Are you interested in making decent real estate passive income? Many people want to make extra money, and starting a short-term rental business is the real deal. Whenever you start searching for how to find an investment property or where to buy a vacation rental property, you get to understand how they are priced.
But, it’s not easy to set a price for your vacation home. Because you want to make a decent profit, you might be tempted to quote a high price. At the same time, you want more guests, so you need to set a competitive price to increase your property’s occupancy rate. Finding a balance can be tricky and can greatly impact your rental property investment.
Developing the right pricing strategy is the answer to maximum bookings and high rental income. This article will enlighten you on things to consider prior to setting the prices. It will also offer you 6 ways to determine the right price for your short-term rentals.
Table of Contents
Factors to Consider When Pricing Your Property
Understand Your Costs
Many property owners fear pricing their properties because they can’t quantify their costs. A smart pricing strategy has a cost component because it’s critical to successful revenue management.
You can easily develop a good short-term rental strategy when you know where to start. The good news is that there are many experts and tools you can use to determine your capacity. Calculating your costs instead of guessing them gives you insight into the revenue to expect from each price. It helps you determine the minimum rental rate, which covers your expenses and gives you some profits. Some of the costs include:
- Fixed costs – mortgage payments, salaries, insurance premiums, taxes, internet, etc
- Variable costs – These bills change based on usage
These costs might be so high that you might not make profits in the first few months or years. But this is normal, and you shouldn’t be discouraged.
Know Your Competitors
Competition in the vacation rental industry can be so high based on the location and season. Understanding who your competitors are can help you set a competitive price rather than compare yourself with them.
So search for competitors in your area, and establish whether:
- Your property is more modern than theirs
- When the competitors raise or lower their rental prices
- Selling points
- Other special features
- Target market
- Listing channels so that you have put yours there.
Determine Your Unique Selling Points
The information you collect about your competitor can be overwhelming at the beginning. But remember, some of your competitors are well-established property businesses. They might also have hundreds of reviews and higher ratings than you. So, don’t feel discouraged.
The best action you can undertake after this information is to find out your special or unique features. Next, make them your unique selling point (USP). Some of the unique features that you can capitalize on are:
- The size of your bedrooms
- Kitchen finishes
- Stunning furniture
- Better quality bathrooms
- Reliable Wi-Fi
- The little gifts your guests get for staying with you, etc
Use these features and more to increase your property’s value or passive income from rental property.
Set Your Goals
Setting goals comes last because costs, competition, and unique selling points affect them. The insight you gain after calculating cost, identifying your competitors, and setting unique features can help you avoid out-pricing your rivals. Also, don’t expect to make huge profits initially, but low, consistent profits are possible.
Determine the kind of nightly rate that is good for you, or the regular monthly amount you want. Also, define your lifestyle and establish how it influences the way you price your property. Next, create an effective str strategy to help generate a decent income. Once you set your goals, you can get started with an investor portal.
Short-Term Rentals Pricing Hacks
Adjust the Rates Based on the Length of Stay
Short-term rental property managers use different strategies to set and adjust rates. The length of stay is a flexible pricing tactic that the hotel industry uses. You can use this metric to adjust rates depending on the duration. You can reward those who stay with you longer.
A higher occupancy rate for longer stays will earn you more money than a few one-nighters. A longer guest stay has lower overhead, leaves good reviews, and offers more opportunities to upsell.
Vacation property owners market their rentals on various channels, which charge different commission rates. These platforms load their commissions on your rates, while others opt to deduct them from your price. These charges cause you to lose a significant amount of money.
Markup is a good solution to control commissions. You can regulate the final price of your vacation rentals and the income you receive from every booking by marking your rates up and down. The market has several short-term software and tools to perform markup calculations.
Online Travel Agents (OTA) Pricing
Manipulating your prices manually can help you maximize revenue and optimize for occupancy. As you get more guests, your calendar may begin to fill up. But, you can adjust the minimum length of stay on channels and the availability of your property.
You do this in order to charge higher prices for most of your bookings. Adjust your nightly rates on specific dates when the bookings on some OTA channels are high.
Types of Pricing Strategies
Maximum-Rate-per-Night Pricing: You can charge higher rental prices than your competitors when your vacation property has unique features or is hard–to–beat. The advantage of this strategy is that; it offers you better returns from each booking, fewer issues, guests, and maintenance costs. The downside is that you get fewer guests.
Competitive Pricing: It’s an ideal strategy when you have similar property as your competitors in your area. That means your property prices are at par or lower than your competitor’s. This is a good strategy because it assures you a steady income in the long run.
Dynamic Pricing: This pricing strategy lets you charge your short-term rentals seasonally. It involves charging higher prices during peak seasons or events while considering what your competitors are doing affordably at other times of the year.
Finding the right price for your vacation rentals may take time and effort. Many factors influence how you set your price, but conducting a lot of research can help you understand your cost, competitor, unique selling points, and much more.
Investing in short-term rentals can be an excellent way to maximize returns on your properties. But like any other real estate investment, it is crucial to get the right insurance.
The 4 hacks mentioned above can help you get started. They will allow you to create a smart str strategy and appropriate price for your rental property business. Your ultimate goal should be to grow your rental property investment.