Knowing what is--and isn’t--a legitimate operating expense is important if you plan to become a vacation cabin owner. Expenses cut into your earnings from rent, so you need to estimate them accurately to know how much you’ll really make from your vacation rental.
Operating expenses are essential to your ability to rent out your vacation rental. Here are typical operating expenses you’ll encounter:
Homeowner’s insurance provides property and liability protection. This insurance doesn’t cover appliance breakdowns, maintenance needs, or the loss or damage of guests’ belongings. You can add burglary and vandalism insurance to your homeowner’s coverage.
You’ll owe property taxes where your cabin is located. Don’t assume that you’ll pay the same taxes as the current owner pays. Contact the assessor’s office where your cabin is located to find out about local property taxes.
For short-term rental properties, the owner usually pays utilities. Do your homework--research the monthly utility costs for the cabin you’re considering buying.
MAINTENANCE AND REPAIRS
Maintenance is unavoidable, even on newer properties--though buying a newer property, or one that’s been carefully kept up, can save some maintenance dollars. How much should you budget? Set aside 1 percent of the cabin’s value for maintenance costs each year. A cabin worth $200,000 should have a $2,000 maintenance fund, for example.
Most cabin owners hire property management services to handle rental details. A good management firm will market your rental, make reservations, take payments from guests, deposit your rental income to your accounts, handle housekeeping and basic maintenance problems, and more.
LANDSCAPING AND PEST CONTROL
Keeping the grounds in good shape, trees safely trimmed, and pests banished all are vital to renting out your cabin.
You might have other expenses too: Such as Internet service or homeowners association fees.
WHAT AREN’T OPERATING EXPENSES?
Some expenses usually aren’t included in rental cabin operating expenses. Mortgage payments on the cabin aren’t operating expenses. Neither are income taxes, capital improvements, depreciation or debt servicing fees. If you’re not sure whether an expense is officially an operating expense, talk to your lawyer or financial adviser.
To learn how a cabin management firm can help, contact our Owner Success Teams at 865-365-0240 today.