Vacation Rental Expenses

12 Replies

I understand traditional rentals require vacancy, maintenance, CapEx, property management, taxes, and insurance. Other than utilities, what other expenses should I be aware of before I buy my first STR. Thank you in advance for the help!

there are tons and tons of expenses associated with short term rentals. Number one, you have to furnish the home. You also have to provide linens and the basic kitchen essentials. Also, things will get stained so you will need to replace the towels, etc. every 6 to 12 months. It’s basically like whatever is in your home minus all of the personal stuff. Don’t get me wrong, there is money in it, but the start up costs are significant. 

@John LaVecchia

Furniture is the big STR expense beyond mortgage/rent. Furnish your place as quickly as you can so you can start making money on it, and automate as much as possible (e.g. self check-in with combo locks, pre-delivered House Manual, redundant info on important things like WiFi, access instructions, etc.) IKEA is great for furniture since you can make a specific furniture list and where to find it in the store, then pick up everything at once. Amazon is also great. You'll want to provide everything a hotel provides plus basic kitchen staples. Ensure the beds and bedding are nice and comfy since the guest spends the most time there. Good luck!

I furnish my STRs with items from estate auctions.  Washers dryers, fridge stove microwave, toaster oven, coffee maker, pots and pans, dishes and all utensils, bedroom suites, sofas and recliners, end tables, coffee tables, night stands, old style televisions, gas and charcoal grills, the list goes on.

What I buy new: linens, towels, pillows, HDTVs.

My STRs are for short term working people at a refinery. My weekly rate for a 2 bedroom furnished house is comparable to a motel room with 2 beds and a bathroom.

@John LaVecchia You getting great advice so far and the cost structures are completely different. Would you care about running the A/C 24/7 if you didn’t pay the electric bill? But the biggest issue is management expense. If you end up not loving to manage your “normal” rental you can peel off 10% of gross rents and you’re set. With a vacation rental you’re likely looking at 25% as the sweet-spot. It’s a huge difference. Now it’s all well-and-good that people want to self-manage, there are tools to help, etc. but you’re “buying yourself a part-time job” to some degree or another. And if you want to “fire yourself” and hire a PM you might go upside down when it comes to cash-flow...

Adding Booking fees, HOA, lawn, pool, cable expense as well

Hi John,

This is all great information from these seasoned vet's. If your looking at a remote location, consider replacing appliances and HVAC systems if they are old.  I replace any appliance that is 8-10 years old is a must replace (or if it's beat up) and HVAC systems can be a nightmare when they have trouble.  Can be a chunk of change out of the gate but well worth it in the long run.  

Mike

@John LaVecchia You mentioned that rentals require property management. This is not true and can make the difference between profitability or loosing money.

VRBO's are very easy to self manage even remotely.

I have 2 HVAC systems. One was replaced a couple years ago. The other works fine but is older so I am going to replace it this week. Make things as bullet proof as possible so you minimize potential problems while your place is rented.

The biggest savings I found when putting together a STR last summer was by getting used appliances. I was able to get a fridge, washer and dryer installed for around $600. I do recommend buying new mattresses. I get mine at Sam's Club.

Cleaning fees (which are usually passed on to the guests), sales and room taxes (pass through), snow removal, credit card fees, wifi, and I recommend professional photography (only once). Depending on which kind of clientele you are looking to attract, I would never go cheap on furnishings. Make it beautiful and sturdy so that you aren't replacing it frequently and guests will want to stay there. It doesn't have to be an expensive house if you make it beautiful enough for people to want to stay there. The nicer you make it, the more you can charge per night. 

I usually allocate about 1% to 2% of my monthly revenues for supplies for bath & kitchen. Your cleaning and laundry expenses should be covered by your "cleaning fee" especially if you are planning on using someone else to perform these tasks.

I forgot HOA fees. Depending on where you buy, HOA fees could be an expense

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