Setting the right rate for your vacation rentals isn’t just about initial profits.
Finding the sweet spot of your particular rental market can ensure that you’ll get repeat renters who will properly appreciate your property. Undershoot your market, and you’ll not only be leaving money on the table, but you’ll also be more likely to attract guests who will damage your home. Overestimate your rental fees, and you could end up with a high vacancy rate. You also run the risk of having guests who are unhappy and feel overcharged.
So how do you find out how much to charge? Many first-time property owners underestimate operating costs and are overly optimistic about potential profits. Instead of making a guesstimate based on the holiday home down the street, try these tips on estimating your rental rates based on these four key areas.
1. Make a list of your expenses
Mortgages, utilities and taxes are easy to tabulate, but don’t forget cleaning services, emergency repairs and landscaping when compiling costs. You should also consider how you intend to finance large, intermittent upkeep costs, such as replacing major appliances, painting the house or repairing the roof.
Home furnishings can also be a large part of your vacation rental overhead. Comfortable mattresses, linens, furniture, cooking utensils and minor appliances are the bare-bones requirements for any holiday home. To stay within your budget, don’t be afraid to look at used local hotel furnishing auctions and liquidators for big-ticket items.
2. Research prices in your area
Comb the internet, newspapers and real estate listings to get a clear picture of your neighborhood’s rental market. Be sure when you’re looking at listings that you notice the amenities, location and other defining qualities of each property. An extra bedroom or ocean view can merit several hundred dollars more per week. The more comparable properties you can find, the better you’ll understand exactly where your vacation rental will fit within the market.
3. Take into account peak seasons
Many holiday homes have a peak rental season. It’s not unusual to charge at least the cost of one month’s mortgage as the fee for one week’s rental during these times. Author of How to Rent Vacation Properties by Owner Christine Hrib Karpinski notes that even when you charge that much for your rental, you can still expect to need at least 15 to 18 weeks of occupied rental time in order to break even.
Property owners can also offer reduced rates for the month prior and after the peak season to increase profits. For example, in Cape Cod, your peak rental season would start in May and last through September. Discounted rates should take effect in April and October.
Of course, some vacation properties can be rented year round. Major cities, like Boston and Los Angeles, attract a new influx of tourists each week. However, you should still alter your rates to take into account peak periods. Get a calendar from the local visitor’s bureau that lists local events, concert, and festivals that may affect vacancy rates in your area.
4. Plan for a reasonable vacancy rate
Even in high demand areas, it’s hard to achieve 100% occupancy. Forbes notes that when you purchase a holiday home to use for rental purposes, lenders calculate a 25% vacancy rate. Of course vacancy rates only apply to the time you can reasonably expect to rent your property. For a summer vacation rental, where the rental season may only last 18 weeks, it’s a good idea to plan that for approximately five weeks your property will be empty.
5. Try it with Lodgify
With Lodgify, you’ll be able to set a simple nightly, weekly or monthly rate in a flash, or offer dynamic rates depending on the length of the stay, number of guests, the day of the week and other factors. And no matter which currency you want to accept – Lodgify handles all of them. So price your rental according to your research, but don’t be afraid to tweak your rates to meet changing expenses or increased interest.