Understanding Your Cabin Rental’s Operating Expenses
Knowing what is--and isn’t--a legitimate operating expense is important if you plan to become a vacation cabin owner. Expenses cut into your earnings from rent, so you need to estimate them accurately to know how much you’ll really make from your rental cabin.
Operating expenses are essential to your ability to rent out your cabin.
Here are typical operating expenses you’ll encounter:
Homeowner's insurance provides property and liability protection. This insurance doesn’t cover appliance breakdowns, maintenance needs, or the loss or damage of guests’ belongings. You can add burglary and vandalism insurance to your landlords’ coverage.
You’ll owe property taxes where your cabin is located. Don’t assume that you’ll pay the same taxes as the current owner pays. Contact the county assessor’s office to find out about local taxes.
For short-term rental properties, the owner usually pays utilities. Do your homework--research the monthly utility costs for the cabin you’re considering buying.
Maintenance and Repairs
Maintenance is unavoidable, even on newer properties--though buying a newer property, or one that’s been carefully kept up can save some maintenance dollars. How much should you budget? Set aside 1 percent of the cabin’s value for maintenance costs each year. A cabin worth $200,000 should have a $2,000 maintenance fund, for example.
Some owners hire property management services to handle rental details. A good management firm will market your rental, make reservations, take payments from guests, deposit your rental income to your accounts, handle the housekeeping and basic maintenance problems, and more.
Landscaping, Pest Control, Trash Collection
Trash pickup costs extra in some areas. And keeping the grounds in good shape, trees safely trimmed, snow removed and pests banished all are vital to renting out your cabin.
You might have other expenses too: Internet service, pool care, hot tub maintenance, or homeowners association fees.
What Aren’t Operating Expenses?
Some expenses usually aren’t included in rental cabin operating expenses. Mortgage payments on the cabin aren’t operating expenses. Neither are income taxes, capital improvements, depreciation, or debt servicing fees. Advertising and marketing costs (if you choose to advertise the rental yourself, rather than using a cabin management company) are not operating expenses. If you’re not sure whether an expense is officially an operating expense, talk to your lawyer or financial adviser!
To learn how a cabin management firm can help, contact us at Colonial Properties Cabin and Resort Rentals today.