The idea of investing in vacation rental properties has gained momentum in the past decade, and rightly so: owning a vacation home has its fair share of rewards. But there’s always a risk of not making enough to cater to the expenses.
While crunching the numbers, investors often get stuck between self-management and hiring a vacation rental property management company. To help you make an informed decision, here’s a breakdown of the true cost of self-managing a vacation rental property.
You need to get the marketing right to run a vacation rental property with positive cash flow. While online vacation rental companies like Vrbo, Booking.com, and Airbnb have simplified things, there’s still a lot to do to stand out from hundreds of listings in your region. Tenants travel to comfortable and appealing spaces, and you have a few seconds to impress.
This calls for professional photos of your space to hook potential clients and creative copywriting to reel them in. The cost of selling the right story about your rental with professionals may be between $100 and $1,000, depending on the size and location of your rental.
There’s also the matter of competitive pricing during different travel seasons, which requires in-depth market research. You’ll need to define your target market and determine your competition to compare pricing accurately, which will consume much of your time.
Note: Booking sites like VRBO, VacationRentals.com, and other OTAs (online travel agencies) hefty annual fees of about $500 or commission up to 12% on the booking amount.
The goal of investing in a vacation rental property is to have a passive income stream. Unfortunately, self-managing can be a huge hindrance to realizing this dream.
Once you have guests visiting, work to keep them coming back, or better yet, tell their friends about your property. Offer the latest amenities and client-centric service to make the property feel like home. But this comfort comes at a cost most investors forget to account for:
Utilities
The cost of utilities catches most vacation rental homeowners off-guard. Unlike regular rental spaces, where a tenant caters to some utilities each month, you’ll cater for everything in your vacation home. This includes paying for:
For instance, in a large duplex with 6 bedrooms and bathrooms, 2 kitchens, living rooms, laundry rooms, and backyards, utility costs can be as high as $5,200 a year.
Property Management and Lawn care
After every guest, the house needs cleaning in preparation for the next guest. Cleaning includes:
The cleaning cost can amount to about $150 for every stay.
Aside from cleaning, there’re regular maintenance costs to keep the property ready for guests. This might include hot tub and pool services, lawn care, or snow blowing during winter. These services can easily add up to thousands a year.
Restocking Consumables
You’ll need to buy the initial stash and replenish everything as it runs low. A list of what you may provide includes:
While not a necessity, it helps guests feel at home. The items listed can cost upwards of $1000 a year.
Towels and Extra Linens
It would be best if you had extra sets of towels and bed linens to change and leave yourself enough room to deal with stubborn stains that need longer treatment
Taxes and Insurance
Hopefully, this doesn’t come as a surprise. However, insuring vacation rental property can be a challenge. And your options are even more limited if your property is near the water. You may have to get a variety of insurance coverage.
If you thought insurance was bad, try filing taxes. The tax rules for vacation rentals can be overwhelming and confusing depending on how many days the house is rented in a year.
The insurance and taxes for our duplex example can be as high as $10,000, depending on your location.
The goal of investing in a vacation rental property is to have a passive income stream. Unfortunately, self-managing can be a huge hindrance to realizing this dream. Between listing and marketing your vacation rental, coordinating booking calendars, adjusting pricing, welcoming guests, coordinating routine maintenance and cleaning, and generating monthly and yearly financial statements, managing your vacation rental can become a full-time job.
This will rob you of precious time you’d rather spend with your family or working on your career or additional income streams.
Purchasing a vacation rental property is a good way to diversify your passive income portfolio. So when choosing between self-managing and hiring a property management company, factor in your time too. The last thing you want is to be enslaved by an investment that you intend to give you more freedom.
In addition to saving you time and the stress of property management, Gather seeks to manage risks and maximize the investment to yield greater returns.
