09/13/2022

How to Increase Rental Profits with a Murphy Bed

A simple guide to help you increase your profit by increasing your average daily rate on your rental properties.

The Takeaway:

  • The key to charging more for the same property is creating additional value.
  • The quickest way to add value is to increase the sleeping capacity of your units.
  • Adding a Murphy bed is a very profitable way to increase your sleeping capacity.

The Dilemma

The vacation rental industry is a very competitive marketplace. And, as online options like AirBNB continue to disrupt traditional lodging, it’s critically important to understand your finances in order to be profitable. While there are many key performance indicators (KPIs) within the rental industry, one of the most important is the average daily rate you are charging your guests. Too high and you are unlikely to keep your rooms full, too low and you are losing money on the property. 

Increasing Your ADR

Is it possible to offer the same property at a higher average daily rate without scaring away renters? Yes! Think of the properties that border large attractions like Disneyland in Anaheim, CA. If you were to pick up one of those properties and drop it in the middle of Albuquerque, NM could you charge the same amount for it? The answer is obviously no. So, why are people willing to pay more for the rooms across the street from Disneyland? Because the location of those rooms add much more value. Value is the key!

Factors That Influence Your Daily Rate

The key to charging more for the same property is simple: customers are willing to pay more if your property has more value. Not “value” (those are air quotes) in your terms, but value in your guests’ terms. What do your guests value and for what are they willing to pay more? Daily rates are inseparably connected with a few key factors, and by understanding those factors, you can find things you can tweak to provide more value, thereby allowing you to charge more per night.

Factors that affect daily rates include:

  • Location
  • Proximity to attractions
  • Time of the year
  • The number of people each unit can lodge

Where to Start

As you look over that list of factors that affect what you can charge, you’ll notice that there is only one that you have near-total control over: the number of people each unit can lodge. And, while I’d love to tell you how to change the other factors, that requires a much more complicated strategy. The easiest factor you can adjust, and the best place to start, is the number of beds your property has. It is a simple fact that renters do not pay per square foot, they pay per available bed. Therefore, if you can introduce an additional sleeping area in your rental, you can increase your rate. 

What the Data Shows

We conducted a study of the daily rate in many US cities compared to the sleeping capacity and have compiled the data below. The data collection took place in August, 2022, and while the numbers will change over time, the theory and trend underpinning this study will hold. As you can see in the graph below, increasing your sleeping capacity from 2 to 4 (one additional queen bed) you can charge $104 more. This is a 67% increase in your daily rate! Can you imagine an easier way to drastically improve your rental profit?

Obviously, the daily rate and number of sleepers does not scale 1-to-1 infinitely, so you need to be careful. If you have beds popping out of every square foot in your rental, your guests are not going to see that as a value-add. Instead, they’ll feel cramped and crowded. No, what I’m talking about is adding one additional bed in a tasteful way, in a room that is not too crowded. The best way to accomplish this is by incorporating a Murphy bed.

Is Adding a Murphy Bed Profitable?

Woman opening Murphy Bed

Murphy beds are no small investment. And, frankly, when you are considering adding Murphy beds in a rental property, the last thing you want to do is skimp on the quality. This means investing somewhere between $2,000 and $4,000 per Murphy bed–how can that possibly make financial sense? Simple! If you can charge $104 more per night by sleeping two additional people (and our data shows you can) you will breakeven at between 20 and 40 nights. That means within a couple of months you’ll be making $104 more per night per property. 

Adding a Murphy bed in your rental property may be the single best way you can increase the value of your property and, therefore, increase the rate you can charge. If you are like the average property in the Americas and your occupancy rate is ≈68%, within the first year, your Murphy bed will have paid itself off and you’ll have roughly $22,000 more from the same property. (Here’s how we got that number: ([$104 per night] x ([.67 occupancy rate] x [365 days]) – [$3,000 cost of Murphy bed]). When you think about it that way, you are leaving up to $25,000 per year on the table by continuing to put off adding a Murphy bed.

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