Now that you’ve made the big decision to rent out your studio, venue, or other short-term rental space, you must create a plan for setting the rental rates for your space. Pricing your rental space competitively is crucial for financial success. If you price your rental too low, you are missing out on potential revenue. If your space rental is too expensive, you risk scaring away potential renters. To set the best rate, you must consider all of the financial aspects of your rental.
Here are three areas of consideration to ensure you price your short-term rental or venue space appropriately and create a path to short-term rental success!
Consider Competitor Pricing
The very first thing you need to do when pricing your rental space is to compare your space with similar rentals. Pricing your rental above comparable spaces can often result in your property sitting empty. To prevent this, you need to have a competitive rate compared to similar spaces. To do this, perform a search for other spaces in your area of similar purpose, size, and amenities. Create a columned sheet for comparison. In the first column is your rental space and the others are for the comparison spaces. Be sure to note not only the purpose and size of the rental spaces, but also other vital information like capacity, special rules or restrictions, and pricing.
Then going down the left side of the page, list all of the possible attributes and features of these rentals. After you have done this, go through the competitor rentals, space by space. Check off the attributes and features of each space so you can easily compare across the columns.
After you have finished this, compare your rental space and features with the others on your list.
How does it stack up?
Does it have comparable amenities?
Does it have additional unique features that would warrant a higher rental rate?
Consider Operating Costs
Another thing to take into consideration before setting your rental rates are your operating costs. Any expenses that you have to maintain your rental or venue space like utilities, services, or subscriptions should be listed. Don’t forget to include other services that you will have to hire out or take care of yourself if not specified in contracts like cleanup, servicing of equipment, washing or dry cleaning, etc.
In order to figure out your monthly expenses, first make a list of every expense and the monthly amount. If you have any yearly expenses, divide the yearly total by 12 to get your monthly total for this expense. Then once you have completed your list, total all of your space’s monthly expenses. This is the minimum you need to be clearing monthly to cover the expenses for your rental.
Consider Amenities
You should also consider all amenities and any unique characteristics of your rental space. These special features can help to boost what you can ask for your rental. A prime location close to food and shopping, a jacuzzi tub or pool can create a more unique experience, therefore, earning you a higher rent. Rentals with additional special features can earn anywhere between 3 and 15% more than comparable properties! So don’t overlook the opportunity to assess your space’s attributes to make your space more desirable and help you earn top dollar.
First, list all of the amenities your space has. Then list close attractions like parks, tourist attractions, or other photo-worthy spots. Lastly, list any unique qualities that your rental has such as a pool, on-site parking, laundry, dishwasher, skylights, exposed brick, stainless appliances, or gym.
Other Pricing-Related Factors
We have gone over three major factors when pricing your rental space such as competitor pricing, monthly expenses, and amenities. These details will help you to determine an appropriate rental rate for your space. To maximize your profits, you will want to keep your rental booked as much as possible.
Determine how much you want to charge for a rental deposit. Real estate experts recommend asking at least half of the total rental rate for a deposit. Asking for a deposit at booking helps you deter no-shows and cover property expenses. If you are renting a studio or vacation rental space, you will also want to create a refund and cancellation policy.
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Offer some pricing incentives. Give discounts for longer stays or multiple bookings to entice clients into additional time in your space.
You can also increase your rental rates by offering add-ons. These can be additional services or features you would like to add for an upcharge. For instance, if you are a studio owner, renting your photo space, consider offering the use of client wardrobe or photography equipment for an additional charge. If you own a venue, consider offering tables and chairs, linens, or other add-on amenities to help increase your revenue potential.
Return on Investment
As a property owner, setting your rental rates is crucial to your success and profitability. You will want to be able to cover expenses, insurance, taxes, licensing, and permits, as well as, save for maintenance and repairs while still making a profit.
To predict whether your rental will be lucrative, you can calculate your ROI, or Return on Investment, using the expenses we listed earlier by subtracting your projected annual rental income from the annual operating expenses and then dividing by the outstanding mortgage value. The average ROI for a rental property should be about 2% of the property’s purchase price, commonly referred to as The 2% Rule by real estate investors.
If your projected rental rate does not allow you for the 2% return, consider increasing your projected rental rates to ensure your investment is successful.
And don’t forget to re-evaluate your rates yearly to stay competitive and profitable.
Pricing your rental space doesn’t have to be difficult, but you’ll want to be sure you are making enough profit to be successful. When setting your rates, you must review your operating costs, featured amenities, and other pricing-related factors in addition to the ROI you desire to see from your rental space. If you take these aspects into consideration when setting your rates, you will be well on your way to creating a profitable income from your rental space.
Need more help pricing your rental space?
Check out the Space Pricing Workbook Bundle in the Shoot Spaces Shop.
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