4.1 How Vacation Rentals Make Money

You’ll need data on nights booked over the past year and can then calculate the ANR (Average Nightly Rate).

Most listing sites have calculated this already and it is easier to use the ANR quoted on the listing.  Buyers will want to know this figure so make sure you have it to hand for each property you are showing.

ANR is used for:

  • Estimating the cap rate of the property
  • Determining income potential
  • Inputting into the investment analyzer

Seasonal Rates

There are no universal rate charts to rely on since every area will have different seasonal variabilities.  As such they are unpredictable however many areas will have some variation on slow, mid, high, and peak seasons.

Variable factors

Some areas will have periods of time where they can maximize rates to capitalize on the demand.  For example, polo season in Wellington, FL, where polo enthusiasts from all over the world gather to compete in and watch tournaments.

Events like these can triple rates over and above the normal high season rate. In Module 1 we talked about researching inbound travel and tourism in your area so you should have a solid understanding of the special events that can drive more occupancy.  This will of course contribute to a higher ANR in some areas.

Rate optimization technology

Traditionally, owners and managers set a price for each season and did not vary from those rates.  However, technology has created the opportunity to raise and lower rates depending on:

  • Timing of booking
  • Proximity to attractions
  • Regional events
  • Market rents on other OTAs
  • Seasonal weather conditions
  • Specific features of the property

Rate optimization uses algorithms that take all these factors into consideration.

It fills gaps in the calendar during slow seasons, generates more income during other high-demand periods.

  • Investors will want to know:
  • How much income can this house generate?
  • What is the difference in rates between seasons?
  • What are the dates of the low and high seasons?
  • Why are the rates different on some of the booking websites?