As you get your vacation rental business started, you have to determine your pricing. It is important that you do your research.
A 2016 survey from HomeAway found that vacation rental homes pay for themselves. Accurate pricing allowed 70% of vacation rental owners to cover more than half of their mortgage. While 54% of owners cover ¾ or more of their mortgage.
This means that renting your property has great financial opportunities. It is important to have pricing which reflects your property and expenses.
What’s the Cost to Run Your Rental?
The foundation for calculating your rates is to cover your expenses. Generate a list of expenses relating to your rental property. This may include:
- Fixed costs – Items that do not change per month.
- Mortgage payment, taxes, homeowners insurance, salaries (for services and managers), TV and internet, etc.
- Variable costs – Change depending on your occupancy.
- Utility costs – electricity, water, AC and heating, telephone (depending), guest supplies, property repairs, etc.
Knowing your expenses determines the minimum rental rate. This allows you to maintain a budget and a steady income.
Research Your Competition
Your nearby competition influences your vacation rental prices. You should research other establishments in your area. For instance:
- Hotels – Hotels have high rates, while vacation rentals offer more space. This justifies pricing the same, or higher than hotels.
- B&Bs – Usually targets weekend bookings. Unless your property also markets to this target audience, don’t stress about their rates.
- If this is your target audience, market what makes your rental different. More space, amenities, and upgrades allow you to set higher rates.
Research Other Vacation Rental Properties
You can view similar vacation rental properties on listing channels. Go to HomeAway.com or Airbnb.com. You can compare your property features to those in the area. Notice the rates for each of these properties. Is your property as modern? Is it bigger or smaller? How do your rates compare?
If your property offers better accommodations, consider pricing higher than your competition. If your property is smaller or offers fewer features, price a bit lower. Researching your competition gives you an idea of where to start.
Set Rates for the High and Low Seasons
You need to create two different rates, one for each season. In the high season, your price should reflect your property’s demand. In the low season, you want to draw renters into the area with great rates.
Did you compare prices in your local area? If you are still unsure of your price points, consider sending a pricing survey.
Ask previous renters or other vacationers for feedback. Explain your property type, location, and price per night. The data from this survey should tell you if your rates fit your target audience.
Use an Automated Pricing Engine
An automated pricing engine will do pricing research for you. Here are some options:
- Everbooked.com – Associated with Airbnb.
- Raise and lower prices depending on the season/market.
- Updates pricing 2X/Day.
- Manages many listings.
- Provides data for all types of competition.
- Can specify results for market and zip code.
- Logs monthly history. Looks ahead to next occupancy.
- How much does this service cost?
- Basic Plan: $20/month + 0.75% gross revenue. Includes 30-day free trial.
- Ideal for less than 5 properties and basic research needs.
- Unlimited financial analysis/pricing reports, updates, and listing.
- Basic, historic, & city-level data.
- Pro Plan: $100/month + 0.65% gross revenue.
- Ideal for 5+ listings with detailed research analysis.
- Unlimited pricing listings and updates.
- Analyze unlimited listing.
- View future and past data.
- Unlimited reports with advanced data.
- Beyond Pricing – links to Airbnb listings.
- Utilizes real-time market data. Can review this data and sync prices to your listings.
- Develops prices using the day of the week, season, and local events.
- How much does this cost? One-month free trial. Charges 1% of earnings at the end of the month.
- Smart Host – used for HomeAway, Airbnb, and VRBO listings.
- Revenue manager recommends prices. Reviews each week and publishes to the site.
- Uses market data and your property to create a price.
- Performance report outlines many areas of rates/revenue.
- Pricing: Starts at $19/month depending on rental type.
Paying for an automated pricing engine provides data to support your prices. Some engines have managers who keep you informed of your property’s prices.
Paying for these services saves time, and allows you to stay up-to-date with the market.
Will You Charge Extra Fees?
Charging fees on top of your rental rate is a debate among owners. Take into consideration where your rates fall. Are they high or low? Is your pricing higher than your competition? Charging extra fees can result in negative feedback.
If your rental rates fall in the medium-low range, then you may justify charging extra fees. Such fees include cleaning, parking, check-in/booking fees, laundry fees, and more.
Some renters feel that their payments should cover these fees. Extra charges at the end of their vacation are surprising. Consider how these fees affect bookings.
If you need to cover variable expenses, include fees in the total vacation rate. This allows you to pay your expenses without damaging your customer relationship.
Another option is to offer discounts. A discount partnered with a certain number of nights can offset the extra fees.
Have You Already Calculated Your Rates?
Knowing your business expenses assists you in determining your rental rates. Research local competition to determine your rates. Offering discounts also impact your rates/bookings.
Have you already calculated your rates? What equation or research did you use? Share your thoughts and comments below.