How to calculate your holiday homes rental rates to maximise your rental income:
In this easy to follow guide, we provide you with some very useful information to help you calculate the right rental rates for your holiday home.
Having the right rental rates set for a holiday home is probably one of the most important tasks a property owner will face when setting out to advertise their self-catering holiday home. If they charge too much, they will not get many bookings. If they charge too little, they will make a loss and end up paying for other peoples holidays.
So how do you decide how much to charge for renting your holiday home?
In our professional opinion based on over ten years experience (since Jan 2000) in the self-catering holiday accommodation letting business, it is our view that it is far more beneficial to rent a property out consistently at a lower rental rate than to have it rented out for a few weeks at a higher rental rate. Obviously for high demand times you can charge a premium for these times. However, for mid to low season times, it is best to have as low a price as you can for these times so as to get as many of these weeks rented out as you
During our time in the self-catering accommodation business we have spoken to hundreds of first time holiday home owners who had completely unrealistic expectations on how much their property would rent out for. What we found out from almost all of these property owners is that before they bought their holiday home, the sales agents or the developer completely mislead them into how much of a rental return they could realistically achieve.
In many cases, how the sales agent or the developer managed to convince unsuspecting first time holiday home buyers they would get much higher rental revenues is they would refer the buyer to their web site which would have a section totally dedicated to rentals. In this rentals section of the agent's or developer's website, they would have the very same property they were trying to sell to the unsuspecting buyer. They would have completely unachievable rental rates quoted on their web site and tell the unsuspecting buyer they were getting these rental rates without any problems and if they were to buy a similar property, they too would achieve these very same rates. Unfortunately, many first time holiday homes owners who bought their property under these or similar circumstances have had to face the cold facts of reality and readjust their rental revenue expectations.
Below is a guide we have devised which we hope will help you in understanding how much you should charge when renting your property. Please note we provide this information purely for guidance purposes and it is up to each individual holiday home owner to make their own final decisions on their rental rates. Our example is based on you having a self-catering holiday rentals in Spain with May to October covering your low, mid, high and peak season weeks. If your property is located elsewhere, and May to October does not cover your low, mid, high and peak season weeks, simply apply this exercise to whatever your mid, high and peak
season weeks are.
Our example is based on you allocating your full yearly running costs to months May to October with any rental income you achieve outside of these months making up for any shortfall you may experience during months May to October.
Add up the total yearly running cost for your property.
Do not include cleaning & laundry fees as you can add these to your final weekly rental rates. Include items such as mortgage repayments, advertising / marketing fees, building and holiday letting insurance, key holding services, meet and greet services, management fees, property maintenance fees and property taxes including income tax. Basically add up everything you have to pay out directly in relation to your property except cleaning & laundry fees. Put all these costs into your yearly running cost figure and following these six steps.
Add 8% to 10% onto your yearly running costs or whatever return you want to achieve but stay within reason. Remember, do not
price your property out of the market by setting unrealistic rental rates. Decide how much of a percentage return you want to achieve, add this to your yearly running costs. If at the end of this exercise you feel your weekly rates are too high or too low, revise your percentage return up or down, and re-calculate.
Now, allocate 60% of your total yearly running costs to your months July & August (high season) and then divide this amount by 8 weeks to get your high season weekly rental rate. Some property owners will consider a few weeks within July and August as peak season weeks and will want to charge a slight premium on these peak season weeks. If you are of this view, then add what you feel is a fair but achievable premium to your July and August high season rate but don't overdo it.
If you do own a Costa del Sol apartment or a Costa Blanca villa or any other type of holiday home in Spain, do not make the mistake of charging a high premium for Christmas and New Years weeks. In fact, we would not recommend that you charge any premium at all to these weeks as Christmas and New Year are not considered peak times anymore.
After deducting the 60% figure for July and August from your total yearly running cost figure, allocate 70% of the balance to June and September (mid season) and divide that amount by 8 weeks to get your mid season weekly rental rate.
Now allocate the balance to May and October (low season) and divide that amount by 8 weeks to get your low season weekly rental rate for this period.
Now that you have calculated what your weekly rental rates are for your main renting periods of May to October, you are now left with November to April weeks. For these weeks we suggest you set a rental rate approximately 30% below the May and October weekly rental rate for your November to April weeks. Obviously there are premium weeks within this period such as Easter, school holidays, Christmas and New Year (see Spain tip above). For these periods you may want to add a premium to these periods. If you do add a premium, add what you feel is a fair but achievable premium but don't overdo it.
A good marketing strategy to increase bookings for your high season times would be to use your November to April weeks as a holiday special offer. For example, you could offer a free weeks stay in your holiday home during November to April (excluding premium times) to anyone who books two or more weeks for stays in July or August.
To help you understand the above 6 steps more clearly, we have set out the following table with figures. You can of course change the amounts in this table to whatever your own amounts are. In our example, we are going to use a figure of €10,000.00 as the total yearly running costs for our apartment to rent in Spain.
|Total yearly running costs: ||€10,000.00|
|Add 8% rental return: ||€800.00|
|60% July & August:||€6,480.00 - (divide x 8)|
|July & August weekly rental rate: ||€810.00|
|Balance after July & August: ||€4,320.00|
|70% June & September:||€3,024.00 - (divide x 8)|
|June & September weekly rental rate:||€378.00|
|Balance after June & September:||€1,296.00|
|Balance for May & October:||€1,296.00 - (divide x 8)|
|May & October weekly rental rate:||€162.00|
|Nov to April 30% below May & Oct rate:||€113.40|
Obviously there will be high demand periods during November to April such as Easter, Christmas, New Year, mid-term school breaks. You can charge a 10% to 15% premium if you wish but remember not to price your property out of the market.
The above 8% return is a modest return but you can add whatever return you wish but remember to be realistic and competitive.
If you follow these basic steps you should end up with a very good and realistic idea of what is achievable rental rates for your holiday
You should also check what other similar properties in your area are charging and use this extra information to help you make your final decision on how much you will set your weekly rental rates at.
We hope you have find this guide interesting and helpful. If you have any views, comments, questions or require further information or
help on increasing your rental bookings and revenue, please let us know at info [at] apartmentsdirect.ie
Holiday home owners, advertise your property now at a substantially reduced rate.