How to Determine Potential Income from a Vacation Rental in Canmore
Canmore's popularity as a tourist destination and its stunning natural beauty make it an attractive location for vacation rentals. If you are considering an investment in Canmore real estate that can be leveraged as a short term vacation rental, understanding your potential rental income from the property is essential in setting your budget and strategizing your property management plan.
Calculating expected rental income from a vacation rental property in Canmore requires a combination of research, market analysis, and careful consideration of various factors. To help you estimate your potential rental income accurately, we have put together some steps below.
Research the Local Market
Begin by researching the vacation rental market in Canmore. Look for properties similar to the one you're considering, both in terms of size, location, and amenities. Online platforms like Airbnb, VRBO, and local property management websites can provide insights into rental rates for comparable properties.
If you have already established your budget and the type of guest you will be marketing toward, you can narrow down truly comparable properties to gain accurate information that directly relates to your plans.
Consider Seasonal Demand
Canmore experiences seasonal variations in tourist demand. Identify peak and off-peak seasons for your type or rental, when rental rates and occupancy levels fluctuate. High-demand periods, such as holidays, festivals, and peak outdoor activity seasons, can command higher rental rates.
While Canmore is a great place to visit any time of year and does not have any dead seasons, there are times with higher demand for accommodations where you can reasonably expect to charge a higher nightly rate.
Calculate Occupancy Rate and Estimated Annual and Monthly Revenue
Estimate the occupancy rate based on the average number of nights your property is likely to be rented per month. For example, if you expect your property to be rented for an average of 20 nights per month, your occupancy rate would be approximately 66.67% (20 divided by 30). You can then multiply the estimated occupancy rate by the total number of nights in a year (365) to calculate the projected number of nights your property will be booked annually and get an idea of your annual revenue.
Using the information gathered from comparable listings, calculate the average rental rate for your property. Keep in mind that rates may vary by season, so you can calculate separate rates for peak and off-peak periods. Multiply the average nightly rental rate by the projected number of nights booked per month. This will give you an estimate of the monthly revenue you can expect from your vacation rental.
As you calculate these things, remember that it is best to be conservative with your numbers. Be careful to avoid ending up in an investment that requires optimal conditions at all times to be profitable.
Account for Vacancy and Unexpected Expenses
No vacation rental operates at 100% occupancy. Factor in vacancy rates, which can vary based on market demand and your property's attractiveness. A common approach is to assume around 75% occupancy for the first year. Also, consider expenses such as cleaning fees, property management fees (if applicable), maintenance costs, and utilities. It is always wise to have a savings buffer for emergencies and unexpected expenses, too.
Estimate Your NOI and ROI
Subtract the estimated annual expenses (including vacancy rates) from the annual income to calculate the net operating income (NOI). This gives you a clearer picture of the property's potential profitability.
Calculate the return on investment (ROI) by dividing the net operating income (NOI) by the total investment (including the property's purchase price, closing costs, and any renovation expenses). A higher ROI indicates a potentially more lucrative investment.
When you are ready to begin looking at houses for sale in Canmore, or you are ready to learn more about investing in a vacation rental here, contact us. We have helped many clients find their ideal property and we would love to help you, too.