Sep 30, 2011

A lot of people choose to rent their vacation home part of the time to help cover their costs. For others, the question of how much money they can make renting their vacation home is an important part of the buying decision. A recent HomeAway survey reports that 48% of owners cover 75% of their mortgage costs. But what about all the other expenses. What are all the other expenses?

If you already own a vacation home, then you will already have a good accounting of most of the expenses. When you start to rent there will be new expenses, like cleaning, supplies and taxes. You may also have some up front costs to prepare your home for guests. However, if you're just looking at properties, then it can be difficult to estimate all the costs - utilities, association dues, taxes, etc.

When we were looking at vacation homes, we looked at the average high season rate for similar properties, and compared this with our estimated mortgage. I talk about this in the second part of the article on where to buy a vacation rental home. If your high season rate is higher than your monthly mortgage, then you're off to a good start. If you're able to rent the full high season then you could cover your annual mortgage, leaving off-season to cover all your other expenses.

Every property is going to be different. The expenses will vary significantly by size and area, as will the rent and number of bookings. In the case of our Sunset Beach Bliss vacation home the mortgage is $718.57 and our weekly high season rate is $750. So do we make a profit? Well here's a complete breakdown of our expenses and income for 2010.
Bottom line is that we didn't make a profit in 2010. Also, this expense breakdown does not include mortgage principal payments - which would add another $2280 to the expense line. This chart comes from a spreadsheet we use when preparing our taxes, and mortgage principal is not something that gets reported. The taxes above are state, county and city taxes. Since we don't make a profit we don't have to worry about income tax.

Another important point here is that we rent our vacation home by owner. This eliminates any management fees which could otherwise take as much as 30% of our income. I cover in another article how much time it takes us to rent by owner.

Does this mean you won't make a profit renting your vacation home? Absolutely not. I'm sure there are plenty of people that do make a profit. All I can write about is our experience. We're also finding that most years we get more bookings than the prior year, as we get more positive feedback on our listings, and more repeat business. So I remain optimistic that we will eventually break even.

Does it mean we regret buying these vacation homes? Absolutely not. We love spending time in our vacation homes and the surrounding areas. And we plan to spend a lot more time in them in future. But if you're buying a vacation home expecting - or needing - to cover 100% of your expenses with rent, then be warned.

Welcome New Readers! Take a look around. A couple of good places to start are the About Page, and the Getting Started page. If you want to read every article in order, then start at the Getting Started page and click the "Newer Post" link at the bottom. You can also see an alphabetical list of all the posts on the Archive page.

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