Figuring out how to price your vacation rental is an essential step in seeing a return on your property investment. But, arriving at a nightly rate can be tricky.
So much goes into setting a rate for a vacation rental – location, amenities, availability, and minimum night stay. These are just a few of the many factors that should impact how much you’re charging nightly at your home.
The key to maximizing ROI revolves around the hospitality industry concept of revenue management, which has been explained as “the practice of selling the right product for the right price at the right time to the right customer.”
“Desirability, availability, and bookability are the 3 drivers of revenue generation,” says Mike Bohmer, Vice President of Revenue Management at TurnKey Vacation Rentals.
It starts with offering a unique property with top-notch amenities for the right price, and getting it noticed by potential guests. As an owner, asking yourself these questions can help decide how to price your vacation rental.
What kind of vacation rental owner are you?
People invest in vacation rental property for a variety of reasons. The best way to maximize ROI is to set solid goals with your vacation rental, including how you plan to use it personally. Then, ask yourself what you want to get out of the property to get a clear picture of the type of owner you are and how much you need to earn from your rental.
Some owners are strictly looking for revenue generation and will avoid staying in their rentals during peak, high-earning times, like the week of the Sundance Film Festival in Park City, Utah, for example, as that’s when guests are most likely to book, Bohmer explains.
Some owners are more casual, and may have an emotional attachment to the home. These owners may be trying to defer the property’s expenses, like maintenance, and only care about earning a little revenue, he says.
In the middle are owners who want to enjoy time in their vacation rental property during some peak times, while still generating revenue.
“Typically, we say you want to keep 80% of your calendar open for rentals,” Bohmer suggests.
How are similar vacation rentals priced?
One of the best ways to decide how to price your vacation rental is to visit sites, like VRBO or Airbnb, to see what similar properties in your area are going for. However, Bohmer urges property owners to keep in mind that those are often advertised rates, which could be higher than actual rates negotiated with guests.
“But, it gives a sense of what’s possible,” he says. “Then, make some assumptions about occupancy that those rates will yield and then do some simple math and try to figure out what the monthly revenue would be. Rental revenue would be based on those rates and those occupancy assumptions.”
Bohmer says TurnKey continuously monitors the market to determine a reasonable nightly rate, which can ensure that vacation rentals are staying competitive in their markets.
How do desirability, availability, and bookability apply to your vacation rental?
Understanding the 3 revenue drivers—desirability, availability and bookability—and how they specifically relate to your vacation rental is paramount to setting competitive pricing and keeping your rental booked so that you can make money from your investment.
Desirability—which includes location and amenities—is one of the key revenue drivers of a vacation rental. If a rental is located on the beach or a golf course, for example, an owner could likely get a higher nightly rate. Homes with unique or highly sought-out amenities, like a hot tub or scenic views, could also drive higher revenue.
“A rule in real estate is location, location, location,” Bohmer says. “That trumps everything. So, the desirability of the home is the prime factor. Then, the availability of the home: How much is the owner going to use the property? Because if you are the owners using it that means it can’t be rented which then affects its occupancy assumptions.”
It may sound obvious, but the more nights on a calendar open to guests, the greater the potential for a vacation rental to make money. The type of availability also matters.
“Availability is driven by owner usage and the types of days that are available to guests,” Bohmer says. “Weekends, events, holidays are more desirable for a guest.”
Bookability refers to how a guest’s preferences for rates and lengths of stay can vary throughout the year. Property owners need to decide if they want to make their rentals available during the low season, whether they’re open to last-minute bookings, and if they want to set a minimum night stay, Bohmer says.
He says setting too many constraints will lead to fewer bookings. For example, setting a minimum stay requirement at 7 or 14 days would likely discourage bookings, since there often aren’t as many guests looking for longer stays as there are those seeking 2- or 3-night stays.
How flexible should you be as a vacation rental owner?
Flexibility is an essential quality for vacation rental owners. Being too rigid about trying to get a certain nightly rate can mean owners miss out on potential revenue.
Some owners may say, for example, that they don’t want guests staying in their rental for less than $200 a day.
“They say it’s not worth it to me,” Bohmer says. “I have an emotional attachment. I’d rather have this thing set empty unless it’s $200 a night. But, if you get 6 or so of those last-minute, low- or shoulder-season bookings, that could equal $5,000 or $6,000 a year. That could pay for a new air conditioner or a new back deck.”
Using a vacation rental management service like TurnKey can help owners set the best price for their properties at any given time.
“We try to focus people on the revenue potential and not on a low-season night or a shoulder-season night and not necessarily the perceived costs, which effectively is a stranger in their home,” Bohmer says. “We’re looking at this every day, and we have data flowing in from various sources that work that allows us to know what the market is yielding for their home and comparable homes like it in the area.”
But, ultimately, owners have the final say in how their vacation rentals are priced.
What if the vacation rental isn’t meeting its revenue potential?
Just as vacation rental owners should be flexible with their use of the property and its availability, the prices set on a vacation rental should be fluid. Market changes may mean a rental’s price should be adjusted.
“The potential is set based upon what the market is bearing and where their home is located and amenities that they have and their availability and the booking restrictions they placed on it,” Bohmer says. “So if you’re looking to change the potential, then you need to change one of those three things (amenities, availability, or booking restrictions). You can’t really up and move your home.”
Some market changes owners just don’t have control over—for example, if a hurricane hits an area. Where a vacation rental appears in the search results on booking sites, like Airbnb and VRBO, is another area outside an owner’s control, since those platforms use a proprietary algorithm, and only those sites truly know how it works.
“There’s a whole host of things that could be occurring outside of their control and outside the control of the revenue management team,” Bohmer says. “But, our goal is to meet that potential.”
Vacation rental owners also sometimes need to manage their expectations when it comes to getting pricing right and keeping homes booked. Bohmer says finding the right mix can take some time and trial and error—in the first few months, revenue may be “less than optimal” and not meet the full potential, but things will level out.
“Their expectation may be based upon a mortgage payment,” he says. “But, perhaps they’re not aware that the amount of owner usage that they have is causing their potential to be less than their expectation.”
A tricky area, Bohmer says, is when a vacation rental first becomes available and may not have reviews on travel booking sites, which could mean it’s getting overlooked by potential guests.
“They basically are going to be at the bottom of the search list because they don’t have a history on VRBO or HomeAway, and so they have to build up that credibility and that ranking,” he says.
Once homes are getting noticed, Bohmer says they can pull the rates back to be more “market neutral.”
Should I get help with pricing my vacation rental?
So much goes into setting a price for a vacation rental, and it can seem daunting to owners. But, you don’t have to go it alone. Property managers like TurnKey can help by taking a data-centric approach to vacation rental pricing and marketing to ensure that your home gets noticed by potential guests.
“We have real-time, 24/7 monitoring of third-party data, and we know exactly when people are booking and for what length of stay and how far out they’re booking those stays,” Bohmer says.
Travelers searching for vacation rentals often search by price, from lowest to highest, so homes with extremely high rates may not get seen. Bohmer says TurnKey runs experiments on pricing and length of stay to see what helps the rental get noticed and encourages bookings.
When owners enlist help from a property management group, like TurnKey, revenue managers monitor local markets daily to make sure properties are priced aggressively and seek out ways to help you generate the highest ROI. The team also understands how to help vacation rentals get noticed and booked during high-demand times so that you can get the highest rate possible.
As you navigate the process of pricing your vacation rental, it’s important to remember that the likely reason you invested in the property is to make money. Realizing that many factors go into setting a competitive price and that rates often need to be adjusted to keep your vacation rental property in the game will set you up for success so that you see the highest returns.