Pricing your vacation rental effectively is one of the most important steps to ensure a successful investment for yourself. Among the many qualities of a good vacation rental is a rate schedule that stands out as a value to guests.
Research your Competition
The most common way to price a home or any item that has value is to compare it to something similar that has recently been sold. I recommend researching the pricing of both hotels and vacation rentals in your area.
Research Hotels and Bed & Breakfasts
Vacation rental guests and hotel guests are often represented as two different types of clientele, however this is not always the case. If you own a small studio condo, for example, you might find yourself competing with hotel rooms.
Either way, researching this type of accommodation still provides insight as to what a rental guest in your area is willing to pay per person. There are of course tons of online resources to research hotel rates. I would recommend using a site that compiles hotel rates from several different sites, such as Kayak or Trivago. You don’t need to spend too much time looking at hotel rates, so this should make things easier for you.
Remember that hotels do not typically charge a cleaning fee and usually offer more amenities than a self-catering vacation rental. It would be prudent to price your rental more competitively if your space is comparable to a hotel room in size.
Research other Vacation Rentals
This will probably be the most important element of your research when pricing your vacation rental. You should absolutely use sites such as Homeaway and Airbnb to help you determine the rates for your vacation rental.
Search for properties that offer the same number of bedrooms, sleep a similar number of guests and offer similar amenities to your vacation rental. You should be able to identify an acceptable range of what your nightly rate should be.
Setting Different Rate Seasons
Every destination is subject to at least some seasonal influences. Your area might be more popular in the winter or in the summer, or your community may have certain events or festivals that cater to travelers and temporarily increase demand. Your goal is to maximize your room rate in your peak season and maximize your occupancy during slower times.
The simplest way, and the way most owners approach rate seasons, is to have 3 different seasons. High season is of course your peak time, then Mid-Season or shoulder season and finally the Low-Season.
Here is a real world example of a rate schedule from one of my more popular vacation rentals.
Summer is our peak season, with holiday weekends such as Memorial Day and July 4th being especially popular, so we really try to maximize the daily rate during that time. Schools in our area go back into session around Mid August, so we offer a reduced late summer rate.
Your vacation rental probably won’t follow this rate schedule exactly. Every location is different. The point is to set different rate seasons to maximize revenue.
Adjust your Rate According to Demand
Hotels will adjust their rates according to the demand for that particular time period, how much time is left to secure room revenue for that period and several other factors.
I do the same thing for all the properties I manage. If one property is struggling, I will make adjustments to the rate based on my experience. I have been managing vacation rentals every day since 2012. A general manager at a hotel may have many years of experience and taken hundreds of hours of classes in revenue management.
If you are a new vacation rental owner not utilizing the services of a knowledgeable property manager, then obviously you do not have this same level of experience.
Thankfully you have several tools at your disposal. Airbnb has a smart pricing tool that makes pricing suggestions and can even set prices automatically to match demand. There are also several third party pricing tools such as Beyond Pricing that you can sync to your vacation rental listing.
Be Careful of Focusing too Much on your Nightly Rate
I have seen many vacation rental owners fall into the trap of focusing too much on their nightly rate. Meaning they are willing to let their property sit empty rather than adjust their nightly rate.
Room revenue is a depreciable commodity. Once tonight has passed, it is gone forever and you can never make money off it again. Savvy vacation rental owners “think at the margin.” Your mortgage, property taxes and insurance will still need to payed and will still be the same amount regardless of how many guests you host. I understand that you will incur some extra variable expenses (i,e, utilities), but these pale in comparison to the fixed monthly costs of owning a vacation rental property.
Instead Focus on Presenting Value to your Guests
Focusing on being a value does not mean you have to offer a rock bottom price below everyone else. It means that your guest should perceive your vacation rental as a value for what it is.
Perhaps your 2 bedroom property sleeps as many guests as surrounding 3 bedroom properties, but at a lower rate. Maybe your beach view condo is priced the same as other condos that do not have a view. The vacation rental owner would have a strong competitive advantage in both of these situations.
Every vacation rental is different and offers different selling points. It is up to you as the owner to leverage your vacation rental’s selling points, along with the nightly rate, so that you stand out to potential vacation rental guests.
Other Considerations When Pricing your Vacation Rental
What Fees Will you Charge?
Additional fees are one of the biggest sources of complaints among vacation rental guests. These can be cleaning fees, pet fees, damage waiver insurance fees, booking fees, resort fees, credit card surcharges, and the list goes on.
I suggest keeping your fees as minimal as possible. You will almost certainly charge your guest a cleaning fee, but don’t get carried away with other fees. You may also consider building fees into your nightly rate. A pet friendly property, for example, might build the pet fee into either the nightly rate or the cleaning fee.
This should go without saying, but you should clearly disclose any fees to your guest at the time of booking. No one likes an unexpected extra expense and this is just a good business practice.
Will your Guest be Charged a Booking Fee?
Third party vacation rental sites can charge your guest as much as a 20% booking fee. While this doesn’t affect you directly, it can affect how high of a nightly rate you are able to command.
What Taxes are you Required to Collect?
Most states and municipalities charge a tax on any room rented less than 30 consecutive days. Commonly called a “hotel tax”, this also applies to vacation rentals.
I live in Texas and this can total around 13 – 15% of the nightly rate for the state and city. You will almost certainly choose to pass this tax on to your guests. Of course your competition is forced to pay this tax as well, so the playing field should be level.
I just recommend doing your due diligence and keeping thorough records for tax reporting. Penalties and interest from failing to comply with hotel occupancy tax requirements can seriously cut into your bottom line.
Minimum Night Stays
Most vacation rentals do not rent for any less than a 2 night minimum. You might consider upping your minimum stay to 3 – 5 nights during your peak time. A busy holiday weekend or time frames around a popular festival are guaranteed occupancy times for many. You don’t want to settle for a 2 night booking when you could have had 4 or 5 nights.
Minimum night stays can be heavily dependent on where you are located. Top vacation rental destinations might command longer stays. You also need to know your target renter. If most of your guests drive to your destination from less than 3 hours away, you will find that they may be only willing to stay for the weekend or a few days at a time. My family stayed in Maui a few years ago and most vacation rentals have a one week minimum stay in that area. Any destination that involves flying to get there will typically cater to longer stays.
Discounts for Longer Stays
Pricing your vacation rental for longer stays will depend on your location and your goals for the property. My properties typically will advertise a monthly rate during the low season to what we call “Winter Texans” that come down for 2-3 months at a time to escape the winter cold. This works great for both parties. The guest gets a good deal for an extended stay and the owner get revenue during a time that would normally be difficult to book.
You might also consider having a weekly rate if you typically get bookings of 2 – 5 nights. Offering discounts for longer stays can be a great way to generate revenue during your shoulder or low season.
