Advertiser Disclosure

advertising disclaimer
Skip to main content
Vacation homes on the sand

Dynamic Pricing Strategies for Vacation Rental Properties

Oct 04, 2019 by Matt Frankel, CFP
Get our 43-Page Guide to Real Estate Investing Today!

Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide.

*By submitting your email you are agreeing to our Terms & Conditions.

Dynamic pricing is continuously adjusting the price of something based on supply and demand. This can be applied in a variety of situations and can be highly effective when used to price vacation rental properties.

Most people set weekly or monthly rental rates well in advance. If you do this, you're losing out on one of the biggest benefits of short-term rental properties: the ability to adjust rental rates frequently to optimize the property's performance. For example, if a recession hits, you can choose to lower rental rates in response to falling demand and avoid a spike in vacancies. And if vacation demand surges 20% from one year to the next, dynamic pricing can help you take full advantage.

Why dynamic pricing can be so advantageous

Consider the traditional way of pricing vacation rentals. Let's say, for example, that you own a condo in South Florida. Peak tourism season runs from January through April, things are still pretty busy in May through June and October through December, and vacation traffic is slowest in July through September. So you might advertise your vacation rental with the following weekly rates:

Months Weekly Rate
January–April $2,500
May–June, October–December $2,000
July–September $1,500

Here's the problem with a pricing structure like this: If demand spikes for a particular week and the area is short on available rentals, you still get the same weekly rate you normally do. Conversely, if demand is low, your rates might be too high to attract anyone at all, and your vacation rental could sit vacant, earning no money at all.

Dynamic pricing aims to solve these issues. Through analysis of real-time market data, dynamic pricing algorithms raise and lower rental rates in response to supply and demand.

Continuing our example, let's say supply starts to dwindle for a particular week in January. A dynamic pricing model may automatically raise your asking price to $2,800 for the week.

Conversely, if the vacation rental market in your area is especially slow in a particular stretch in September, the dynamic pricing model could drop your rate to $1,200 to try to fill the condo. After all, some revenue is better than none -- I'd rather have my condo occupied 100% of the time for $1,200 per week than occupied 50% of the time for $1,500 per week. Wouldn't you? This is a simplified example, but this is the basic idea.

Here's the point: Dynamic pricing can significantly boost your income. The dynamic pricing platform Beyond Pricing claims that implementing these types of automated price adjustments can boost occupancy rates by as much as 22% and can increase total revenue by as much as 40%.

How to implement dynamic pricing in your vacation rentals

You can try to assess market conditions and continually adjust prices by hand, but today's technology has made dynamic pricing far easier and more efficient. There are several dynamic pricing software options you can use for your rental properties, some of which integrate with popular vacation rental platforms like Airbnb and VRBO.

To be clear, these products aren't free. I already mentioned Beyond Pricing, which integrates seamlessly with Airbnb and other vacation rental platforms. For their dynamic pricing service, you'll pay a fee of 1% of the booking revenue generated by the property. If the property's revenue increases by anything close to the 40% the company claims is possible, the fee could be well worth the cost.

If you’ve had trouble filling your vacation rental or if your unit seems to be filling up extremely quickly, you might not be pricing your property as efficiently as you could. A dynamic pricing software program can help solve this problem and dramatically increase your property's revenue.

Got $1,000? The 10 Top Investments We’d Make Right Now

Our team of analysts agrees. These 10 real estate plays are the best ways to invest in real estate right now. By signing up to be a member of Real Estate Winners, you’ll get access to our 10 best ideas and new investment ideas every month.

Find out how you can get started with Real Estate Winners by clicking here.

The Motley Fool has a disclosure policy.