The Seller’s Guide to Pricing Short-Term Rental Properties

Once you have determined that it’s time to sell your Airbnb, upcountry cottage, summer home, or any other type of short-term rental (STR) property, your biggest task will be to price it correctly so that you can sell quickly and get a decent amount.

The dynamics involved in pricing a short-term rental property are different from owner-occupied homes and even commercial properties. For one, it is not always easy to quantify factors that come with the property such as goodwill, long-term bookings, automation systems for booking and response, as well as a property website. These should all be considered, but that requires a certain level of expertise.

Other factors include operating costs, expected returns, income growth rate, and existing laws and regulations. That being said, here are five methods that can help you put a reasonable price on your property.

1. Pricing Based on Previous Sales Comparison

Check out the prices of similar property sold in the same area over the last six months, as well as current listings. From there, you can figure out the average price per square foot of each property and have a ballpark figure for how to price your own.

• Check properties with the same deployment type, such as Airbnb rental, owner-occupied, investment property, vacation rental, etc.
• The property should be of the same type, e.g., condo, apartment, ranch house, log cottage, etc.
• Compare properties in the same neighborhood.
• The sale should have been recent, at most six months past.
• The property should be of a similar size in square feet, with a maximum discrepancy of +-25%.

Keep in mind that about 5–8% of the total sales price will go toward commissions and selling costs.

This general approach should not be used to get exact figures but rather as a guide. For a more sophisticated approach, hire an appraiser and request a comparative market analysis going back some time and see how the market has been performing.

2. Pricing Based on the Capital Asset Pricing Model (CAPM)

This is a model that is used in evaluating the expected Return on Investment (ROI) of an asset with consideration to its associated risks and time value of money. In short, it allows you to evaluate the property as an investment with respect to other investments you could make with that money, and determine whether the risks involved are worth the returns.

The risks involved in short-term rental properties include high maintenance costs and a decline in rental income. A higher than average market risk with a low return value will put off buyers, so try to keep the figure within a sensible range.

3. Pricing Based on the Expected Income

Appraisers use this approach when valuing commercial property. It relies on a metric known as the capitalization or cap rate and is meant to show the expected return rate compared to the initial investment, expressed as a percentage.

This rate can be used with the Sales Comparison approach. They both help you compare the market prices and show buyers how strongly you expect your short-term rental property to perform over time.

However, this method is not decisive as it does not consider important factors such as leverage (including goodwill), time value of money, property improvements, and associated increased cash flows.

The formula for calculating the cap rate is:
annual operating income / market value = cap rate.

4. Using the Gross Rent Multiplier

This method is very similar to the expected income method. However, it doesn’t consider taxes, insurance charges, maintenance costs, utilities, and other operating expenses. It simply tells you how much rent to expect by multiplying the gross rent that can be collected every year.

Calculating this figure is simple:

Gross Rent Multiplier = property price / annual rent collected.

5. Cost Approach

How much would it cost to construct a new similar property on the same lot? This approach is best for new or relatively new properties, although it does consider depreciation and the value of property improvements, among other factors. This approach is used for special use properties.

Make the Best of Your Short-Term Rental Sale

These five methods merely give you a ballpark figure for your short-term rental property. They leave out a lot of factors that could add significant value to your property. If you get it wrong, it is easy to either shortchange yourself or price it too high and have it stay on the market for months or even years!

As such, engaging the right short-term rental property agent is important. They have the necessary networks, in-depth knowledge of market dynamics and litigation, as well as tricks that could help you make a good sale.

Finding the right realtor to help prepare and dispose of your STR property might be the smartest move for you.