In Part 2 of this Live Q&A, Chris further discusses the management model, getting listed with booking.com, revenue management, the future of serviced accommodation, property management systems and the importance of strategy when starting out.

Show Notes:

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Transcription:

Hi I’m Chris.

Hi I’m Ritchie.

And welcome to the serviced accommodation podcast.

Hi this is Chris and today’s episode is part 2 of the Q and A session I did in London a few weeks ago.

Q: You are responsible for sending, for booking the guests who will come and stay today, tomorrow, the day after but they will pay for the cleaning. Will they give you criteria? Like I only want to have five bookings in a month or 30, you can flood them with as many bookings in a month as possible and they have to handle, or the owners have to handle? Or is there some kind of contract that you can only send them this many or not more than that?

A: So when you say send them, is that like they have something there to do like check them in or out?

Q: Are you using Airbnb?

A: Yeah.

Q: So you put their flat on Airbnb, you put their picture but it’s actually your staff that’s managing the whole thing. If there are 30 one day bookings a month for that one flat, they have to call the cleaner 30 times?

A: So they wouldn’t be doing anything at all on the kind of day to day operations of it typically. You know.

Q: So who’s paying for the cleaner? They are paying for the cleaner but you will call the cleaner and invoice them that amount?

A: So essentially how it works is, let’s imagine an apartment in London and it’s turning over £3000 a month, so each month £3000 comes in from the customer then you pay a bit to booking.com, you pay out a bit in cleaning fees, you pay out in some random maintenance. You take your invoice amount out and then you go okay here’s the money we’ve got left for you at the end of the month; we’re going to transfer it to you.

Yeah. So that’s how it works, you kind of control everything still as if you’re operating the property. But you’re handling all the money on behalf of the client.

Q: So your revenue that you take, it’s a percentage based on the total revenue rather than fixed?

A: Yeah so if we to keep the numbers easy, if it was £3000 income and we were charging 20 percent then we’d send them an invoice, well we wouldn’t send them an invoice but we’d invoice them for £600 and we take that out of the client account before we sent the funds.

Q: Quick question. In terms of the mortgage payments, you take out all of the costs, the mortgage payment is on them to pay, it’s not for you to wire across to Santander or whoever it might be?

A:  Well yeah that’s right because like I say typically in our area for like say a £700 a month property they would be getting somewhere between £900 and £1500 a month. So it’s essentially the equivalent of their single let rent but kind of turbo charged a little bit. They’re still expected to pay out the things that they would do if they were running it as a single let like the mortgage, buildings insurance etc etc..

 

Q: Would there ever be any instance where for your client or the client and the management model for you to set up in the Airbnb and booking.com accounts in your name? Because I can just imagine I mean that’s what I’ve done with someone I’ve joint ventured with and not done it with others and I can tell you it’s a lot easier to get a property going in my name than it is in theirs. But I’m thinking that for the VAT thing, I don’t want the HMRC to be thinking that looks like your business because it’s listed in your name. It’s always got to be in the clients name does it not?

A: Yeah that’s right so when we get cleaning invoices they always have the client’s name on it and we’re paying it out on their behalf and HMRC would see that as a disbursement type thing. So that’s not a problem.

Q: And like me, I’m not as advanced as you. Do you find it difficult to get, I mean Airbnb great for the first week, they seem to give a new listing a booking. It’s like a bonus and then it goes quiet for periods of time. I think we’ve all experienced that with Airbnb, it’s not just simple seasons and we’ve all suspected the algorithms, they reward – I call  it the dog trainer – they reward good behaviour. But booking.com is the tricky one, I’ve got a property in Sheffield now where it’s a listing in the owner’s name on booking.com and it is actually quite sticky there. It may well be that I’ve upset the booking.com algorithm or whoever governs them but do you think it’s easier? Do you think it’s easy to get a property going in an existing listing? Or is it easier to get what property going in a brand new listing? Or does it not make any difference?

A: I don’t think it makes a massive difference from that point of view, when we set up accounts we still set them up but we set them up in the client’s name. So on booking.com we’ve got a group account but when you when you put it together you can still have a different legal entity as the person that the account is.

Q: That is, all my properties started the graph is like this. It’s always hard, it’s not hard, you get bookings but it’s always better in the second year and the third year. Maybe that’s my skill. But do you know what it’s still the same with properties I’ve taken on the last 15 months or so. That graph is steadily upwards. Why is that?

A: I think it’s like any business once you, when you first get going you’ve only got new customer’s right. But once you’ve been going a little while people come back and you’ve still got new customers so you’re always getting more people in.

One of the key things we have obviously with serviced accommodation is that people are booking in advance. So if you’ve only been out open for two months you’ve only have the opportunity for the last two months for people to actually book that property, when you’ve been open for nine months it’s a nine month window where people could have actually booked that in and typically that’s where we see the big traction being because you can actually view your bookings and we call it a waterfall to see how much in advance are people booking and kind of get a nice graph of it. So if you cut that off but a couple of months you know that I’m actually I’m not going to get as many bookings as I would do otherwise.

Q: Does it depend on ratings? If you’ve got positive ratings then you’ve got the algorithm?

A: So with kind of booking.com or Airbnb or both?

Q: Both I think?

A: Both to some extent. I mean they’re never going to tell you exactly how their algorithms work. But for instance with booking.com they have confirmed that once you have at least seven and a half out of 10 it doesn’t have any further impact on the rank of your listing so as long as you’re above 7.5 as your rating then you’re kind of okay.

Q: They said that somewhere?

 

A: Yeah. It’s in writing somewhere. I don’t know exactly. But yeah because again it’s like Google, they don’t usually talk about their algorithms but with that particular one they did because I think people were starting to obsess.

Q: Chris, I’ve heard that it takes a while to get on booking.com if it’s your first property, sometimes it can take up to a couple of months. Is this true?

 

A: It can be yeah, so booking.com used to have kind of virtually instant activation, it would take a couple of days that kind of thing. What started happening was that scammer’s would set up a false property on there. They’d not have any availability for two months but after that they’d have loads of availability and they started to harvest credit card details because of course booking.com passes you the credit card details once someone’s made a booking. So obviously that potentially could have had a massive impact on booking.com because if their customers stopped trusting them then their business is going downhill. So while it’s a complete pain these kind of measures that they’ve brought in, it’s important to understand why they’ve done that and what the motivation was behind that.

So the typical message they do if you’re completely new to booking.com is that yes they will send you a pin code in the post. It should arrive in a couple of weeks, three times out of four it’s never sent out in the first place. So the best bet is to just call them every day and ask them for a pin and one of them might turn up. But at the same time they will do site visits so there’s there’s local managers for booking.com. Yeah they don’t tell you about them but there are, there’s like local area managers and they are out and about in their areas kind of for a couple of days every fortnight, looking at properties, talking to people and that kind of thing. So if you hit gold and you manage to get through to one of these people you can arrange for them to come down and view your property and they will then approve it there and then, but again this is a barrier thing.

Once you get up and running then you don’t have that issue anymore and with the group account that we have it’s been fully whitelisted which means we listed a property at 4.30pm on Friday afternoon, we had a call at 10:00 a.m. the next morning just to confirm a couple of details and then they said right it’s ready to go live as soon as you are. So it’s one of those barriers you only have to overcome once, once you’re up and running with a whitelisted account it makes life a hell of a lot easier.

 

Q: How do you decide on the pricing because I seem to, I haven’t really figured out how to get my pricing right? Do I charge high?

Obviously when i’m checking a hotel I compare. How do you decide? Is it location wise? Because I check hotel prices around me which are very cheap but mine is high but they’re booking. I want to be sure of my pricing because I want to be sure I’m not depriving myself of customers, of guests. So how do you do your pricing?

 

A: Okay. So I will just add we do have a like 25 minute podcast on revenue management which is very useful and goes into it a lot of depth. If I had to kind of take that down and just break it to the key components.

The thing is with any kind of market is that it’s dynamic, it’s always changing. So what pricing works is going to be different virtually on a day to day basis. You know it might be New Year’s Eve. It might be you know if you’re in Edinburgh it might be Edinburgh Festival. It might be a local events, it might be really quiet. All these things are going to kind of impact to see what what kind of pricing works and what doesn’t. Now I never think that there’s an individual one price for property. I always feel like there’s a range and what you we’re saying before about kind of playing with pricing, I think that’s really critical because you need to kind of have a play with different pricing levels and see how the market responds. If you put the pricing up are they still booking? If it gets quiet, what kind of level do you need to drop off to to make sure that you’re booked in a certain timeframe? So it’s one of these funny things which is kind of part art and part science. But as you kind of start to do that and you work a bit more dynamically with your rates you get to understand the market.

So in Southampton I would know that one of our £110 a night two bed apartments, if it was sitting empty and there was two days to go if I down price that to £90, it will sell in the two days yeah. If I’ve got five days to go I would go down to £100 because that’s the market. You know it’s not always going to work exactly like that but nine times out of 10 you know the different pricing levels which you can operate on if you’re sitting empty or if it’s really full.

If it’s really busy in town my advice would always be just think of a figure and double it. Because if you’ve got a really busy night in town, yeah if you go too high what happens? Everyone else is sold out at their rates and you’re the only person who’s got availability. Now that’s not a bad place to be because you might not be able to get this amount but you might get that amount and originally you were hoping for that amount. So if in doubt for like stuff where you really know it it’ll be high demand you’re going to be selling out in the area then always go a level above what you think you will be able to achieve it.

There’s one example I always think of when we had a Rod Stewart concert in Southampton and we had a last minute cancellation we were like yes because a £40 room we got £150 for. Seriously, you wouldn’t want to stay there, let alone pay £150 for it. So that’s why it’s a £40 room and that’s sold in half an hour as well. So when that when the market gets busy you will get whatever price you want for it because it’s the only option.

 

Q: How do you look at your business in two or three years time? Because there’s 160,000 listings on Airbnb in the UK and there’s been this huge exponential growth. Now given the strategy you’re playing with Section 24 I’m sure loads of other people are going to start picking up on that same thing. In three years time there could be 300,000, I don’t know what the numbers will be, a larger number than there is today. When do you think the tipping point comes because if there’s a huge amounts of supply coming into the market which has been growing exponentially for the past few years and I think that continues. Do you think this sort of stops or plateaus in two years time? Where do you think you get to?

A: Okay so I’ll give you my personal opinion on what’s going to happen with this and obviously this is just my personal opinion, it’s probably completely wrong. But you talk about like Section 24 changes and the impact that it’s going to have on the letting market.

Yeah I think that’s actually going to be quite profound. We all know landlords who are exiting. We all know that that means that the stock for rentals is going to reduce. We also know at the same time with the reduced stock, people are having to pay more money, there’s more costs. You know there’s only one thing which can happen with rental values. And for me that means over the next three years probably a boost of 20 percent. That is the kind of figure I personally think we’ll be looking at as a combination of reduced rental stock and taxation changes.

Now the impact that that will have will be absolutely profound on the short stay market. Because if you add 20 percent to a bunch of your rent to rent deals. Do they look great anymore? Or do they suddenly look not quite so good? Because what we are doing is arbitrage, we’re taking from one market in the single market and we are selling it in another market which is a single market. That’s the arbitrage play that we’re making. So everything that we’re doing is fundamentally tied to what’s going on here.

So for me what will naturally happen is that as that differential disappears, less people will be doing it and it will almost equalize itself out a bit. So the prices might go up a little bit because you’re able to charge a little bit more but there will be a natural balance which kind of comes into play between you know, what rates you’re able to charge on the single let on a single night and what the single market is saying that makes sense now. But like I say, that’s just my opinion.

It might do something very different but obviously if that is what happens, a lot less people are going to be attracted to doing it. The numbers are going to go down, we’ve got less supply in this market so the price goes back up again. So I think it will equalise itself out.

I also think a lot of people talk about saturation and if I look at our home market in Southampton we predominantly do two bedroom properties. We’ve probably seen probably another 40, 50 two bedroom properties just in Southampton come on the market in 2017. The last three months in terms of revenue, in terms of occupancy, in terms of profit, they’ve been our best months ever. So talking about kind of saturation in markets you’ve got to put it into perspective so for Southampton we have 3000 hotel rooms and you have to have quite a lot of serviced accommodation come online before that even has a dent on the market with that. If you have 100 apartments come online that’s a lot but in terms of market impact it’s 3 percent and while you’ve still got a demand market which is constantly growing and most places in the UK that’s still the case with with increased tourism, because of Brexit you know with with more business stuff going on, with development still being quite quite healthy in a lot of places particularly Southampton. As long as the demand market is also going up then then it’s probably equalizing itself out I would say.

 

Q: Any more questions? I’ve got one big question for you in one moment but before just one final question from the corner here?

I just want to ask Chris do you have a favourite piece of software that you manage the bookings with?  

 

A: Yeah I mean we use Toki. It is a little bit simple but it’s ironically enough despite being the cheapest software it is the most reliable software, I found. We run Alinea on our hotel type sites and that’s like £500 a month. And like probably about three or four percent of bookings would just disappear, so they’d come into booking.com but they never turn up on your system and then you’re dealing with guests turning up and going what’s going on? How do I get in? You’ve got double bookings? It’s something which shouldn’t happen on expensive systems but most of the systems I know it happens occasionally. With Toki we’ve never had a single one.

 

Q: What’s the advantage of that over say Kygo which is obviously slightly more expensive?

 

A: Quite a lot more expensive. I like Toki because it’s simple. You know the one thing I constantly hear from people who use Kygo and you know I have got quite a lot of experience with Kygo, everything is buried in the menu, there’s so much functionality it’s really hard to actually do what you want to do and it kind of has these limitations built in. Now what we’ve done is kind of taken Toki as a base system and then we’ve kind of built a whole other level on top of it basically. So it’s got API integration and that kind of thing. So we just went okay so let’s just build another layer for our actual work flow for the business. Because it’s great for managing bookings but it doesn’t necessarily do all the workflow processes which you might have in terms of bookings come in, have we checked the payments going through? If not get in contact with the customer or these kind of things which go about on a day to day basis within the business.

 

Q: Okay. Final question. Thanks Chris, that’s really helpful. How do you help the people in the room? What do you provide apart from serviced accommodation podcast? You do more than that to help in serviced accommodation don’t you?

 

A: Yeah. I mean for us it’s mainly the podcast as a kind of way of giving back to people and we, I was saying to someone earlier, we used to run a course, a training course with Francis Dolly so it was interesting you talking about training before.

Mine and my business partner Ritchie’s attitude is that actually we’re living in a changing world and information is free. So we actually took all the information from our course which people quite happy paying £400 for and – there’s someone in the room who actually did that – and we basically put that in the podcast so you know it’s the same content you get if you go and pay lots of money for course basically for that. That was really important to us, the information is free. But at the same time if people want help with implementation then we’re quite happy to help them on that. So we do a bit of work one to one with people, looking at their businesses, looking at a strategy, making sure people get it right in the first place and we did a strategy review didn’t we?

 

Q: You did! I thoroughly recommend it because we’re sole entrepreneurs doing this. I mean do you have a board of directors to advise you? So it’s quite nice to have somebody who’s an expert like Chris to bounce ideas off and do a correction course perhaps at the very least. Because we all need it don’t we?

A: I think that the most interesting thing with the strategy review is just how fundamental this stuff is. And the thing that I always come up against is that people get a few properties and then do a strategy review. But last week I was running one with someone who had plans to get their first properties but hadn’t got them yet and they were going to do rent to rent and they needed a certain amount of money each month as their kind of a starting point basically so they could quit their job. And what we worked out was if we structured it in the way that I was suggesting then with six properties they’d be able to quit their job because they’d have the right amount of money. If they’d done it in the way they originally intending it was going to be 13 properties.

So when you look at things like corporate structure, how you’re structuring it, who’s in what’s name, that kind of thing. You know we didn’t even change the way that they were doing these deals, they were still rent to rent deals but by structuring them in that way where they had a shared management company and then each of the directors kind of did a couple of deals in their own name. It just fundamentally changed how they did it.

 

Q: And your course for helping people like that I’m not going to ask what that is becuase it’s none of my business but it’s probably one booking you know but depends where your booking is obviously.

Okay. So I just want you to thank Chris because the only thanks he’s going to get this evening is you giving it in the usual way so thank you Chris.

 

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