Below market rates

[Zazous]

Hi

My first post on here!

I've recently inherited a holiday bungalow from my father. He charged significantly below the market rate and whilst covering the basic running costs (council tax, insurance etc) left almost nothing over for maintenance/investment or for that matter a profit!

There's half a dozen regulars who book every year, some booking more than once, including in peak season.

They're paying £28 per night in peak, when the market average on similar properties is around £87 per night.

I'm considering my options in terms of honouring my father's relationship with the regulars, whilst not sleepwalking into the same situation of running it as a borderline charity!

His bookings on their own will make me meet the 105 days letting condition, so I'm keen to hang on to the majority of them if possible.

Any thoughts?

[Cymraes]

Yes put your prices up! You could offer the "regulars" a discount but I for am are not in the business of subsidising other peoples holidays.

I assume that place looks a bit "tired" though if no money has been invested in it which may affect your pricing options

[ianh100]

I agree that you should put prices up, particularly at peak times. Will you be making improvements? If so you can justify cost increases on that basis.

We continually monitor local prices across a variety of sites and adjust prices to suit. We have a few regulars who we do tend to offer a discount similar to the cost of taking a booking via the various commission sites.

How do you currently advertise? If you read through this site you will see just how much change there is in this market so don't underestimate the cost of replacing these regular customers. I think it probably costs us over 15% of our income attracting customers.

[Zazous]

I do plan to invest, but as my father only covered his basic running costs I need more bookings and/or an increase in price, to cover that.

I've reviewed a dozen similar properties and plan to pitch prices accordingly.

Some options are:

1. Allow the existing £28 per night customers to book at that price but outside peak months.
2. Allow existing customers to book at £28 per night but only at short notice (i.e. a week in advance when it looks like I might not get a 'full rate' booking.)
3. Offer existing customers a discount on the new rates.

[Jenster]

I would go for the third option. The regulars must know they were getting a bargain, and with the discount on the new price I assume they will still be getting a less than market value price.

[Sam V]

I would go for the third option. The regulars must know they were getting a bargain, and with the discount on the new price I assume they will still be getting a less than market value price.

+1 on option 3. In any case in a couple of years you could be getting new regulars willing to pay your new rates. Perhaps keep your new rates a tad under the other local rates to attract new guests too.

[Bunny]

My experience is that you can put your prices up and actually attract more bookings. If your price is too low, some will question "what's the catch?" I've put my prices up by 25% since I first opened my 3 bed cottage 3 years ago and gradually increased bookings. Definitely go with option 3.

[jazzuk777]

Worth highlighting on the discounts point, that you have to be careful how HMRC view discounted bookings - if they count them as "friends" then they don't count towards the 105 day threshold...

I'm still trying to work out how that applies to commercial discounting practices, e.g. offering last minute discounts, if they happen to be friends and family who want to take it up...

[Nemo]

I too go with option 3. You're not running a charity and whilst regulars are valuable, you can put a price on that value and it's not as low as that. You must make enough income to invest in maintenance and improvements.

I'm still trying to work out how that applies to commercial discounting practices, e.g. offering last minute discounts, if they happen to be friends and family who want to take it up...

If those discounts are made widely available to everyone then it doesn't matter if your friends and family choose to avail themselves of them. Just advertise it to all, on your website or facebook page etc and not in an email you only send to your friends and family for example.

[charles cawley]

A per night charge can be a mistake.

Weekend nights are much more valuable pro rata than weeknight rates. BnB style marketing in the holiday letting sector can be a mistake. There is often the chance of a back to back weekend mid week bookings- this can be very rewarding if, say, you charge 75% of a full weeks rate for a weekend short break and the same for a four day mid week break.

This type of pricing has worked well for many years in the self catering market. We have a spreadsheet that works out these sort of rates using formulae. If you dm me I can send it to you gratis.

[Basil Fawlty]

You should also apply to have the property reassessed as business premises and then take advantage of the benefit from 100% relief assuming the new assessment is £12k or less, which it should be, unless it's a castle !

[stewart-sandeman]

I faced a very similar situation, when I inherited a property - a few very long term renters (20 years or so) were paying less than half the going rent.

I got round the problem by making some improvements to the property every year and gradually increasing the rent - whilst possibly not an optimum way of increasing the revenue - it did mean that they see the improvements - can understand the price increases and are now still coming back - so minimum empty weeks, and fewer costs via agencies etc. They now understand that it is a commercial venture - as previously it was not.