How much to charge for your cottage rental involves a number of elements that you will want to take into consideration. It may be tempting to charge a high rent so that you can reap the level of profits that you feel your property deserves, but that may result in fewer rentals which will ultimately generate less profit.
It really becomes a balance between attracting visitors and earning enough to pay your cottage expenses, and the profit you were hoping to generate when you originally decided to rent out your cottage property. Renting your property is a business, and it makes sense to approach it as one. Take the time to calculate your annual cottage expenses including mortgage payments, property taxes, heating costs and maintenance expenses. Once you have determined your annual total cottage expenses you can now look at expenses associated directly with your rental activity.
Typically for most cottage property managers there will be costs directly associated with renting your cottage property. These include the cost of any advertising used to attract cottage renters to your property, cleaning costs, additional insurance premiums or any other expenses directly related to the rental of your property. Using the number of weeks in your rental season you can then assign a weekly cost to your cottage property so that you can calculate what your profit margin will be from each weeks occupancy. We aren’t done yet though. Now we need to incorporate your overall cottage expenses, and that will take some decisions on your part.
Earlier we calculated your overall cottage property expenses. The decision now is how much you want to associate or assign to your rental activity. There are a couple of ways to look at this. Firstly you can simply divide your overall expenses by 52 weeks and use this weekly overall expense as an equal distribution to be recouped on a weekly basis along with the weekly rental expenses already calculated. Secondly, you can assign a percentage of your overall property expenses to your cottage rental season. This can vary from a representative amount based on the portion of the year, or any amount that you deem reasonable to be paid by your rental activity, which for many property owners would be higher since the useable period for their property may have seasonal limits.
Now that we have taken a look at how much we may want to recoup for our property expenses, we know how much we need to charge to earn a profit. But we don’t know what our potential customers would be willing to pay. Its time for a little market research. There are a number of factors that need to be considered when determining what the market rental price would be for your property. Some of these include location, features, number of bedrooms, amenities, privacy, or even popularity of your cottage area which could result in high demand for rental locations. The best tool at your disposal is comparison research.
Comparison research means putting yourself in your potential guests shoes and looking at the rental options available and what they are charging. Its important to be objective and honest when comparing your property to other options available and the rent they are are requesting. If you’re fortunate there will be other properties in your area that will provide a direct comparison. But if not, you will be able to determine what rental alternatives your customers may be considering. This will allow you to determine where your pricing needs to be so that potential guests will give your property equal or hopefully first consideration.
Having determined your rental price, the acid test is whether it is sufficient to cover your expenses that we calculated earlier. Ideally this will leave you a reasonable profit margin that earns you the additional income you expected, or sufficiently off sets your overall cottage property expenses to a level that makes renting your cottage attractive. If not, you have the alternative of increasing your rental price to a level that accomplishes your goal –but keep in mind that this may result in lower occupancy. It is after all a balance, and as a property manager you should be prepared to periodically retest your pricing to ensure you are priced right and earning as much as you can while maintaining strong occupancy.