Airbnb is often hailed as an amazing way to make passive income in real estate. Homeowners, property managers, and investors alike have fallen in love with Airbnb for its huge income potential. But as demand grows, it’s becoming increasingly difficult to appeal to customers. In this context, the price of a listing is one of the most important factors that an Airbnb host needs to take into account.
Rather than spending long hours devising an Airbnb pricing strategy, many people default to using Airbnb’s built-in smart pricing tool. It advertises maximized occupancy rates and higher income, so what’s not to love? Reviews of the service, however, have been mixed. So let’s work through this: how does Airbnb smart pricing work, and should you use it?
What Is Airbnb Smart Pricing?
Figuring out the right price for your rental property investment can be a very complex ordeal. Airbnb hosts need to think through demand, competition, and tourism trends in their city in order to come up with the best possible price. In an effort to simplify this process, the company has rolled out Airbnb smart pricing.
This feature aggregates information about the current demand and supply of listings in a particular region and comes up with a price accordingly. This price will shift depending on the season, the availability of similar listings, and overall trends in tourist activity.
Hosts can set a minimum and maximum price, and from there, Airbnb will adjust the price within these boundaries according to its algorithm.
Why Don’t More Hosts Use Airbnb Smart Pricing?
While in theory, Airbnb smart pricing sounds like a great solution, many users have had subpar experiences with the feature. Most often, people have found that Airbnb smart pricing has left them with too low of a price, and potentially forgoing a good amount of rental income.
One potential solution is to set your minimum price higher, thereby disallowing Airbnb from going below that threshold. But still, Airbnb’s algorithm doesn’t take into account the subjectivities that make some listings more appealing than others. And it won’t usually see a major event coming from far away, up until the handful of weeks leading up to it when many Airbnbs are already booked.
A human touch can be very useful here, and many hosts get the best results from employing their own dynamic pricing rather than Airbnb smart pricing. Before you devise your own dynamic pricing strategy, it’s important to understand what impacts the demand for your short-term rental listing.
What Affects Demand for Airbnb Listings?
Demand for Airbnb listings can be influenced by the following factors:
Season
As soon as the ice melts and the sun comes out, people around the globe start making their travel plans. Every summer, there is a major spike in the global tourism industry, as hundreds of thousands of people make their way to new cities. This is a very important time of year for Airbnb rental property owners, as the excess income can get you through the slower months later in the year.
Day of the Week
Many Airbnb hosts will notice a marked difference in their rental income between weekdays and weekends. Weekdays tend to have higher occupancy rates for listings that cater to business travelers, while weekends will be more highly occupied for listing which cater to tourists. This is dependant on your rental property‘s location and its appeal to different demographics. And this is definitely something which factors into the price of your listing.
Events
Whenever a major event rolls around, tourists head towards major cities in droves. Some examples could include major sporting events, concerts, and festivals. Often these events can bring in tens of thousands of tourists, creating an opportunity for every Airbnb host nearby.
Your Listing
The quality of your listing goes a long towards determining what your demand will be. If you’ve got plenty of 5-star reviews, renters will be lining up for a chance to stay in your property.
How Should I Price My Rental Property?
The first step to figuring out the right price is to run the right Airbnb analytics. Many hosts will simply look around their neighborhoods and check what similar properties are being rented for. But this kind of superficial analysis can leave a lot of questions unanswered. For better results, a more scientific approach would be ideal.
You can use a service like Mashvisor to run an analysis of your comps. Airbnb comps, simply put, are the properties that have a high degree of similarity to yours, and which should respond similarly to market demand.
Services like these can be highly valuable, as they’ll give you information like the number of properties in your area, their monthly and annual Airbnb rental income, cap rate and cash on cash return.
Most importantly, however, you’ll get figures on Airbnb occupancy rates and changes in seasonal demand. This Airbnb rental data can be hugely useful in determining the right price for your property. Mashvisor can also offer an Airbnb profit calculator that allows you to figure out how your rental property can perform at a given price.
Performing this kind of analysis will provide you with a multitude of indicators that can impact your price and provide more nuance than the standard Airbnb smart pricing algorithm.
This sort of analysis is especially crucial for Airbnb investment properties. Owning an Airbnb investment requires a lot of diligence with pricing since this will have a major impact on your Airbnb return on investment.
Therefore, using a high-end online service can take into account your property’s price and determine which price is needed to make your investment successful. Airbnb smart pricing wouldn’t take into account your mortgage or return on investment, therefore making Mashvisor a superior choice for serious real estate investors.
Bottom Line
Airbnb smart pricing can be a great tool when determining how much to charge for rent. While some users swear by it, others have faced unfortunate losses in their potential income. For investors and homeowners who are more serious about Airbnb as a source of income, using a premium analysis service could be hugely beneficial. Running an Airbnb investment analysis would be a great idea for professionals and beginners alike.