Many owners consider turning their property into an additional source of income by simply turning it into a vacation rental. Many owners have converted their property into a full-time vacation home. If you dream of monetizing the properties you have invested in, then you need to first estimate the operating costs and potential profits. There is a need to understand what prices the guests would be ready to pay. Analyzing and estimating the expenses can help you optimize the costs and manage your property better.
Setting an appropriate price for your vacation rental is dependent on both art and science. If you set the price too high, you won’t receive as many bookings as you seek. If you set it too low, the property would be booked all the time. However, you will not receive a major chunk of revenue and will struggle to make profits. Even if you have completely paid for your vacation home, you still need to manage the maintenance expenses, insurance, cleaning fees, and also hidden expenditure associated with depreciation. A fully-booked property requires regular repair work and renovation.
Want to stop guessing the right price? Follow some simple tips to deduce the ideal property rental rates as given in the below slides:
- 1 1. Know your competition
- 2 2. Know what your selling points are
- 3 3. Estimate your booking potential
- 4 4. Identify your rental goals clearly
- 5 5. Know the costs that you incur to run your rental
- 6 6. Try an automated pricing engine
- 7 7. Dynamic pricing for boosting occupancy
- 8 8. Set different rate for weekends and weekdays
- 9 9. Offer perks and deals
1. Know your competition
If you are wondering how property owners estimate the price of their properties, then you need to study your competition closely. Charging $ 500 per night over the property while similar rentals are offering it for $350 will not bring you too many bookings. You need to make sure that you are charging competitively without compromising with your profits. If you are offering anything unique for similar-sized properties, then you have to highlight that factor for the increased rate that you are charging.
You need to consider the number of bedrooms, your property type, the number of people that can be accommodated into your property, the amenities that you offer, and anything else that you can think of. Now, you need to search on major listings in your immediate area offering the same set of features. Once you have listed 10 or more such properties, then you can start identifying your real competitors. Check their calendar to see how regular their bookings are during the holidays, weekends, and high season. If their calendar is empty, then it implies that they do not have a reasonable pricing system to attract the guests.
2. Know what your selling points are
Once you have shortlisted the properties that are similar to yours, then you need to spend some time to check the features that they are offering to entice their guests. You need to pay special considerations to the bedrooms, bathrooms, and kitchens. A property that is offering granite countertops, a well-finished cabinet, and an island will charge a much higher rate in comparison to kitchens that have been designed with linoleum and formica. This just implies that you shouldn’t look into properties that don’t like yours. If your kitchen has formica countertops, then simply don’t compare the price of the property that has granite countertops. The same is applicable to bedrooms and bathrooms. You can also look into the quality of furnishings in your property and that of your competitors.
3. Estimate your booking potential
You need to write down all the pricing information that you have gathered by shortlisting properties comparable to yours. It would really be worth the effort to obtain accurate pricing of what the comparable properties are actually charging. You can also group the properties based on various categories such as Christmas, low season, high season, and more.
Several areas offer off-season boosts during popular local events and during holidays. You need to consider these factors in mind in order to remain competitive. For instance, people usually visit hill stations during the summers. This implies properties in such locations have high rates during summers as they are usually crowded. These have low rates during the rainy season because of the inconvenience faced in hilly areas. You need to take the average of the rates to decide what you need to charge during each season.
4. Identify your rental goals clearly
Once you have identified you’re the average nightly rate charged by your competitors, you could be tempted to out-price them. However, that is not the right way. A higher nightly rate doesn’t translate to higher paychecks. If there are over 100 properties in your area and if there are just 5 people interested in making a booking in the area during summer, then you wouldn’t benefit from being the highest-priced property. If it is peak season, then almost every property in the region would be booked. This is when you can push your rates higher than what you would charge on average and still receive bookings.
Your main priority needs to be setting the best rate while you still receive steady bookings from guests. Many vacation rental owners fail to decide what their nightly rate booking should be. The best thing is that setting lower rates generates more revenue in comparison to the property that sets a higher nightly rate.
5. Know the costs that you incur to run your rental
You also need to estimate the expenses that you will incur while running a property while running a vacation rental business. You need to generate a list of expenses pertaining to your rental property. This should include both fixed and variable costs. Fixed costs include items that don’t vary on a monthly basis. This includes taxes, salaries for managers, internet and TV costs, and also home insurance. Variable costs change based on the occupancy such as utility costs like property repairs, guest supplies, AC and heating, water, and electricity costs. Being aware of your expenses will help you in determining the minimum rental rate that you need to charge. This will help you in maintaining your budget as well as have a steady income.
6. Try an automated pricing engine
If you are finding it difficult to set an accurate nightly rate for your property, then you can rely on automated pricing engines. Doing this will make your task a lot easier. You will have to pay for gaining access to an automated pricing engine. However, paying for the service will help you stay updated about the changes in the market.
7. Dynamic pricing for boosting occupancy
These days more and more tools are being designed to assist property owners in managing and improving their bookings. Dynamic pricing is truly a game-changer in the vacation rental industry. Various revenue management solutions have been developed in recent years that assist the hosts in adjusting their prices intelligently and dynamically. These tools follow a data-driven approach using machine learning for analyzing the website based on location, competition, occupancy, and various other factors for increasing your revenue. This strategy will help you book your vacation rental for all nights that otherwise don’t get booked.
By using a dynamic pricing tool, you can set a simple monthly, weekly, nightly rate in a flash. You can offer dynamic rates based on the number of guests, length of stay, and the day of the weeks. All the vital factors are taken into consideration while charging an appropriate price for booking your vacation rental. You can also tweak the rates for increased interest or for meeting changing expenses.
8. Set different rate for weekends and weekdays
This is yet another popular price-based strategy that you can make good use of. It is not something difficult to understand that weekend is the most convenient time for people to travel. They may want to relax after spending a hectic week at work. You need to monetize this opportunity as you have better chances of getting reservations during weekends. You can increase prices on Friday, Saturday, and Sunday. You can lower the prices on the remaining days of the week for convincing your guests to book your vacation rental.
9. Offer perks and deals
Deals and offers are the major incentives for motivating an individual to choose your property over others. This is often used in the travel industry. There is sufficient data to support this statement. As per a study, during 2019 the coupons and offers accounted for a 15 percent increase in the value in the travel industry. You need to really be careful while offering discounts and deals to your customers. You need to analyze what your profit margins are and what percentage of discounts that you can offer for maximizing your bookings.
There are numerous pricing strategies available that you can utilize for setting rates for your vacation rental. It is all about understanding what works best for your market and for your property. You can always start low while you are just starting out in the industry. This will help you build your reviews as well as your reputation. Do not be afraid to experiment and switch methods to check what works for you. This will help you derive the best from your vacation rental business and generate profits that you desire.