Calculating the Profitability of a Holiday Rental

August 2024

The business of renting out a holiday flat is still on the rise. What started as a low-key enterprise has exploded in recent years. A significant percentage of guests who used to stay in hotels have now opted for holiday rentals. The reasons are varied:

• Greater privacy
• Autonomy
• More space
• Cheaper prices

Travel agencies and real estate firms have also jumped on this profitable bandwagon. But why is it so important to measure profitability? When does a holiday rental stop being profitable? How much profit do I need to make to keep my holiday rental business going? You’ll find out when you look at the results of your profitability calculations.

Why do travellers prefer holiday rentals?

It’s clear that travellers prefer to go on a holiday rental website to choose their stay. Besides the reasons mentioned above, they also want to feel at home. Guests have their own keys and schedules, so the comfort level is definitely higher than that of a hotel.

Moreover, you get an entire flat without restrictions, unlike hotels (meal times, handing over keys when you leave…). Privacy is one of the aspects most valued by clients. If you travel with kids, you can bring as many toys and items as you want and have plenty of space. Plus, you’ll save a good bit of money on restaurants since you’ll have a well-equipped kitchen at your disposal.

How do you calculate the profitability of my holiday rental?

To calculate the profitability of your holiday rental, you just need to apply a simple formula. However, the first step is to consider the fixed and variable costs of the property, the investment, and the prices you’ll set per night. Once you’ve got that clear, proceed as follows:

To determine profitability, you need to add up all the annual income from the holiday rental and subtract the fixed and variable costs. Then, divide this figure by the amount you’ve invested and multiply the result by 100.

Let’s illustrate this with an example:

If I have an annual rental income of 5,000 euros, annual fixed costs of 1,000 euros, and have invested 100,000 euros… how do I work it out? Proceed as follows: subtract the 1,000 euros in costs from the 5,000 euros rental income. The result is 4,000 euros. Now divide those 4,000 euros by the 100,000-euro investment, which gives 0.04. Finally, multiply that 0.04 by 100 and the result is 4.

What’s the result of this operation? An annual net profitability of 4%. You can also calculate the profitability of a holiday rental using a very handy tool for hosts: the holiday rental profitability calculator. It’ll give you useful info, calculate your income, and send you recommendations to improve your holiday rental occupancy.

Bear in mind that occupancy isn’t always the same, so profitability can fluctuate quite a bit from month to month. However, the goal for any host, as a business owner, is to achieve the highest possible occupancy throughout the year. To do this, there’s nothing better than using dynamic pricing.

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How to make your holiday rental more profitable?

Create an exclusive website for your holiday rental

Do you already know the profitability of your holiday flat? Then it’s time to improve it. Your property is probably already advertised on a holiday rental portal to give it visibility and increase booking chances. Either way, at Holidu, we suggest advertising your holiday rental on your own website. There are free and paid options. This will make your place seem more professional and inspire more trust in potential guests.

Use management software

There are loads of software options available online. Holidu recommends choosing just one that suits your needs. The key is to save time and not spread yourself thin by managing your finances through different software. Trust one and manage your rental through it.

Avoid mistakes in your business

What mistakes are we talking about? Websites that take too long to load, ads without photos or with poor quality images… Likewise, payment methods must work properly. The guest must be able to complete the booking satisfactorily. You can also learn from your competition by seeing what they’re doing.

Decorate the property thoughtfully

Some hosts think that an affordable price is enough to attract tenants. But nothing could be further from the truth! Price is definitely important; however, the equipment and aesthetics of the space are also crucial. Plus, if you take care of it, you’ll help it appreciate in value and attract more interest.

Apply smart or dynamic pricing

This means updating prices based on demand. There are apps that can help and advise you on this. Some even inform you about the average prices of your competitors. Dynamic pricing is one of the best tools for holiday rentals if you’re looking for a profit, like the profitability of an Airbnb.

Promote your rental on internet portals

Generally, what people usually do right after deciding to rent out a holiday home is to advertise it on a holiday portal. And that’s correct. However, you need to ensure the information and photos that accompany the ad are top-notch. It’s about attracting potential travellers and making your ad stand out from the rest. Try to add well-focused, beautiful photos with good perspective and resolution.

Is it important to calculate the profitability of a holiday rental?

Yes! It’s crucial. Like any other business, if you want to know if it’s profitable, you always have to verify your profit margin. You can use a holiday rental calculator or work it out yourself following the steps in the example above. This is the only way to lay the data on the table and know for sure if your business is thriving.

It’ll also be very useful if you want to know how much you earn with a short-term and long-term rental. This information will help you assess how the business is progressing, if you’re doing something wrong, or the ratio between profits and expenses. Measuring profitability is essential in holiday rentals.

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