6 Unexpected Costs of Buying a Short-Term Rental

PROFITABILITY OVER POTENTIAL

While I wish I could tell you that investing in any short term rental will be extremely profitable, there’s a few things you need to know before you jump the gun on a property that you might not be able to afford. A lot of people don’t realize just how costly the upkeep, management, and unexpected expenses are when it comes to owning these rentals.

Here are 6 surprise costs to consider before you invest in a short term rental property.

MORTGAGE AND INSURANCE

Investment loans have a higher interest rate that’ll directly affect your mortgage payment. Running a successful short term rental property is way more than just quick math, it’s not as easy as dividing your yearly expenses by 12 months. Most of these local areas have a peak tourist season which is only about 12-16 weeks out of the 52 weeks in the year (if it’s not completely obvious, that leaves for a lot of unoccupied weeks). If you’re not going to make back your mortgage payment for the entire year in those 12-16 weeks, then I don't recommend investing in that property unless you can afford to lose money. You aren’t guaranteed to rent anything out during the off season, especially in these areas. 

As an experienced Realtor®, I’ll run comparables for you and show you how to research the area in order to make an informed decision on where to buy. Once you know how often you want to rent out the property, I’ll help you figure out the minimum monthly amount that you’ll need to be making back on this rental. This is exactly what the smartest, most profitable restaurants do. When you’re out to dinner and order a glass of wine, they charge you the full price of the bottle in order to prevent losing money because there’s no guarantee that someone else will order that same glass from the opened bottle. When you pay for the entire price of the bottle, they know they’ll break even no matter what!

Insurance can often be overlooked during the buying process even though it’s quite a large expense. For obvious reasons, it’s significantly higher for short term rental properties than for a primary residence. Having a revolving door of guests that aren’t invested in the home can lead to numerous unexpected costs, damages, and even injuries. Investing in good insurance is a non-negotiable if you want to run a short term rental property legally and cost effectively. 

MAINTENANCE AND DAMAGES

Once you know you’re breaking even (and hopefully making loads of money), it’s time to realize that renters are much harder on properties than owners are. There’ll be items that you’ll need to replace more often than you think. The septic will have to be pumped at least once a year. Plus, you still have all the routine maintenance to upkeep your roof and HVAC system. It’s not only cutesy decorating and getting big fat checks. If something breaks, your guests are going to expect to have it fixed while they’re staying at your property. You need to have an emergency fund, a team ready, or be handy and live close enough to be able to address the problem yourself ASAP. 

When people invest in a rental property, it’s common to overlook how often little things like linens, dishes, or kitchen appliances need to be replaced. Things like bedding and towels are obviously necessary to provide, but they wear down and need to be replaced annually. At my rental property, I don’t provide little things like coffee creamer and condiments—or other stuff that’ll just go bad and waste my money. I provide only what’s necessary, frequently requested, or what I’m willing to make sure is replenished every time a new guest arrives.

MANAGEMENT

If you’re wanting to be more hands on or want to fully manage the day-to-day of your own rental, having a property manager isn’t necessary. However, you should educate yourself on the job description and understand how demanding it can be. You should also learn proper customer service skills so that you can give your guests the most comfortable experience while you remain professional. After all, guests are your #1 priority when it comes to your rentals.

If you’re looking for a more hands off experience, it’s easy to find a great property manager in places like Virginia Beach or OBX where property management companies are easy to come by so you’ll have tons of choices. But be prepared to add a management expense of about 15% of your income to your budget. On top of having a property manager, you’ll need a team of experts who can fix any emergency that arises like plumbing, electric, HVAC, or wifi issues. Without a property manager or specialists ready, be prepared to hop in your car and drive to your property at a moment's notice to diagnose and fix an issue. 

CLEANING 

Having a reliable cleaning crew is a necessity if you want to own a highly rated, coveted rental property. With guests coming in and out it’s important to have a team of housekeepers who are thorough and pay superb attention to detail. 

Lots of short term rental owners only pay about $75 for their cleaners, but this isn’t going to cut it. You get what you pay for. At this price the cleaners are typically in and out very quickly, overlook important details, or bail on you at the last minute. At our OBX property, we pay our cleaning team really well. They have a backup crew ready to roll if they have an emergency. We even pay them extra to clean the comforter at every turnover (FYI—not everyone does this…yuck), so you’ll know that when you stay there absolutely nothing was missed. With my team in place, I have peace of mind knowing my guests won’t find any surprises that I’ll later find out about after I read their review. 

GET THE MOST BUCK FOR YOUR BANG

Here’s the question to ask yourself before buying a short term rental :

Do you view this as your vacation home that sometimes gets rented out or is this as a revenue stream in your investment portfolio? 

Either way, ensuring that you’ll profit from your short term rental property (even if the market changes) should be your main focus when house hunting. That means it’s super important to figure out the difference between your costs and your actual income. 

As AirBnb, VRBO, Vacasa, and other short term rental sites gain popularity, cities are playing catch up. Many of them haven’t even thought about rules and regulations for short term rentals yet. This is why it’s extremely important to work with an experienced Realtor® before purchasing a home. 

Regardless of where you want to buy a rental or how long you want to own it for, I know the ins and outs and have the personal and professional experience to guide you through this process. My number one job is to make sure you don't make the same mistakes that I did or that many people without representation make.

I’m ready to become your forever Realtor® as soon as you’re ready to add a short term rental property to your portfolio. 

Text me at (757)-617-5815 to get this process started!