There are many real estate investors who like their vacation house so much that they end up wanting to make an offer on it. While a vacation property rental can be a great way to enjoy a specific area while generating income, it doesn’t happen by itself. Like any other property, you need to run the numbers to make sure you know what you are getting into. Unlike a traditional rental property, a vacation rental has a handful of additional expenses. Most of these are minor in nature but added up, will impact the bottom line enough to possibly change your decision making process. Before you make an offer on a vacation rental property, you need to know all of the expenses associated.
- Utilities. With most traditional rental properties, you only pay maybe the water and possibly the sewer bills. With a vacation rental property, you are on the hook for all of the utilities. This means you are responsible for the cable, heat, electricity, and water bills. There are ways to get discounts on cable and possibly electricity by shopping around, but you are responsible for these payments every month. If your rental is near a ski resort you can expect the heat to be cranked up. A good alternative may be a wood burning stove, but not every property has the capability to do this. Before you make an offer you should ask to see a years’ worth of utility bills. Make sure the property is being occupied during these months. Only after you look at these numbers can you make a decision on what you want to do.
- Oil & Heating. Heating your vacation rental will often be a large hidden expense. The price of oil has come down significantly in the past year but it is still an expense. The oil tank will not only heat your home, but also supply the hot water for the property. Depending on usage, you may need to have the tank filled once every quarter. For a 275 gallon tank, this can be over 500 dollars to fill. This can end up being over a thousand dollars a year. Even if you don’t have an oil tank, you need to keep the house heated. Base board and electric heating will increase monthly electric payments during peak winter months by as much as 100 dollars. You can opt for the wood burning stove but then you need pellets or wood to keep it running. Plus, you need to have tenants that are comfortable and confident using such an appliance.
- Seasonal Maintenance. Regardless of what kind of property you have, you need to take care of it. This means performing seasonal maintenance on every aspect of it. Everything from the HVAC to the furnace should be inspected every year. On properties that you don’t travel to every week, you wont fully know the wear and tear your tenants create. Something as easy as changing the filter on the furnace goes a long way in preserving the useful life of the item. If you ignore these items year after year, you will get hit with repair bills or have inefficient mechanicals that will eventually need to be replaced.
- Yard Care. You can’t ignore the exterior of the property. Wherever the property is located, something needs to be done with the yard or the driveway. In winter locations, you need to shovel the driveway and walkway. In warmer places, you may need to cut grass or take care of the leaves. At a minimum, you need to stay on top of the yard every few weeks. This may not take a long time to do but it can be quite costly. Depending on the size of the driveway and walk you can be looking around 60 dollars per storm. If you need the grass cut from May to October, you will be looking at several hundred dollars. All told, between the snow and the yard, you could approach 1,000 dollars a year on these two items alone.
- Furnishing. Vacation rentals need to come fully furnished. With vacation rentals, owners usually look to change the furniture every few years or so. This means new couches, blankets and other smaller items. You can also go with inexpensive appliances with the thought of swapping them out every five years or so. These items need to be budgeted for in your annual bottom line. You will not need to change everything but if the place has an old, dated feel you won’t get top dollar rents.
- Minor Household Items. There are always a handful of expenses you make without even thinking about it. Little things like garbage cans, rakes, shovels, hoses, silverware and plates must all be accounted for. Usually you can buy these items once and forget about them, but that is not always the case. You don’t want to have to scramble around looking for rock salt or a shovel during the eve of a storm. If the garbage can breaks, you don’t want tenants piling up garbage on the outside. You will find that there is always at least a couple of hundred dollars in minor expenses you will make in a given year on a vacation rental.
Vacation rentals can be a great long term investment but you should know your numbers before you get started. A few expenses here and there will have a big impact on your bottom line.