Understanding Your Vacation Rental's Operating Expenses

Published Jun 17, 2022

Knowing what is—and isn't—a legitimate operating expense is crucial if you plan to become a vacation cabin owner. Operating expenses directly impact your earnings from rent, making it essential to estimate them accurately to determine your actual profit from the vacation rental. Here, we will explore the typical operating expenses you're likely to encounter when owning a vacation rental.

Insurance

Homeowner's insurance provides protection for your property and liability. However, it's important to note that this insurance doesn't cover appliance breakdowns, maintenance needs, or the loss or damage of guests' belongings. To enhance your coverage, you can consider adding burglary and vandalism insurance to your homeowner's policy.

Property Taxes

As a cabin owner, you will be responsible for paying property taxes in the location where your cabin is situated. It's crucial not to assume that you'll be paying the same amount as the current owner. It is advisable to contact the assessor's office in the area to obtain accurate information about local property taxes.

Utilities

In most cases, owners of short-term rental properties are expected to cover the cost of utilities. It is recommended that you research the monthly utility costs associated with the specific cabin you are considering purchasing to factor them into your overall expenses.

Maintenance and Repairs

Maintenance is an inevitable part of property ownership, even for newer properties. However, investing in a well-maintained or newer cabin can help reduce maintenance costs. As a general guideline, it is advisable to set aside around 1 percent of the cabin's value each year for maintenance expenses. For example, if your cabin is worth $200,000, allocating a $2,000 maintenance fund annually would be prudent.

Management Fees

Many cabin owners opt to hire property management services to handle various rental details. A reputable management firm can take care of marketing your rental, managing reservations, processing guest payments, depositing rental income into your accounts, handling housekeeping and basic maintenance issues, and more.

Landscaping and Pest Control

Maintaining well-kept grounds, trimmed trees, and ensuring a pest-free environment are crucial factors in successfully renting out your cabin. Budgeting for landscaping and pest control expenses is essential to maintain the attractiveness and comfort of your vacation rental.

Additional Expenses

In addition to the aforementioned expenses, you may also have other costs such as internet service fees or homeowners association fees, depending on the specific circumstances of your vacation rental property.

What Aren't Operating Expenses? It's important to note that certain expenses typically do not fall under the category of operating expenses. Mortgage payments, income taxes, capital improvements, depreciation, and debt servicing fees are not considered operating expenses. If you are uncertain about whether an expense qualifies as an operating expense, it is advisable to consult with your lawyer or financial adviser to ensure accurate classification.

To explore how a cabin management firm can assist you with these operating expenses and other aspects of managing your vacation rental, we encourage you to contact our Owner Success Teams at 865-365-0240 today. Our experts can provide valuable insights and support to help maximize the profitability and success of your vacation rental venture.

Partner with Colonial Properties Cabin & Resort Rentals