The lure of a high short term rental income is what leads many property owners to rent out their properties to holidaymakers. Many new property investors assume that making a fortune through holiday rentals is easy – especially in cities such as Cape Town that have a high volume of tourists throughout the year. While it does not have to be impossible to make a good income from this sort of investment, there are a number of factors to take into consideration when determining what sort of income you could expect from your property.
Vacation rental income is comprised of two things: revenue (how much you can earn from your property) and costs (how much it will cost to rent out your property). By understanding the role that each of these factors plays in determining your income potential, you will be a lot closer to getting the most out of your investment.
Getting the Most From Your Short Term Rental Income
Let’s take a closer look at how revenue and cost will affect your short term rental income.
Step 1: Increasing Holiday Rental Revenue
Revenue is determined by your occupancy rate and the price per period that the property is rented. You could increase either of these components, provided you do not decrease either of them by the same amount or higher. When both are increased, your revenue will increase.
Some things that will help you increase your occupancy rates:
- When your property is vacant, it is not making money. Ergo, increasing occupancy is essential in order to make sure that it does not stand empty for too long. To begin boosting occupancy, you need to increase your property’s exposure and price it competitively.
- Ideally, this means promoting your property wherever you can. The more places it is visible to prospective guests, the more exposure it will gain. Consider all of your options – Airbnb, Bookings.com and any other platform you can think of.
- It’s not only about getting your property listed on major booking platforms. It is also about positioning the property smartly. An attractive rental option that is priced competitively will be able to hold its own against other similar properties that are also vying for space.
- How do you make your property more appealing? For starters, you ensure that you have the best possible photos, well-written descriptions, and a carefully furnished home that is prepared for holiday rentals.
The second thing that you will need to consider is the price per rental period.
Increasing the rates per night or week will increase your income for that period, however increasing the rates too much can result in a lower occupancy rate, which in turn means a reduced revenue. The best way to ensure that you price competitively without putting off potential guests is to do your homework and get an idea of what similar properties are charging in your area. In Cape Town, rental prices vary considerably per area, with sought-after areas such as Camps Bay having a very different price per rental period than an area such as Woodstock, for example.
Take the time to go over listing sites, so that you know what the average rental cost is for your area. Areas that have a high demand for short term rentals often have a higher price threshold. Ideally, it is best to price realistically within the market – too far below average and you will not be able to increase revenue. Too far above, and your occupancy levels will drop.
Step 2: Decreasing Rental Costs
The next step in maximising your short term rental income is reducing your costs. If you are converting a property from a long term rental to a short term one, this means finding ways to reduce the huge overheads that may be present. Likewise, if you are converting a family holiday home into a luxury self-catering home for international visitors, you will have to carefully consider the costs required to make this happen.
Even though a lot of costs involved in creating an attractive holiday let for guests will be an investment (which will have a positive effect on your revenue), you will still need to find ways of reducing costs to make the investment worthwhile. What are your variable costs that can be easily reduced, and what are your fixed costs that may be harder to reduce?
Some of the things you will need to consider include the following:
- Renovations and upgrades. You may need to add en-suite bathrooms, add a second bedroom, install air-conditioners and other equipment and make physical changes to the property.
- Furnishings and appliances. You will also need to consider new furniture, appliances and other touches that will make your property attractive to guests.
- Marketing. You will need to set a budget for marketing your property and work out how much you will spend promoting and listing it on major platforms.
- Taxes. You will need to consider property taxes, as well as other admin fees that may apply.
A smart way to help keep fixed costs at a manageable level is to look at spreading them. If you have more than one property, this can be an affordable solution. To spread costs across more than one property, you could find that it works out cheaper to hire one service provider across multiple properties.
One of the most effective ways to increase your income potential and keep costs down is to look at working with a professional rental property manager. In addition to having expert understanding into areas such as marketing and promotion (and rate setting), property managers also have in-house teams that could include photographers, cleaners and more. This helps you get the benefit of industry discounts, while also giving you the advantage of an experienced specialist in short term rentals.
To find out more about how you can maximise your short term rental income with the help of Totalstay, contact us today and let us know how we can assist.