How to Set and Adjust Rental Rates for Vacation Properties
The revenue you make from a vacation rental property ultimately boils down to two factors: effective average daily rate (ADR) and utilization.
We add the qualifier “effective” before average daily rate because while you may have a headline “list price” daily rate, extra fees like cleaning or pet fees are meaningful drivers of revenue for vacation rental owners and should not be ignored. (As an aside, in November 2022, Airbnb announced a total price display feature to bring more transparency to these add-on fees, likely reducing the gamesmanship in hiding consumer costs in hidden fees.)
The most powerful lever available to influence both ADR and utilization – nearly immediately – is pricing. But setting the right rental rates for your property can be tricky. You want to make sure you're charging a fair price that will attract guests, while also ensuring that your rental income covers your expenses and generates a profit without leaving money on the table. In this blog post, we'll explore some tips for setting and adjusting rental rates for vacation properties.
Do Your Research Before setting rental rates for your vacation property, it's important to research the market. Look at similar properties in your area and see what they are charging for rent. Consider the size of the property, the amenities offered, and the location. You can also check online booking sites such as Airbnb, VRBO, and Booking.com to see what similar properties are renting for in your area. By doing your research, you'll get a better sense of what the market will bear and can set your rental rates accordingly.
Consider Seasonality The time of year can have a big impact on rental rates for vacation properties. Peak season, when demand is highest, can command higher rental rates, while off-season rates may need to be lower to attract guests. Consider the local climate and events when setting your rental rates. For example, a beach property may command higher rates during the summer months, while a ski property may have higher rates during the winter months.
Factor in Expenses When setting rental rates for your vacation property, it's important to factor in all of your expenses. This includes mortgage payments, property taxes, insurance, utilities, maintenance costs, and any management fees. You'll need to make sure that your rental income covers these expenses and generates a profit. It's also a good idea to set aside some funds for unexpected expenses such as repairs or upgrades.
Offer Discounts and Specials Offering discounts and specials can be a great way to attract guests and increase bookings. Consider offering a discount for longer stays or for booking during off-peak season. You can also offer specials for repeat guests or for last-minute bookings. Just make sure that any discounts or specials you offer still allow you to cover your expenses and generate a profit.
Adjust as Needed Once you've set your rental rates, it's important to monitor them and make adjustments as needed. If you're not getting as many bookings as you'd like, you may need to lower your rates to attract more guests. On the other hand, if your property is in high demand, you may be able to raise your rates. Keep an eye on your competition and the market to make sure your rates are competitive and profitable.
In conclusion, setting rental rates for vacation properties requires some research and consideration of expenses, seasonality, and competition. By doing your homework and adjusting as needed, you can set rental rates that attract guests and generate a profit for your vacation rental property.