In the age of wanderlust and Airbnb dreams, vacation rental management sure sounds like a fun job. No snappy supervisors, no 9 to 5 grind. You provide a holiday haven for your tenants, make their vacations happen, and earn the rewards of this lucrative and highly glorified gig!
Many people hope to earn stable passive income with a few tweaks and renovations to their house. No wonder the global vacation rental market was valued at USD 82.63 billion in 2022. But beneath all the gloss, there are several hidden costs waiting to shock the unsuspecting host. These costs look small and harmless, but they can slowly chip away at your profits.
In this article, we are going to look at some hidden, or rather often unnoticed, costs of vacation rental management, and how to avoid them. Let’s begin!
Costs of managing a vacation rental property
Property maintenance
Maintenance fees come in two forms, regular maintenance fees, and periodic repairs and upgrades. On a daily basis, you will be hiring a cleaning crew to sweep and mop, clear the kitchen and bathrooms, make the beds and keep the room fresh for new tenants. Apart from that, you will also need to pay for fixing leaks, pest control, checking for rust and mold, etc.
Utilities
Utilities shouldn’t really be a hidden cost, since you are well aware of that expense. But here’s the thing- you don’t know how high the bills will go. You may keep a fixed amount to be included in the rent, but there’s nothing to stop tenants from throwing the monthly bill figure off the charts.
Secondly, there are certain utilities you need to pay for even when the home is not in use, like Wi-Fi and telephone bills. The best way to reduce utility bills is to install appliances that will do the job, like low flow toilets and showerheads. Apart from that, put a note for your guests to be careful with electricity and water usage.
Basic amenities
Technically, renting out a property should mean just that – renting a physical space. But in reality, guests often expect basic amenities like kitchen tools, toiletries. People want the vacation experience, they like it when these small things are arranged and ready. In the bathroom, it’s good to keep the space well equipped with hand-wash, towels, soap, shampoo, air freshener, etc.
83% of vacation rental guests believe that dining in is their biggest cost saving. So, in the kitchen, it’s good to keep a few dishes, spoons, bowls, saucepan, etc. Water bottles in the fridge, pouches for tea, coffee and creamer, etc. are small ways of going the extra mile for your guests.
Interior décor
There is a lot of demand for aesthetic rentals in the vacation rental market. It gives the place a welcoming, celebratory feel, and makes the holiday memorable for your guests. Studies have shown that the physical space we live in has an impact on our mental well-being.
Anyone who has tried furnishing an apartment from scratch, knows how expensive it can be to make a house look attractive. Furniture, artwork, color schemes…it’s quite the task. You don’t want to buy cheap furniture and leave it at risk of getting broken over and over again.
Expensive furniture is pretty high maintenance- with all the cleaning and upkeep costs. The key is to keep your shopping list limited to the essentials. Look for multipurpose, mobile furniture like a sofa-cum-bed, tables with storage compartments, etc.
For example, you can keep a multipurpose table that folds into the wall. Dinner? Work? Coffee? All things taken care of with one piece of furniture! It’s actually a good idea to go for a minimalist look, as long as everything is clean, well-oiled, and maintained.
Home inspections
A home inspection involves a professional coming to your property, checking the condition of the structure- how strong it is, whether there is any danger to the integrity of the structure, etc. Basically, a home inspector will give you a detailed report of different parts of your property.
They might recommend some repairs and renovations so that you can prevent bigger problems in the future. Many people skip inspections until something actually goes wrong. But you know what they say- prevention is better than cure! So it’s best to not be stingy about home inspection fees.
Taxes
Again, just like utilities, taxes are a pretty visible expense. Why am I adding it to the list? Because vacation rentals are usually located near prime tourist spots. These are well known places, and the state knows that you are getting a pretty good income if you own property there. So property taxes are especially high on vacation rentals.
Keep a detailed record of your expenses, and hire a trustworthy accountant to help you file taxes. While most people take help from a professional, some are used to filing personal taxes on their own. While that may work out just fine for your personal income, it’s best to hire a professional when a rental property is involved.
Advertising
Advertising is rarely the first thing on your mind when you start thinking of opening a vacation rental. Especially if it’s a mom-and-pop home business, you kind of just assume that a social media presence and word of mouth publicity will do the trick.
But in the age of sponsored ads and optimized search results, the competition is quite intense. You might have to spend a few bucks to tell your customers that you exist. Believe it or not, advertising and marketing fees will also take a cut from your revenue.
Last minute cancellations
Last minute cancellations are not directly financial losses. But when you block the house for a guest and they cancel at the last minute, they often expect a refund. Often property managers offer 25% or even 50% refund on the property.
Now you can’t really find another guest during that period of time, and you ended up making less money on your deal. If you find it difficult to find enough clients in your location, don’t offer refunds and mention it clearly on your website.
If it’s the kind of location that is pleasant only during a particular time of the year, don’t offer refunds at other times, when the flow of tourists is lesser.
If you are a vacation rental property manager, we hope this article gave you a glimpse of the hidden costs of property management. Every business requires an initial investment, but often we don’t notice when these small expenses add up to a long list of hidden costs. Regular reviewing and monitoring of the financial health of your property will help anticipate and control these expenses.
