Vacation Rental Costing 101

Getting set up for rental can be costly unless you get a handle on what your fixed and variable expenses are likely to be.  Apart from financing the property, there’s a range of overheads to take into account and if you fail to manage these, they can get out of hand quickly.  Rental related outlay can be separated into three main categories – strategic, operational and marketing – the good management of each can result in a strong bottom line and a greater potential for a profitable rental business.


Strategic (capital costs)

The outlay you make on items that will increase rental value can positively impact your bottom line over time, but may also significantly affect start up costs.  I term them strategic because the outlay can usually be recovered by the increased occupancy generated or the higher rental rate achieved by adding the features. For example, installing a hot tub may allow a small rise in rates and give the potential of higher occupancy in low season periods.  Over a longer period, the return on the investment can be significant.  Some things such as a deck replacement may not have as strong an impact from a feature perspective, but can increase the appeal of the property through the images on a listing.  This in turn generates more 1nquiries and subsequent conversions.  These are a few examples of the type of investment features you could consider:

·        Hot tub

·        Automatic generator

·        Entertainment systems

·        Furniture replacement

·        Exterior upgrades - e.g. deck, docking, etc

 

Operational (running costs)

It's important to calculate running costs at an early stage, before diving into expensive capital improvements and upgrades.  If you are on a tight budget, and your operating budget is limited, it may be better to get a season of rental under your belt at a lower rate before shelling out on the big stuff. 

Write down your fixed costs first.  These are the expenses that will remain the same, regardless of whether the place is rented or not and will include:

·        Insurance

·        Cable/satellite/wifi

·        Property taxes

·        Fixed property care costs such as yardwork/pool maintenance

·        Snow plowing

Variable costs are those that are impacted by rentals taking place and might include:

·        Heat  and light

·        Cleaning & changeover management

·        Guest supplies (paper products, cleaning supplies, bottled water, welcome gifts etc)

·        BBQ

Marketing Budget

Over spending on marketing is easily done, with so many options available for listing, so determine your budget before spending those first dollars.  Keep it simple and on track and you  won't get carried away by every offer that drops into your inbox.  Budget for a simple Wordpress website you can build and manage yourself; a major listing site such as Vacation Home Rentals; a more region-focused listing site, as well as some print materials you can give to people, or drop off at your local tourism office.

 

Keeping a track on all rental-related spending is important if you want to run your vacation property in a professional manner.  It's helpful for the bank balance too!