Pricing your temporary rental: a practical guide
By Isabelle Ladouceur-Séguin|10 min|November 2021
Ready to get into the temporary rental market? Here's how to set a realistic price without compromising your income.
Setting a fair price for your temporary accommodation is crucial. After all, it can have a significant effect on the profitability of your rental project. To avoid costly mistakes, it's best to be thorough.
In this article, you will learn how to establish your price in 6 easy steps. Follow them to maximise your income and avoid losing money.
1. Add up your expenses
To know how to price your unit, you need to find out what your break-even point is. In other words, how much rental income you need to cover all your expenses and avoid getting into debt. This magic number amounts to the sum of all your expenses.
The bigger ones will of course weigh heavily in the equation. For example:
- your mortgage
- your insurance costs (home and civil liability)
- maintenance costs
That said, you shouldn't underestimate your smaller expenses. They can add up quickly and increase your operating costs. So don't forget to add these to your calculation:
- electricity and/or heating costs
- cleaning costs
- utility fees (Internet, telephone, cable, etc.)
- home security system monthly fee
- certificate and permit charges
- service fees from rental platforms
Remember: your rental income must exceed the break-even point for you to make a profit. So keep this number handy.
2. Consider the vacancy rate
You've added up all your expenses and established your break-even point. But is this really the minimum price you can charge each month without risking a loss? Not really. This would assume that your property will be rented 100% of the time. Unfortunately, this is unlikely to happen.
After all, temporary accommodations are rented for the short or medium term. So, gaps between bookings are not uncommon. To avoid running out of funds, your minimum price must take this into account.
The vacancy rate is the percentage of time that your unit is unoccupied (vacant). For year-round rentals, it is estimated at 25%. In other words, you can expect your property to be vacant 1 week in every 4.
This means that in a given month, you should break even in 3 weeks rather than 4. This way, even if your property is vacant for 1 week of the month, you will still be able to cover all your expenses.
Let's assume that your break-even point is $2000/month. To reach this amount in just 3 weeks, you would need to charge $667 per week. To get to this number, you need to calculate 2000÷3.
At this price, if the unit is rented for the entire month, or 4 weeks, it would bring in $2667. Keep this monthly rate in mind when you do the next step.
3. Set your price range
So you've established a monthly base price that takes into account a 25% vacancy rate. Now you can add your profit margin. Some sources suggest aiming for 7 to 20% of your base price.
In our example, the lowest price would be around $2854/month (i.e. $2667 + 7% profit margin). The highest price would be closer to $3200/month (i.e., $2667 + 20% profit margin).
4. Check out the competition
Say you're looking for a temporary accommodation. Between two equivalent units, which one would you choose? The cheaper one, of course!
To ensure that your price range reflects the market in your area, take the time to do some research. The most obvious way is to browse through various temporary rental platforms. However, this won't give you the whole story.
Why? Because prices vary according to demand, and demand ebbs and flows based on factors like:
- The season. During the high tourist season (May to September), prices are at their highest. They are at their lowest during the winter.
- Major events. Festivals and sports tournaments attract visitors who may need accommodation.
- Long weekends or holidays. These are popular occasions for travelling or visiting friends or relatives.
With this in mind, follow these tips to ensure that your search produces reliable results.
Check prices regularly
This allows you to see changes over time.
Compare apples to apples
In other words, check out units in your area that are most similar to yours: same type, number of rooms, amenities, quality, etc.
Pay attention to guest reviews
Accommodations that have no reviews may be listed at a lower price. Similarly, highly rated accommodations may charge a premium.
Check the availability
This helps you find out if they do rent at their current price. An empty booking calendar suggests that the listed price is too high.
Use specialised tools
These are tools that were developed especially for comparing rental market prices, usually in the tourism sector. For example, PriceLabs offers a dashboard service to help compare prices. It displays market trends and features of accommodation in your area: cleaning costs, number of guests, cancellation policy, etc.
Tools like this one save you the hassle of having to keep close track of prices over time. Not only do they give you access to data from recent weeks, some can even predict future demand. They may be worth a look!
5. Be objective
By now, you should have a good idea of where your prices stand in the market.
If they're higher than the competition, why is that? Does your unit have a competitive advantage that makes up for the price difference? For example, a Jacuzzi, a refined décor or a breathtaking view? If not, you may need to re-evaluate the viability of your project.
Conversely, if your prices are lower, can you explain why? Did you underestimate the value of your home? Is there a way to close the gap by renovating or adding amenities, for example?
Try to be as objective as possible in your assessment. Then make adjustments if necessary.
6. Adjust your prices on an ongoing basis
Once you have established a realistic high and low price, you need to know what to charge when. This is to maximize the number of bookings and, ultimately, your revenue. Here are a few factors to consider.
If you keep your price high when demand is low, you may get fewer bookings. In that case, it may be more profitable to charge less. This way, you will have a better chance of filling your booking calendar.
In general, you should save your highest price for peak demand times. To find out when they occur, you can use a dynamic pricing tool. Often integrated into tourist rental platforms, they automatically adjust your price according to demand. All without dropping below your minimum price.
If you are new to temporary rentals, you probably have few reviews, if any. As a result, you will be seen as less credible by potential clients. To counteract this, it may be a good idea to start by setting a lower price. And then, raise it as you get more and more good ratings.
The quality of your accommodation
To increase your income over time, you can improve the quality of your accommodation. For example, by renovating the unit or by providing more amenities. That said, make sure your improvements will pay off financially.
The price, a not-so-minor detail
The profitability of your project rests heavily on the rental price. If it's too high, it will limit the number of bookings you can get. If it’s too low, you will lose money. So it's worth investing the time and resources to make sure it's as accurate as possible - 365 days a year.
Hopefully, this article will help you set the best price for your temporary accommodation. Once that's done, why not post it on Sinistar.ca?
Our platform connects hosts with insurance companies that are looking to relocate disaster victims. By renting out your unit to them, you can offer a temporary home to disaster-stricken families in your community.
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