Costs, costs and more costs - How do they measure up against your revenue?

I am a soon to be new host, purchasing a holiday rental that has been on the rental market for some years now.

I am running some number and given the expected gross earnings, the costs will take away about 50% of the income. Is this normal?

Just off the top of my head: some of the unexpectedly high expenses I found are:

  • electricity as guests are usually from a completely different climate and require a different temperature to be comfortable. Also, they are on holidays and hang around the house more and take longer in the shower.
  • replacing tea towels - a lot get ruined.
  • gardening. Guests seem to like tidy gardens.

Increased utilities, more insurance costs, more wear and tear, more maintenance, replacing linens and towels constantly.

I think your Costs being 50% of the expected revenue is inordinately high! Of course it depends on how much R&R you had to put into the place before it was ready to rent.

I am not taking into account the initial costs because I am buying the property as is (furnished and with temp. guests scheduled for the next two months). I am talking about monthly running costs.

Some of these are fixed (like property taxes, building expenses, basic utilities) but others are linked solely to it being a holiday rental (accountant, revenue taxes, property manager, laundry & cleaning service).

As I live 1 hour from the place and have no car and no experience in holiday rentals, I am happy to have a Property Manager (a holiday rental company with a team offering support 24/7). But given the expected ROI, I might as well look for longer term rentals, that way I could drop some costs (no PM necessary, utilities and building expenses paid by tenants, no laundry & cleaning service to pay).

*Cleaning service is partially covered by the cleaning fee, longer rentals - over 1 week long - have a complimentary weekly cleaning… I have no way to set-up cleaning as a recurrent fee on AirBnB.

I guess, too, your investment strategy should be considered. If you figure investments typically earn a 10% return, then how does this investment rate by comparison when you consider $$ and your time? If you are buying this as a vacation rental for yourself as well, then 50% might be more acceptable to you.

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Consider too things that might be local to your area such as paying for permits and licences. I guess that you’ve already taken any local TOT into account.

Be sure that you know exactly what extras your management company might charge for. For example, if they have to call out an emergency plumber in the middle of the night, will they charge for that? And don’t forget that maintenance, particularly unexpected items such as the aforementioned plumber.

If there’s a dispute, and there will be at some time, will the management company take care of this at no extra charge?

Wear and tear could be a larger cost item than you anticipate. From time to time miscellaneous items will need replacing such a minor items such as towels, sheets, wine glasses etc., but there will also be the occasional items that needs to be replaced such as the microwave, vacuum cleaner, mattress and so on.

You’ll also need to allow for your own time. Even though you have a management company, cleaners, maintenance people etc. there will still be times when your own time becomes involved. Remember too such expenses as your accountant and attorney.

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When I started my vacation rental business I was imagining a 50% profit but in reality it is probably closer to 25 - 30%. All the unexpected costs add up - repairs, maintenance, yard work, supplies, utilities, accountants, insurance, cleaning costs. I imagine after I get some of the kinks worked out I will be making a bit more in the future, but my properties are historic and the constant flow of guests creates higher maintenance and repair costs than a long term tenant. Plus the standards are higher. A tenant might live with something as-is, but a STR guest will ding you for it.

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I guess it also depends how you define profit. In my numbers I am counting the mortgage as an expense, but I suppose in the long run that is profit. So with no mortgage (or considering the mortgage payments as part of the profit), my expenses are closer to 50%.


With profit I mean the gross earning minus the costs involved:

  • Booking platform fee
  • Payment processing fee
  • Property Manager
  • Building Expenses
  • Utilities
  • Accountant’s fee
  • Property tax
  • Income tax
  • Cleaning fee
  • Laundry fee
  • Supplies
  • Insurance

@TuMo: I knew about the 10%, but is it net or gross?

Right. I’m just saying it depends on whether you define the mortgage as part of the costs, or as part of the profit. Because in one sense it is a monthly expense, but in another sense the mortgage payments are money that goes to you long term, so profit. Or maybe you are buying the property outright and won’t have a mortgage.

And of course, if you are deducting the mortgage interest from your taxes, this is not an expense. If you are amortizing things like a furnace, new windows, etc, that has to be calculated properly. There is a reason that people with money invest in income-producing real estate. The tax load is low, income is high, and at the end of the depreciation period, you OWN real estate that you can sell to reinvest your money.

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Net. Thinking more like an investment with compounding interest such as a good mutual fund.

Do a little math exercise: if you had invested the $$ you used to buy the property into a fund typically earning 10% and with compounding interest, over say 10 years (there’s calculators on the Internet to do this for you) then what is your investment worth? If you invest your net ABB earnings into the same 10% fund for 10 years and then sold the property, what is your final earnings? Compare the two outcomes. Weigh the risks of either scenario.

Making it a math problem is more objective than just opinions.

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@PennyM -
You’ll get as many numbers as you get answers.
Mine are about 40-50%. I don’t have a PM company. But I have staff, and provide transportation from the airport, put in fresh flowers, feed them dinner and breakfast the next day.

If your consideration is long-term vs short-term rentals, the long-term will have lower costs, but the revenue will be lower, too.

No mortgage for me, they are not common here.

Also, the tax scheme I am enrolled into allow to pay a fixed monthly amount but there is no deductible, so any work in the house are out of pocket costs.

No taxes or regulations about tourist accommodation so far.

You’ve given an overall figure for the costs (50% of gross income) but you haven’t broken down the various components of that list.
How much is property management taking up?
How much is your accountant changing you?
If those are very high, then you may need it consider whether you are being over charged by the relevant professionals.
There was another thread on here about how much property managers get paid in different places - check it out!
If the booking platform and processing costs exceed 15% that is also a problem.

How complex are he finances for the one listing? Would you consider doing the accountancy stuff yourself, once you’ve done it for a few months?

Ultimately, the reality is the more “professionals” you involve, the larger share of your takings go to them.

The more that you are able to so yourself, the more goes into your pocket!

But even if farming the job out to professionals, negotiate and make sure you’re not getting a raw deal.

In the end, if 50% of all your income is going to costs! which cannot be recovered by way of tax refunds etc then it may not be financially viable!

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Here’s the monthly breakdown:

  • Booking platform fee - AirBnB takes 3%, VRBO about 8%
  • Payment processing fee - None with AirBnB, min 3% with VRBO
  • Property Manager - 150 USD + 10% of the booking amount
  • Building Expenses - 120 USD
  • Utilities - 50 USD (state-subsidized)
  • Accountant’s fee - 115 USD
  • Property tax - 15 USD
  • Income tax - 100 USD
  • Cleaning fee - Each weekly light cleaning is 20 USD, while deep cleaning is paid by the guest
  • Laundry fee - 25 USD
  • Supplies - 20 USD
  • Insurance - 15 USD

Accountancy is something I plan on doing myself, but I am new to the system and so I need guidance, at least in the beginning. I am sure there are cheaper accountants, but are they as good? I have to find out ‘how good’ I need an accountant to be.
Property Manager was discussed in the other thread and I think it is in line with what other people are/were charged. I might look into another PM, but previous guests spoke highly of the PM in their reviews, so I am reluctant.

It’s hard to comment on those figures because it’s not clear which ones are monthly, weekly, etc.
I don’t see how income tax could be a fixed figure and not varying depending on income? That is, shouldn’t it be a percentage?
Also what are the various figures as a percentage of the amount you’re hoping to make in terms of gross revenue from the listing!
Some other points - Airbnb’s take is closer to 13% I believe depending on where you are. 3% is unlikely!
So if you pay for cleaning, laundry, building expenses, accountant, what’s the property manager’s job?

Ultimately though, if after your overheads are correctly factored in, and they’re taking away 50% of revenue! then a longer term tenant may be a better idea - it all depends on the actual figures.
At the end of the day, you don’t want to go through all this just so a property manager can make money with no tangible benefit to you!

AirBNB only takes 3% from the host. The rest is paid for by the guest and isn’t a factor in our budgets.


They’re all monthly. I’ll fix the post.
The income tax is fixed within a certain bracket - I have taken the historic gross monthly rent (i.e. what the guest pays and end in my pocket before expenses) and picked the bracket accordingly.