Making an informed decision on how to set your property’s rental rates can make a significant difference in your ROI. By pricing a property too low, you’re fighting an uphill battle to profitability before the season even starts. On the other end of the spectrum, a rental priced too high may remain vacant and you risk not being able to cover out of pocket costs. Answering the 5 questions below will guide you on how to competitively price your property(s) – and fatten your wallet.
1. What annual expenses are required to maintain my home?
To make a profit, your property’s rental income needs to exceed operating costs. Figure out your business’ overhead by listing all associated rental costs using the list below as a guideline:
Fees and Permits
– Merchant account/credit card processing fees
– Management fees/commissions for rentals
– Mortgage costs
Once your list is complete, calculate how much you spend on each item per year. Add up each item’s annual cost to determine your operating expenses. When you divide your total operating costs by 12, you can get a monthly average of rental income required to match your property’s expenses, making it easier to set rental rates.
Since seasonality will likely affect your property’s earnings each month, understanding your regions tourism trends will give you an idea of when you can expect to become profitable. Once your rental income matches your operating costs, all other earnings are profit. To make sure that you’re making the monetary income deserved on each rental, ask yourself:
2. What are the seasonal tourism trends in my property’s region?
Seasonality in your region should be one of the most helpful determinants of setting rates. While high and low season may seem obvious in some destinations, it can be much more difficult to assess in others. Often times, contrary to common belief, seasonality is not always focused on calendar dates. For example, don’t just lower your rates Labor Day weekend because it is considered the end of summer if travelers are still inquiring about your beach property through September. Extending your high-season rates just a few weeks may mean doubling your profits. Special events, school holidays, and long weekends are also occasions to increase rates and maximize ROI.
Setting your rental rates properly and maximizing your income during holidays and high-season will help reduce the stress of obtaining renters during the off-season. Securing a booking during the low-season may require more creativity. Running a special offer, editing your advertisement (description, photos, and title), or offering your home for a ‘girls weekend’ or ‘yoga retreat’ will help boost inquiries and bookings.
While familiarization with tourism trends and seasonality will make it easier to set rental rates, awareness of competitive property’s rates will validate any reservations and help you confidently price your rental no matter what time of year.
3. How have other owners/managers priced competitive properties?
Each season, go onto the major listing sites (FlipKey, TripAdvisor, etc) and review the other homes listed in your property’s region. Observe how much other owners/managers are charging for nightly, weekly, and monthly stays. Check out properties with special discounted offers and perks posted.
It is important to compare apples to apples when examining competitor’s rental rates. Examine homes with the same sleep occupancy, number of bedrooms, similar location (ski-in/ski-out versus a drive from the mountain), and amenities as your own.
The minimum night stay is another key determinant for setting rental rates. Some tourist destinations are geared solely around weekend trips while others attract mostly weekly visitors. During the summer, owners with homes in Cape Cod, Massachusetts rent exclusively with a check-in and check-out on Saturdays. You don’t have to conform to the standard when setting your rates, but you should be aware of the renting habits in your region.
As you view competitive properties on major listing sites, check for uniformity in the rate’s table on each advertisement. While some homes have lots of detailed and specific rates, others may have just a high and low season rate listed.
4. What should be included in the standard rental rates?
The structure of a property’s rates is vastly unique depending on the type of rental. For example, Bed & Breakfasts and self-catering units within a resort typically offer separate rooms but shared accommodations. Other homes have multiple apartments and are geared for larger groups and may be rented per unit or as a whole.
Travelers not only need to know how much your property costs to lease, but also how your property typically rents. The tips below will help to create a comprehensible rate structure for even the most inexperienced renters.
– Determine your property type. Some owners/managers set a standard rate per booking while others charge per guest. A unit with multiple apartments/accommodations can often be rented individually or as a whole, depending on the season, group size, and availability. Your rates should easily convey those renting options.
– Create a clear and concise rate table. Give the exact dates of your high and low season and the corresponding rates. Make sure that you do not use ranges or averages but be careful not to make your rates too restrictive either. Include any specialty rates (such as per guest fees) or intermittent spikes in rates for holidays or unique events.
– Be cognizant of your renters and of their preferred payment methods. Knowing your typical renter and their preference for payment can make or break a booking. If your property is geared for families with children it may be easier to pay for their vacation in installments. Whereas a group of couples renting high-end property will very likely be able to reserve the home with a 50% deposit upfront.
– List any additional charges, costs, and fees upfront. If you charge for taxes, cleaning fees, or other costs in addition to your rental rates be sure to include them on your advertisement or guest’s will assume they are only paying the standard nightly, weekly, or monthly rate. Payment transaction fees can be upwards of 3% through online booking platforms such as PayPal so it’s important to be transparent.
If your property has a unique amenity or special selling point that sets your home apart from competitors (such as access to a boat or golf course), then it’s okay to create an up-sell or ‘add-on’ to your current rates. You may also want to consider posting your ‘add-on’ as part of a discounted offer, perk, or freebie when running a special.
5. How can advertising special offers and discounts successfully incentivize a renter?
Lowering rental rates is common mistake when bookings are lacking. Simply lowering your rates can compromise the value of your home, but advertising a special can easily help increase bookings without having to permanently restructure costs.
Running a discounted rate is most appropriate for securing last minute bookings, filling a previous cancellation, or renting during the off season. To create an irresistible offer, custom tailor the suggested discounts below:
– Create urgency with an expiration date. Don’t miss out offer ends soon! Setting your offer to expire a few weeks from its posting date creates urgency and prevents travelers from procrastinating on a booking.
– Free night with qualifying stay. Book 6 nights, get one free! Create an offer where if your guests book a certain number of nights, they get an additional one for free. You can set the minimum number of nights they are required to book depending on seasonality or your property’s availability.
– Discounted rates. Take 20% Off Stay! Incentivize potential guests by offering a percentage off the total rental cost. You can decide if you want to have a minimum night stay to qualify for the discount, or run it for any booking within a specific time frame.
– Perks and Freebies. Free Lift Tickets! Provide your guests with a gift or a give-away for booking your home. If your home is primarily rented with the expectation that your guests will likely be skiing, offer them a few free ski passes.
Accurately pricing your rental rates is the easiest way to increase your ROI. Remember, rental rates can be adjusted as the market varies or even as your availability changes.
Don’t forget, when you change your rates you, must update them on any posted listing (both online and print), but that’s a lesson for another day. Until next time, happy bookings.