January 26, 2017

Will Your Vacation Home Rental Income Cover Your Costs of Ownership?

My parents have owned numerous vacation properties for more than 30 years, and they have always managed to fully cover the cost of ownership — a feat that I didn’t fully appreciate until it came time to look at a few vacation homes myself.

For many, covering the costs of ownership is the primary caveat for purchasing a vacation home. To make that happen, many property owners turn to renting their property.

Unfortunately, it’s not as simple as comparing your projected rental income to your mortgage and utility payments. There are lots of other figures that come into play. Fortunately, a property manager can go a long way toward helping you cover the costs of ownership with your rental income, and once the mortgage loan is paid off, that income will turn into pure profit — a significant benefit in the retirement years.

So let’s look at what you need to consider as you work with your property manager to cover the costs of ownership. There are a number of points you could even discuss with a property manager before you purchase a property to ensure you can cover the costs of ownership with your rental income.

Marketing and the Number of Weeks Rented Per Year

Some destinations see year-round tourism, while other regions have a more limited tourism season. This can have a major impact on how many weeks you can rent your vacation home, so it’s vital that you understand the basics in this regard before committing to a property. And while you can’t impact what’s considered the prime season, you can control the other major factor that comes into play: your property manager and their marketing abilities.

A talented property manager will have the skills required to market and promote your vacation home year-round, even during the off-season. In many cases, it’s just a matter of marketing your vacation rental property in an effective manner, while touting the local attractions and activities that are available locally during the off-season.

There are a few regions of the country that literally shut down during the off-season (i.e. shops and restaurants close on a seasonal basis). So for these locations where it’s really not viable to market your vacation home in the off-season, you’ll need a property manager who promotes your home very aggressively during the prime tourist season while simultaneously helping you make improvements to your offerings in a way that increases your bookings and the amount you can charge per booking.

Once you find a property manager who fits the bill, you’ll want to discuss what they feel is a reasonable expectation in terms of how many weeks per year the property will be rented out and how much income you can expect to see on an annual basis.

You’ll also need to discuss the issue of marketing. If you purchase this vacation home, how will your property manager promote the property and secure bookings? Will there be additional fees for website development, advertising costs, or social media marketing? If this is not included in your property management fees, what should you expect to spend annually on marketing?

Minimizing Maintenance and Repair Costs

Maintenance and repair costs can be quite significant because you must keep your property in tip-top shape while immediately tending to any repairs so your guests don’t have a negative experience. Many property management firms secure contracts with service providers such as handymen, landscapers, cleaning services, pool services, and plowing companies.

Since a given property management firm may tend to dozens of properties or more in a relatively small geographical area, they can guarantee these service providers steady work, which can result in a significant discount that’s passed on to you, the property owner. If nothing else, your property manager can recommend reliable service providers with affordable rates, while giving you a better idea of what to expect moving forward.

If you’re in the process of buying a vacation home and are considering two or more properties, speak with your property manager to determine how the maintenance and repair costs would differ for each property. Which home would likely have the lowest costs for maintenance and repairs? And how do those projected repair and maintenance fees compare to the projected income level for that home?

For example, something as simple as wall-to-wall carpets in a vacation home that rents primarily to families or pet owners can result in significant carpet cleaning expenses, which could increase maintenance costs by hundreds or thousands of dollars annually.

Additionally, your property manager can offer advice to help you make purchasing decisions and other decisions for your property to help minimize repair and maintenance costs. For example, there are certain types of insurance that cover incidentals, such as broken appliances or plumbing repairs. Your property manager can help you decide if one of these insurance plans may be a suitable, financially wise decision for your vacation rental home.

Improvements and Amenities

Amenities can have a major impact on property management costs and the annual income level for your vacation home. The right home improvements and amenities can mean the difference between a sought-after, highly competitive property and one that falls woefully short of its potential.

Sit down with your property manager to discuss what amenities are the most popular among vacationers who are renting vacation homes in your area so you can make an educated choice when picking the right property for your financial objectives.

It may be worthwhile to discuss what upgrades and improvements could bring a significant benefit in terms of boosting ROI on a particular property. Something as simple as adding an extra bedroom and bathroom or installing a hot tub or new appliances can increase your property’s competitiveness on the vacation rental market. Your property manager likely knows your target guest demographic better than anyone else on the planet, so they’re well-positioned to make recommendations in this regard.

Your property manager can prove to be a critical resource for helping you determine whether your rental income will cover the costs of ownership for a particular property. So if you’re buying a vacation home with finances in mind, then a property manager will be a vital ally. They’ll have lots of insight into what it will cost to manage, own, and maintain our vacation property, helping you make an informed decision as you choose the right home to suit your unique financial goals and objectives.

Don’t forget to check out Rented.com’s income calculator to get an idea of what you can earn by way of vacation home rental income. The rental grader allows you to see your home’s rental revenue potential by comparing it to other homes in the area.

If you’re searching for the perfect property manager, sign up for a free account on Rented.com to get offers from local property managers in minutes. Many of the managers we work with offer a guaranteed income model that provides property owners with a set monthly income regardless of bookings. Create a free profile today to get started.

Lead image: Pixabay user Meditations

Related Blogs

January 24, 2023

5 of the Biggest Myths in the Vacation Rental Industry Busted!

The vacation rental industry has a certain number of myths attached to it which are troublesome when it comes to

Read More

January 6, 2023

How To Promote Your Vacation Rental Business With Instagram

In the age of social media, there are so many ways that you can promote your vacation rental property. One

Read More

October 27, 2022

Steps To Take After Buying Your First Vacation Rental Property

Buying your first vacation rental property is a challenging, yet rewarding process. There are many factors to consider when choosing

Read More