What is RevPar? Profitability of tourist housing

You may not be familiar with the concept of RevPar, but if you want to invest in rental real estate, it is an aspect that you should take into account.

We must understand real estate investment as a business, thinking that our profitability will depend mainly on the income we obtain from short-term rentals, especially if we are talking about very touristic areas such as Punta Cana, where the income can be much higher than renting the property at a fixed monthly rate.

In this article we will tell you what RevPar is and how you can calculate the profitability of your tourist property in order to make a good decision as real estate investor in the Dominican Republic.

What is RevPar (Revenue Per Available Room)?

The RevPAR (Revenue Per Available Room) is one of the key indicators in hotel management. But it is also widely used by investors and owners of tourist accommodations, since it allows measuring the capacity of an establishment to generate income from the number of available units.

It is very important to bear in mind that not everything depends on the price at which you rent the rooms or units in a condominium, but also the level of occupancy you will have throughout the year. There are days when they will be empty and others when there will be guests. You need to maximize the efficiency in the level of occupancies to obtain the desired level of profitability in your apartment.

How is RevPAR calculated?

Calculating RevPAR is a very simple process. It is a matter of dividing the total revenue per rooms or apartments you have available and the total number of rooms in that period.

Another way to calculate it is to multiply your average daily rate (also sometimes called ADR, for Average Daily Rate) by the percentage of occupancy over a period of time.

Example of RevPAR calculation in tourist accommodations

Following this last formula, let's see an example of how RevPAR is calculated. Suppose you have 5 apartments in Punta Cana. Each apartment has an average nightly rate of $120 USD and you had an average of 20 occupancies in relation to the 31 days of the month.

Thus, we first obtain that the average occupancy of your apartments is 64.5% (20/31). Then we apply the RevPar formula (ADR per average nightly rate), so we get that your RevPar has been $77.40 USD.

This means that each day a unit was available, on average it generated $77.40 of income, even if not all nights were occupied. This is a useful indicator to compare the profitability of your rentals with other similar accommodations or with past seasons.

Increasing your RevPar is beneficial for you because you increase your profitability without having to acquire more properties, while a decrease in RevPar would mean that you are earning less because your apartment is empty most of the time.

What factors influence the RevPAR of a tourist accommodation?

There are different elements that can influence RevPAR improvement to increase your profitability.

1. Set an appropriate price per night

If you need your tourist apartment to be rented at a price adequate to the demand, so that you do not lose money, nor put at risk the occupancy by too high rates.

2. Delegate property management to a hotel brand.

Promotions and marketing have a big influence on the number of occupied nights you get each month. Many owners do not have time to dedicate to sales, so a good idea may be to invest in properties managed by a hotel brand. At Vivantia Homes you can find real estate opportunities that operate under this model.

3. Consider the location and attractiveness of the property

You are not going to have the same number of reservations if your apartment is close to the beach as if you have it hidden in the interior of the Dominican Republic, and with bad access.

The amenities and quality of the property are also another factor that will considerably influence the price per night that you will be able to charge and the demand that you will obtain.

4. Avoid platforms and sales channels with high commissions.

Your real estate profitability can be affected by the sales channels you use. It is much more advisable, as we pointed out before, to delegate marketing and promotion to a hotel brand, which already has its own channel, as opposed to tourist accommodation booking platforms, whose commissions can greatly reduce your income.

Find out how to calculate the profitability of an investment property in Dominican Republic. Book your video call with us.