4 “Surprise” Costs That Cut Into Vacation-Rental Profits
With vacation-rental occupancy rates and booked ADR both on the rise in the second half of 2021, the STR revenue outlook is strong, and growing stronger. But threats to profitability still loom. The most daunting of these are unexpected, unplanned-for and easy-to-neglect costs, all of which can throw a massive wrench into profit predictions. In this post, we focus on the four most problematic “surprise” short-term-rental costs. And, because we’re cool like that, we also offer our expert tips to minimize these vacation-rental expenses and maximize vacation-rental profits.
The Vacation-Rental “Fearsome Four”
- Unplanned property repairs or replacement
- Fines or penalties for violating STR-permit stipulations or local ordinances
- Rising and/or unnecessary utility costs
- Unanticipated vacancy
1. Unplanned Property Repairs Or Replacement
Property cleaning and maintenance are regular operating expenses that can be calculated fairly easily. But major property repair or replacement? That’s another story. Yes, you can anticipate the need to upgrade an ailing HVAC system or replace an old roof, and figure these “milestone” fixes into a property’s CapEx expenses. But with the post-lockdown “revenge travel” boom comes a growing concern about another type of property repair. This type of repair is for damage that can result from larger groups finally getting out of town to relax and revel. And maybe get a little out of control.
Reports of Airbnb “party houses” became a regular news feature in late 2020. As the great travel recovery of 2021 commences, Airbnb and Vrbo are both taking proactive steps to prevent parties and de-list problematic party houses.
But guest groups don’t have to be throwing an official party for party-like behaviors to ensue. A beautiful location, a great house, a bunch of friends, a case of tequila and a blender, a year’s worth of pent-up celebration energy…these can lead to broken blinds, stained upholstery, cracked tiles, broken windows or damaged floors. And the cost of fixing these damages can quickly cancel out vacation-rental profits associated with high demand and strong ADR.
Pro Tip: A great way to prevent property damage and protect vacation-rental profits is to curtail what comes before it: noise. While loud music or raised voices don’t always lead to damage, damage is almost always preceded by excessive noise. A privacy-safe noise detection sensor measures decibel levels over time and sends a gentle text reminder if volume exceeds acceptable levels. The vast majority of noise events are resolved with this one initial text.
2. Fines or Penalties for Violating STR-Permit Stipulations or Local Ordinances
Almost all cities and counties have long lists of stipulations that short-term rentals must abide by in order to receive a rental permit. These include regulations on parking, trash disposal, safety sensors and occupancy limits. By applying and paying for a short-term-rental permit, the property owner agrees to comply with these regulations. And complying with regulations means compelling the property’s manager and, of course, guests, to abide by the rules.
Some rules apply to things guests are directly responsible for. Guests, for example, are responsible for parking their cars. They’re also generally responsible for taking out trash, controlling their noise level and letting only registered guests stay at the property.
Other permit rules have to do with property location (for example, Nevada’s proposed restriction on short-term vacation rentals within 2,500 feet of any resort hotel), or fire prevention (i.e. Lake Tahoe’s requirement for inspection of natural and landscaped areas around STRs in high fire rating zones). And still other rules may apply to regular maintenance, upkeep or landscaping.
Regardless of who is primarily responsible for complying with rules, violation of permitting rules can result in expensive fines. In many locales, an initial permit fine may be around $500, with subsequent fines doubling and tripling. Operating a vacation rental condo or apartment in Florida’s Miami-Dade County—a sizzling STR hotspot? You’re looking at a first violation penalty of $1,000, and a second of $2,500. Ouch!
To avoid fines and penalties, and protect vacation-rental profits:
- Regularly monitor local ordinances for updates and ensure that the property is in compliance.
- Spell out all “house rules” on the rental listing, including noise limits, occupancy limits, parking requirements, smoking restrictions and visitor rules.
- Remind guests of rules (and penalties) in booking confirmation, follow-up correspondence and on display at property.
Pro Tip: Coordinate and automate your property services (cleaning, maintenance, inspections) through one easy-to-use platform. We’re big fans of Breezeway, which lets property managers schedule, expedite and monitor services all from one dashboard, helping to ensure that everything is up to snuff. The platform even has a photo upload function, which lets field teams present visual proof that a service is performed right!
3. Rising and/or Unnecessary Utility Costs
Unlike long-term leases, short-term rentals cannot pass utility bills along to tenants. Utility costs also rise year over year, and can spike during high seasons, as local electricity grids are maxed out. For this reason, it’s incredibly important to monitor utility costs closely, before they eat into anticipated vacation-rental profits.
Installing a smart-home thermostat is one good way to avoid overspending on heating or cooling, by adjusting a property’s HVAC system remotely between guest stays.
Other utility cost-cutters include switching to LED lighting (which, alone, can cut electricity costs by up to 75%), and swapping out high-wattage plasma televisions for lower-wattage LED TVs. Energy-star appliances also cut back on utility expenses, as do double-pane windows and good insulation. Yes, these CapEx expenses require upfront payment. But when a property’s primary guests are short-term visitors, who are not paying the utility bills, and are much less likely to switch off lights or turn down the A/C at night than long-term residents, the investment is well worth it.
Equally important is cutting cables. More than 95% of Americans own a mobile phone, so there’s little reason to have a landline in a vacation rental property. Likewise, cable TV, which can cost hundreds of dollars a month for “premium” packages with endless unwatched channels, is a cost that’s ripe for slashing. Instead, install a Smart TV system with a handful of great streaming platforms, and let guests take their pick of movies, TV shows, sports events and other screened entertainment, at a fraction of the cost of cable.
Pro Tip: Hosting international travelers at your no-landline property? Consider including a prepaid SIM card with a local telephone number as part of a guest welcome package. Mail the card to the guest prior to their visit, along with a guide to local attractions and activities, or have the card waiting for the guest at the property, along with a map, guidebook and/or a few locally made goodies.
4. Unanticipated Vacancy
In addition to natural seasonal dips, plenty of other factors can affect short-term-rental vacancy rates. But do they have to? Maintenance neglect, ho-hum marketing and poor responsiveness to guests can lead to a non-operational property or negative reviews. And the cost of unbooked nights can quickly take a big bite out of planned vacation-rental profits.
To mitigate unanticipated vacancy, take these proactive steps toward management and marketing:
Make cleaning Priority One. Great guest reviews are vacation-rental gold. And Airbnb consistently reports that the leading factor in garnering positive guest reviews is cleanliness. In the current post-COVID travel market, cleanliness is more important than ever before, as guests seek out safe, sanitized accommodations. Have cleaning QA standards firmly in place and confirm that they are being met (see our Pro Tip in section #2 above).
Make maintenance Co-Priority One. A broken A/C, leaky faucet or faulty shower head can lead to poor vacation-rental reviews, while a non-functioning toilet, broken window or crumbling drywall can put a property out of operation entirely. Perform necessary repairs as soon as they are needed to prevent further damage and avoid any unnecessary non-operational nights.
Offer flexible rates. While the current travel recovery points to strong ADR even for normally low seasons, there will be times of the year, month and week when bookings dip. Lower rates during these periods may entice guests who are looking for a bargain. Consider using a flexible pricing platform to track trends and adjust pricing accordingly.
Pro Tip: Use smart social media marketing to boost bookings, especially during anticipated travel “troughs.” Fabulous photos or video, and a caption that emphasizes special rates, plus a creative, compelling call to action (“Get Away For Less,” “Book Now For Special Rate,” “Limited Time Offer,” etc) can go far toward protecting profits against the cost of unbooked nights.
Natasha Garber covers short-term-rental industry trends, news, regulations and compliance for NoiseAware. Her posts on STR property management technology, privacy-safe noise monitoring, and licensing laws can be found weekly on the NoiseAware blog.