Homeowner Education Series: Volume 2 – How Much Can I make in Rental Income

Homeowner Education Series: Volume 2 – How Much Can I make in Rental Income

1 Jun 2018

Written By: Sharon Walker

It’s really exciting to start researching revenue when searching for the perfect vacation rental! Each home can vary greatly in style, location, amenities, and size.
Below are all of the factors we believe you need to consider when trying to forecast revenue.

Homes are priced according to the following factors:
1. Number of Bedrooms
2. Pool/Hot tub
3. Proximity to area amenities
4. Peak Seasons
5. Style

Bigger is Better – When pricing is per room, you are correct in assuming that means more rooms equals more revenue. For a market comparative analysis, WLVR looks at the rates that hotels and homes are charging for that area for each season and festival (in Austin that is basically every week). In central Texas, an average rate for all nightly accommodations is $125 per room per night. For a higher end property in a prime location, this rate can increase to over $500 per bedroom per night. The key to a higher per-room rate is to get into a property that has 6+ rooms, which puts you at a heavy market advantage simply because there are so few homes (inventory shortage) that can comfortably accommodate large groups. So you may see a per-room rate of $150/night for a 3-4 bedroom home with a pool, while a 5 bedroom home in the same location may get a per-room rate of $200/night and 6+ may increase to a per-room rate of $250 or $350/night. This holds true for most homes that are desirable in the Austin area. Remember, there are exceptions to every rule. A home that more closely resembles a resort may be higher while a modest country house or a home without a pool or hot tub may be lower.

Speaking of a Pool or Hot tub… Your annual revenue will increase a minimum of 10% if you have a full-size pool and hot tub. Plain and simple.

Location matters in all things real estate. If your property overlooks a lake or is walking distance to great shopping and entertainment, it will demand a higher rate. If your property is not in a prime location, you will need to offer other amenities at the home to make it more desirable.

Peak seasons can make rates skyrocket and low seasons can drop them to the floor. SXSW in Austin is a time period that can draw up to 3X normal rates for a given area. Opposite of that is the dreaded month of August in Texas, which is joined by January as the two slowest months in Austin. When pricing a property, seasonality must be taken into account.

Design is a great way to make your property stand out, especially if you aren’t meeting all of the other pricing factors listed here. Travelers will even go outside of their preferred distance for a home that exceeds their expectations for style and comfort. Utilize a designer who understands the vacation rental market if you can. WLVR offers consulting in this area as well. If you don’t plan to get outside help, comb through hotel photos to see what is expected. The more you can make your home appear to be as or more comfortable than a hotel, the more appealing your home will be in the photographs.

How much can I make? As you can see, this heavily depends on the size, location, amenities, and style of the home. But a few factors are shared, no matter the home, that can help you to increase your total annual revenue. The obvious would include great photos, a stellar written description, guest friendly processing, mobile accessibility, excellent reviews, and preferred placement on all of the relevant sites.

The most prominent factor? Price.

Increasing the price per night will increase what you make for that weekend, but increase it too much, and you risk renting fewer overall nights, resulting in a lower total revenue. When it comes to revenue vs. rates, most owners are more concerned with their total revenue.

In order to find the right price, you must understand your competition. Perform a detailed competitive analysis on platforms where you are advertising your home. What are other homes priced at? How full are their calendars? Pricing too high or low will leave your home underperforming. Optimized pricing will help ensure you find the perfect balance to increase your total annual revenue.

This can seem like a lot of work, but it’s necessary to price your home appropriately and competitively. Although they typically can not offer specifics, to get a good sense of what your home can bring in overall, meet with a professional. Larger management companies will utilize dynamic pricing, similar to that which hotels use, to maximize your revenue.

The other clear way to increase your annual revenue is to decrease your costs.

When you think of the fixed costs of a vacation rental you likely don’t see many ways to save. You would be absolutely correct in this assumption, except for the ability to spread out those costs. The cost to hire an onsite manager, or a maintenance person, is typically a set cost for an individual property. However, that cost does not double when you add a second property, triple with a third, and so on. It is just a small percentage higher with each additional house. When you spread the cost of that service over multiple properties, not only do you get preferred pricing, you will also see each property pay significantly less for the same service.

This is why professional property managers can outperform individual homeowners. They have the expertise, staff, and ability to perform at the highest levels of marketing, optimizing rates, and managing all aspects of the bookings, at a lower cost. While you stress over the time-cost it takes you to manage phones (which guests expect to be manned 24/7), they have a team of agents to manage that. While you pay a premium for average placement on listing sites, they pay a negotiated rate for premium placement.

While spreading out costs over multiple properties is a huge advantage, it’s not the only one. When paying merchant fees for accepting credit cards, hiring a photographer, or simply buying supplies for the home, volume discounts for a business also work to their advantage.

One of the simplest ways to maximize your rental income: Work with a professional. A good vacation rental management company can more than cover their fees in additional savings, services, and revenue for an individual homeowner.

Choose a vacation rental management company to make sure you maximize revenue in a safe way. As you may have guessed, we would love to assist you in your venture! If you need additional consultation services when making these decisions, please do not hesitate to reach out to us. We would love to help!

Contact The Walker Team