4.2 Understanding Expenses

There are many expenses involved with vacation rentals that you would not come across when working with long-term rentals or primary home transactions.

These are numbers you’re going to need to be familiar with and know how to break them down on a spreadsheet for your client so they understand the operating expenses.

In a perfect world, those figures would all work together perfectly to give your client a high ROI every year on their investment but that’s not always the case if you don’t know how to structure these types of sales. 

Operating Expenses may include but are not limited to:

  • Property Management Fee
  • Rental Commission
  • Utilities
  • HOA
  • Pool & yard maintenance
  • Property Maintenance Reserves
  • Licensing
  • Cleaning Fees
  • Tax Filings
  • Sales & Resort Tax
  • Mortgage (if there is one)
  • STR insurance

How They Affect The ROI

When you’re running numbers on a short-term rental spreadsheet, even the smallest change in figures can impact the entire calculation so it’s important to input as accurately as you can

Fixed expenses

  • HOA Fees
  • Management Fees
  • Mortgage payment
  • Insurance
  • Cable/Internet

Variable expenses

  • Rental commission
  • Sales & bed taxes
  • Repairs
  • Supplies
  • Utilities
  • Improvements
  • Discretionary ad spending

Where to find the data

OTAs – for ANR & advertising costs

Property Managers can usually provide figures for the following:

  • Average utility expenses
  • Management fees
  • Credit card fees
  • Licensing
  • Liability insurance
  • Average annual repair and maintenance budget

The rest of the figures such as HOA, taxes, and insurance can be found either on MLS or via your affiliates that you would work with on a regular real estate transaction.  Once you have all the figures you will input them into the investment analyzer and you can estimate different scenarios based on different circumstances. 

Investors will want to know:

  • What are the monthly/annual expenses on a property like this?
  • Is there any way to reduce these expenses?
  • How do I get the exact figures?