It’s one of the trickiest parts of renting out a property, particular for first timers – finding the right rate for your vacation rental. Go too high with your nightly rate, and your rental could be vacant much more than you’d like, and there’s also the possibility that your guests leave negative reviews because they felt like they paid too much. Set your rate too low, and you won’t be making nearly as much money as you could. You also may end up attracting guests that don’t treat your property well.
To maximize your profits, keep your property occupied and get repeat renters who treat your property properly, you need to find that rate that’s just right. You won’t do that through guesswork, so follow these tips to figure out your optimal rate:
1. Add Up Your Property Costs
The first thing you should do is calculate how much your property is going to cost you per month, and for that you need to consider the mortgage, taxes, standard repairs and maintenance, utilities and insurance. Don’t forget about any advertising costs, transaction fees for the rental platform that you use and the value of your time. Add these up to get an estimate of the costs related to your property every month, and then use that amount to determine how much you need to charge for your rental and how many days per month you’ll need to rent it out.
2. Research the Competition
So, you’ve figured out your break-even point. Now it’s time to compare that with the rental rates for other places nearby. Ideally, you’ll find that other places are renting at prices that will allow you to make a solid profit. On the other hand, if you've found that you won't be able to break even with the way rentals are priced in the area, then you may need to find a way to cut your costs.
The first competitors that you’ll want to check out are other rentals, since those will be most similar to what you’re offering. Make sure you look at nightly, weekly and monthly rates. Try to find places that are comparable to your own in terms of size and amenities.
Keep in mind that when you’re starting out, it’s wise to have your rates on the low side. This makes it more likely that people will choose your place, so while you’re sacrificing some short-term profits, you’ll be able to build up some excellent reviews. After your place gets more popular, you can bump up your rates.
What about weekly and monthly vacation rental rates? If you’re going to offer a discount for these longer rentals, you may want to offer a weekly rate that’s five or six times as much as your nightly rate, and a monthly rate that’s two or three times as much as your weekly rate.
You can check out the rates of the competition on vacation rental platforms, such as Airbnb, FlipKey, HomeAway and VRBO.com, but make sure to expand your search to include other types of accommodations, as well such as hotels and B&B.
The B&B experience is a bit different than the standard rental experience, as guests usually stay at B&Bs when they want a more personal touch that’s catered to them. The majority of B&B guests also only stay for two or three days, so B&B rates in your area will be more important if you’re targeting guests who stay that long, as opposed to guests looking for a week-long rental.
One simple way that you can calculate your rate is to determine how many hotel rooms would be the equivalent of your rental, and then multiply the hotel’s nightly rate by that number. For example, if your rental accommodates as many people as three hotel rooms, multiply the hotel’s nightly rate by three.
3. Highs and Lows
Remember that in most areas, traveler demand isn’t constant. It will fluctuate throughout the year. If you have a property that’s in a warmer climate, you’ll probably have much more action during those winter months. One way to figure out when is the peak season in your property’s area is by checking out how the hotel rates fluctuate during different seasons and around holidays.
Do your homework on the competition, and check out which times they consider their high and low periods. Look at how they adjust their rates from season to season, and also check if they offer any package deals at certain times of the year.
You should also consider if you’re going to set a minimum stay length for your rental, and if so, whether it will be year-round, or only during those peak seasons. There may be regulations in your area that govern stay lengths at a rental, so look into those, as well.
4. Plan for Vacancies
It’s very unlikely that you’ll have your property rented out every day, even during your peak season. To estimate your rate you can you can check out the calendar availability of your competitors on vacation rental platforms. Remember that this vacancy rate is only standard during the time when you reasonably expect to rent your property. During low seasons, you may not have nearly as much business.
5. Don’t Hit Your Renters with Those Dreaded Extra Fees
It’s a common annoyance for travelers – they see a listing that looks great and has an affordable rate, but then when they go to book it, they find out that there are several fees tacked on, jacking up the price.
Try to include as much as possible into your rate, instead of having a listing with several extra fees that will drive away potential customers. Taxes and cleaning fees are fine, as travelers expect to pay these, but anything else could result in lost business. Make sure that your cleaning fees aren’t exorbitant, either, otherwise you’ll have quite a few travelers clicking the Back button.
6. Provide Discounts
Everyone wants to get a deal, and when you offer discounts, you can significantly improve your number of bookings and the satisfaction of your guests. That doesn’t mean that you should discount all the time, but if it’s the middle of your low season, a discounted rate could set your rental apart. Make sure that when you offer a discount, you put it in the headline of your listing so people notice it right away.
You’ll likely receive the occasional message asking for your best price, particularly if it’s a traveler making a last-minute reservation or booking your rental for an extended period of time. For last-minute reservations, offering a discount of 10, 20 or even 30 percent can be the difference in whether a traveler chooses your rental or another one.
If you’re already offering weekly and monthly rates, then you don’t necessarily need to discount your rental any more. If you’re not, you may want to consider it if a traveler asks. Longer reservations can lower your turnover costs and result in less wear and tear on your property.
7. Ask a Friend For Their Opinion About Your Listing
Once you’ve set your rates and finished up your listing, it’s time to look at how your place compares to the competition. If most of your competitors are charging more than you, are they offering something that your property doesn’t have, or are you simply underselling your property? If your rate is higher than average, does your property have the kind of amenities that will make travelers choose it anyway? There’s nothing wrong with setting your rental up as the more luxurious and expensive option, as long as you can provide the experience to match.
It’s not easy to look at your listing objectively. You may be biased and feel like your property is much better than others in the area, or you might think that it doesn’t hold a candle to the competition. Consider asking someone you know, such as a friend or relative, what they think. Sometimes the opinion of a third party can help you see things from a new perspective.
So, what lessons about setting rental rates have you learned? Is there any crucial, need-to-know advice that you think could help property owners who are just getting started renting their places? Share your thoughts on vacation rental rates in the comments below!