, be on the lookout for emails from my team about hot listings. The next few months are great for bargain-hunting.
Most agents only focus on yearly vacation rental incomes but I don't like to wait that long. I've been checking out quite a few properties' year-to-date incomes. Most incomes are higher year-over-year versus 2014, especially in the newest, most popular resorts.
This brings to mind a misconception I would like to dispel - that vacation rental income cannot increase unless occupancy increases. I've heard several comments from potential buyers and even agents lately to the effect that, since occupancy rates during the high demand/high rate seasons have been virtually 100% at many of the strongest resorts, incomes cannot rise any more. In fact, for incomes to rise, all that needs to happen is for the average nightly rate paid by guests to increase. This is exactly what has been happening.
DISCLAIMER: I am not privy to the inner workings or strategies of any of the rental management companies but, based on my experience, I believe the following comments are broadly accurate.
Of course, resorts can simply raise their rates but please note that with the sophisticated pricing structures used by many resorts, the rates themselves don't necessarily have to be increased for average incomes to rise. The key thing to understand is that with these reservation systems, there are nightly rate ranges for time periods rather than specific nightly rates. Also, instead of the old-fashioned "high, medium and low" rate time periods that rental companies once used, there may be 25 or 30 rate time periods in a year. The rate range within each time period for a particular property is determined by the number of bedrooms, floor plan, building location, etc. The actual rate (within the range) quoted to a guest or booking company (Expedia, Hotels.com, etc.) can change on a daily or even hourly basis according to supply, demand, time frame and a number of other factors which are programmed into the reservation system. It's similar to airline ticket pricing. These days, most of this is done automatically through online booking.
A rental management company can increase income, with little or no accompanying increase in occupancy, by adjusting the parameters of its system to effectively reduce the amount of discounting. I've had conversations with several different rental managers lately who stated that they have been tweaking their computerized reservation systems to leave less money on the table. This may be an over-simplification but, in other words, as memories of the recession have faded, they been holding to their maximum rates and offering fewer discounts and/or not offering the discounts until closer to the actual available dates. Voila! Income increases with no formal rate increases and minimal or no occupancy increases!
By the way, I know from personal experience (see the next to last paragraph) that many owners don't like the idea of discounting rates at all. They would prefer that the rental management companies stick to the highest rates regardless. The reality is that businesses of all types discount charges for goods or services to optimize returns. It just makes sense. Businesses discount for volume purchases and especially if the sellable item or service has a shelf life after which it has little or no value. Once an available rental night is gone, it's gone. Not a dime will ever be made from that night. Think of it in football terms. It's 4th and long on the 20 yard line. The smart move is to go for the field goal instead of gambling on the touchdown and probably getting zero points. This year, the rental companies' red zone offenses have been better - resulting in more touchdowns.
I don't mean to make this sound easy. It's tricky. This is a very competitive business. Think of how much you shop for the best rates for your own vacation. If a company effectively raises the rates too much, it can backfire. Guests will chose other accommodations, causing a reduction in occupancy which actually reduces the income. The big rental companies expend huge amounts of time and effort trying to balance occupancy and rates to optimize income-and their competitors are all doing the same thing.
Apparently,
the accommodations industry throughout the state has been handling this balancing act quite well this year. Check out the article, "Another Good Year for South Carolina Tourism Industry". The revenue per available room (RevPar) through the first half of the year was up over 8%. Less than 2% of this was the result of an increase in occupancy. The big jump came from an increase in the average room rate of over 6%. By the way, Horry County was again the most popular destination in the state.Incidentally, I'm not sure if all of my readers are aware of this but I owned my own real estate company for 18 years and I owned and operated a vacation rental division for 8 of those years. Eight loooong years - Vacation rental management is way harder than it looks! Our reservation system was certainly not as sophisticated as those in use today but I did gain quite a bit of insight into the importance of properly setting rates to maximize income.
That's it for this month. Read on for the latest monthly reports and my latest Best Buy picks.
See you at the beach!
This new monthly newsletter feature shares press releases that caught my eye in the previous month. 