COSTS TO CONSIDER WHEN ESTIMATING SHORT TERM RENTAL PROPERTIES

[Sofia Sharkey]

Hi all, 

I see many people asking in these forums what costs to keep in mind when estimating a property that will be turned into a STR. I compiled the list below with the most relevant items in my experience. What costs are not listed here that you've found to be vital? Let me know in the comments.

1. Purchase of furniture and setup (really depends on the size of the property. The bigger, the more $$$)  
2. Short term rental insurance (Travelers is budget friendly and Proper offers more coverage)
3. STR property management, if applicable. (Typically between 15% to 30% depending on needs and area) 
4. Utilities (including WIFI)  
5. Maintenance and repairs
6. HOA fees (if applicable)
7. Furniture replacement.(There will be things that need replacement after year 1)  
8. Consumable supplies (coffee, toilet paper, soap, trash bags, etc.) (These depends on how much you want to provide) 
9. Linens (people generally underestimate linens big time, depending on your type of STR there can be high turn over of linens) 
10. Software (smart pricing, video monitoring, automatic messaging, PMS, noise monitoring). (Most software requires a monthly or annual subscription)  
11. Cleaning fee and laundry. (Most of the time the guest pays for this so it doesn't come out of pocket for the investor/host. However it's worth noting because depends on your model)
    

I hope you find this helpful and happy investing! 

Tags: STRs, short term rentals, Kansas City, vacation rentals, airbnb

[Marcello Di Gerlando]

When considering the investment potential of an STR I would consider everything you have listed as well as following:

Principal, Interest, taxes, and Insurance; When using a loan, PITI goes without saying and of course any closing costs should also be considered.

Taxes in the case of an STR should be carefully analyzed as this expense can vary depending on lots of different factors and location.

It's important to note that even though cleaning is paid by the customer and considered a pass through expense to the owner, the customer is the one paying. Any increase or decrease in cleaning costs to your customer will impact the customers nightly expense and therefore will impact the customers decision when choosing a place to stay.

I also include the following. Some of these will not be applicable to everyone:

1) Supplies -  I categorize these in two ways Durable's and Expendables. Example: Durable is anything typically expected to last 3 months or more including: Linens, towels, cutlery, floor mats etc. and Expendables: Toilet paper, sponges, snacks etc.)

2) Operating/business licenses

3) Capital expense CAPEX ( This is a big one - and should not be confused with maintenance/repairs)

4) Professional services ( accountants, lawyers etc.)

5) Hot tub and or pool service

6) Septic pump and clean (annually)

7) Snow removal

8) Water filters (Whole house filters can be expensive. Heavily used ones should be changed twice a year)

Your list is very important and very helpful for folks considering investing in an STR. I also believe that analyzing expenses as a percentage of revenue is critical to identify if an investment is within industry standards and to help identify inefficiencies.

What is the industry standard for the top 3 STR expenses? I surely don't know but below are my top 3.

As a percentage of revenue aggregated over the past 12months my top 3 expenses are cleaning, supplies, Capex.

1) Cleaning expense was 17.5% of revenue ( includes hot tub services)

2) Supplies, both durable and expendable  11%.

3) Capex - 16% ( this expense was self imposed to upgrade and add value to the property - 2021 Capex projected to be less than 10% and 2022 >1%)

Note: All other expenses are each in the low single digits. Total expense for my STR is 60% of revenue. Definitely room for improvement. If I can get my expenses to 55% for 2021 and 50% 2022 I will be thrilled.

Question: 

Does anyone else analyze expenses this way? if so please share. What are your top 3?