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If you are new to renting and are just getting started, it is perfectly natural to wonder what prices you should set. Many people are afraid that their prices will be too high compared to the competition, while others drastically lower them in order to appear more competitive because they believe that “anything is better than empty apartments”. But how do you reach an optimal price that you will be able to keep, or only minimally adjust, next year?
Defining your price starts with defining your costs – annual costs, running costs, and all the investments that were necessary to bring your holiday home or apartment into a rentable condition. The first group, meaning regular annual costs, should be fully covered by the property’s income, while the second group, related to investments, will be repaid over a certain number of years.
Define your running costs
When people are just starting out in renting, they are usually not aware of all the costs that await them during a calendar year. That is why we have put together a list of the most common costs. It is a good idea to ask your local tourist board about the exact business-related expenses that apply to the place where your property is located, since the amounts vary depending on the location and the accommodation capacity. Utility costs can be estimated based on your own household expenses, while for possible additional costs you should request offers from service providers you may hire for specific services.
Business-related costs
- flat-rate tax
- tourist tax
- tourist board membership fee
Utility costs
- water
- electricity
- waste collection
- municipal fee
- internet
- television / public broadcasting fee
- bank charges
Possible additional costs
- VAT on commission (if you advertise through portals)
- agency commission
- domain and hosting (if you have your own website)
- property insurance
- loan instalments
- hygiene and other supplies (toilet paper, soap, detergent, garbage bags, etc.) used to equip the property
- cleaning (if you do not clean yourself) and cleaning products
- laundry washing (if you do not wash it yourself) and laundry detergent
- guest check-in (if you do not welcome guests yourself) and a welcome gift
- pool maintenance (if you have a pool and do not maintain it yourself) and pool chemicals
- garden and outdoor area maintenance (if you do not do it yourself)
Note: These are the typical costs for private accommodation providers who rent out properties as individuals. Be sure to add any other expenses that are specific to your property, your location and your way of doing business.
Investment costs
Whether you built, bought or renovated an existing property, you have invested a certain amount of money that should be recovered over a certain number of years. You will recover it gradually with each season, but in order to know when your investment will be paid off, you need to divide the total amount invested by the number of years in which you want to recover the investment. The larger the investment, the longer the payback period will be.
Research the offer in your area
Let us now look at the income side, that is, the existing offer in the destination where your property is located. You will not go door to door asking for prices – you will do your research online.
The first place where you can check prices of properties in your area is on the websites of local tourist agencies that you know do not increase the rental price with their commission, but instead include it in the final price.
In this case, portals are not always a fully reliable source of information because they often additionally charge certain fees, commissions and taxes, which can significantly change the final price.
A good place to check is also Google Maps. Type your destination into the search bar and on Google Maps find properties that advertise independently. They very likely have their own website, and that is where you will usually find their price list for the whole year.
Once you have researched the offer in your own destination, also search similar destinations. For example, if you rent out an apartment for two on an island, you will not compare it with a holiday home for 10 people in inland Istria, but you can compare it with a coastal apartment of similar capacity and offer. It is also important to distinguish between properties in top destinations and those in places that are not yet as well known.
Be sure to narrow your search to the type of property, capacity and amenities that are closest to your own offer, and research prices for all seasons or months during which the property is rented out.
Compare costs with prices
When you compare your estimated annual running costs with rental prices by season, you will get an idea of your potential income. We are still not talking about pure profit, because this amount also includes unexpected costs and additional investments – things that become damaged, worn out or simply disappear, transport costs if you do not live in the same place as the property you rent out, additional annual investments in replacing bed linen, utensils and other supplies, as well as other occasional costs.
Usually, around 10 percent of annual income goes on this unforeseen part, so subtract this approximate percentage from the income side as well.
The amount you get once you subtract the costs from the potential income is the approximate amount that will remain to you at the end of the season. Now compare that amount with the figure you obtained when you divided the total investment by the number of years in which you want to recover it.
If the amount is too small, check how much you can raise your prices while still remaining competitive. Think about how you can stand out from the competition and what makes your offer different. These should be the main reasons why someone will choose your property even if the neighbour’s is cheaper. Our branding tips can help you with that.
Adjust prices if needed
Using this method, you can arrive at your initial prices for advertising, and your booking results will be the best indicator of how successfully you have defined your prices and how you should adjust them for the next season.
You can change prices at any time, and you do not need to officially certify your price list. It is important that on all channels – ads, your website, portals, as well as the price list in the property – you always have the same prices so that guests are not misled.
If the results show that you have set good prices and are satisfied with your earnings, for the next season only minor corrections or changes to the seasonal dates in the price list may be enough.
If you are an Apartmanica web system user, you can very easily copy the price list on your website using our tool and quickly prepare for the new season.
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