How Much Revenue Can You Earn From Your Vacation Rental?

Whether you’re new to renting out your vacation rental home or have been doing it for years, you should set revenue goals for your property and think about how much money you realistically can make from your rental. Discovering how much money you can make helps you budget, plan, profit, and offset the costs of owning a vacation home.

John Banczak, Executive Chairman and Cofounder of TurnKey Vacation Rentals, says that for every $100,000 you spend to purchase a vacation home, you should target yearly rental income of $12,000 to $14,000. So, as an example, a home purchased for $500,000 should command annual rental revenue of $60,000 to $70,000.

Start each year off on the right foot by taking the time to estimate how much revenue your property will generate in the next 12 months and also determine how much your property is going to cost you. Here are our top tips for making an accurate revenue projection in 2019.

 

Do your research and set your rate

If this is your first year renting out a vacation home, one of the first things you’ll need to do is determine your nightly rate. We recommend researching other vacation rentals in your area on HomeAway and Airbnb to see what they’re charging per night. Make sure you’re looking at homes that are similar to yours. If your rental is a modern 3-bedroom, 2-bathroom home, don’t compare rates with a studio apartment or a 5-bedroom home in your city. Stick to a similar size, aesthetics, and amenities.

And you’re not just competing against other vacation rentals nearby. You should also check hotels in your area to see how much they are charging per night. Once you’ve looked at all of the comparable rentals and hotels, come up with a standard nightly rate you’re comfortable charging. If you’re just starting out, consider pricing your rental a small amount lower than the others in the area to up your bookings quickly and get more reviews.

Another tip? Use dynamic pricing to increase your yearly revenue. This means that you charge more or less money per night depending on demand. When using our dynamic pricing strategy, TurnKey managed homes see a 35% increase in revenue. You can most likely get away with a higher rate in your city’s peak season or during the holidays. Also keep an eye out for events that draw tourists (like football games, concerts, or food and drink festivals) so you can increase your rate accordingly.

If you still need a little extra help setting your rates, use an online calculator like this one, or turn to a property management company that can help you set and manage your rates year-round.

 

Look at how much money you made on your rental in previous years

If this isn’t your first year renting out your property, then you already have a great foundation for setting your rates and determining revenue in the new year. To increase revenue this year, start by looking at what you charged last year during peak season, holidays, and big events in your city. Is there an opportunity to increase your rate during these heavy travel dates? And think about how often you stayed in the rental yourself. If you used your home a lot during the peak season, figure out if you’ll be doing that again this year. If you choose to make it more available to travelers during peak times, you’ll most likely see an increase in your overall revenue.

Also, take a look at any stay minimums you imposed on your rental this past year. You may be able to increase revenue and occupancy by decreasing those minimums. Certain guests may be seeking a weekend away, but if you have a 5- or 7-night minimum, they won’t even consider your rental.

Once you’ve come up with a nightly rate you’re comfortable with, it’s time to see how much money you’ll actually be making per month. How many days do you anticipating renting out your home each month? Figure out this number for the peak and off seasons, and don’t forget to factor in those big events we mentioned that draw tourists to your town. Once you have a revenue number for each month of the year, add them up to get your yearly revenue. But don’t get too attached to these numbers just yet – we still have to factor in your costs.

 

Subtract your costs

While the revenue numbers you calculated above may look really high, you still need to subtract the costs of owning a vacation rental. Below are the costs you need to be aware of. Add up the ones that apply to your rental, and subtract from your revenue numbers above:

 

Mortgage

Yes, this one is obvious. If you have a mortgage payment on your home, this will be a cost you need to subtract from every month’s projections. Include any HOA fees in this number too.

Insurance

You need to choose the right insurance for your rental. If you’re only renting out your home a few nights a year, your homeowner’s insurance might cover it. However, if you’re renting it out for most of the year, you may need a policy better suited for vacation rentals (learn what to look for here!).

Utilities

Keeping the lights and heat on is essential for a livable home. Use your past utility bills as a reference to calculate the monthly costs for electricity, WiFi, cable, streaming services, water, gas, and A/C.

Taxes

Remember to calculate your property tax and federal tax as a cost of owning a vacation rental each year. But those aren’t the only taxes you need to consider. Local tax laws are different everywhere. Depending on where you live, you might need to pay a sales tax or a hotel tax. We recommend finding an accountant in your city who works with other rental owners and is familiar with local laws.  

Renovations

Looking to redo the kitchen this year? If you are anticipating any renovations, subtract those costs from your revenue projections.

Repairs

You should have some room in your yearly budget for repairs/upkeep of general wear and tear on your rental. Learn how to build an emergency fund here.

Restocking

Don’t forget the little things! Do you supply shampoo, soap, snacks, or any other amenities to your guests? Make sure you account for these and the cost of how much it will be to replace them from month to month.

Property manager

If you choose to use a property manager to help with managing your home, make sure you factor in their costs to your yearly projections. A property manager, like TurnKey, is there to help you with almost all aspects of running a rental, including cleaning the home before each new guest arrives, keeping your dynamic pricing up to date, and interacting with guests and providing customer service 24/7.

 

After determining revenue and subtracting costs, you’ll have an estimate equal to how much profit you can expect to make from your rental this year. Understanding how much revenue your property generates each year and how much profit you’ll make will help you be a more successful vacation home owner for years to come.

 

Schedule a consultation with a property manager

If you still need help figuring out your rate and determining costs, we recommend turning to a vacation rental property manager to make sure your nightly pricing is as competitive as possible. A good property manager will be able to perform a property analysis on your home using their years of industry experience and expertise. This means that the property management company will take a look at other homes in your area, location, property type, the amenities you offer, and more factors to determine how you can maximize occupancy rates and profitability.


Want to see how partnering with TurnKey can help you earn more revenue? Learn more here.

 

 

 

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