When it comes to investing in an Airbnb property, many investors focus on the potential for high returns without fully understanding the myriad of hidden costs that can significantly eat into those profits. While the idea of earning passive income from short-term rentals is appealing, it’s crucial to be aware of the expenses that come with managing a property for guests. Here’s a comprehensive look at what you should expect.
When operating an Airbnb or short-term rental property, it’s crucial to understand that a substantial portion of your income will be allocated to various expenses right from the outset. Typically, between 35% and 55% of your gross revenue can be absorbed by fees and costs such as platform commissions, cleaning services, and consumables. For instance, platforms like Airbnb charge approximately 15% plus tax, while property managers often take an additional 20%. Furthermore, the costs associated with cleaning, maintaining supplies, and restocking essential items like toiletries and linens can quickly add up. This means that what may initially appear to be a lucrative income can dwindle significantly once all these expenses are accounted for, emphasizing the importance of budgeting and careful financial planning in the short-term rental market.
Platform Fees
First and foremost, each booking platform has its own fee structure that can quickly add up:
- Airbnb: Typically charges a service fee of 15% on each booking, plus applicable taxes. This fee can vary based on factors such as cancellation policies and pricing. It’s important to remember that these fees come directly from your profits.
- Vrbo/Stayz: Charges a commission of 12% plus taxes on each booking. If you choose to use the platform’s payment options, they also charge an additional processing fee similar to Stripe. If not, you might opt to use a service like Stripe, which typically charges 2.9% plus $0.30 per transaction.
- Booking.com: Takes a commission of 12% plus taxes on each booking. If a commission is charged, there’s also a processing fee if you use their payment option. If not, you might opt to use a service like Stripe, which typically charges 2.9% plus $0.30 per transaction.
- Direct Bookings: If you manage your own bookings through a personal website or other channels, you can avoid these platform fees entirely, allowing you to keep more of your profits. While payment processing fees may apply (typically around 2.9% plus $0.30), it can significantly enhance your overall profitability.
Property Management Fees
If you opt for a property manager, expect to pay 20% of your rental income. While this might seem reasonable, it doesn’t guarantee an increase in bookings. In fact, many hosts find that a property manager’s high fees can detract from profitability, particularly if they fail to effectively market your property or provide exceptional service.
Cleaning Fees
Cleaning fees can vary dramatically, especially if you are relying on third-party cleaning services. Not only can they be expensive, but if your cleaner doesn’t meet quality standards, it can lead to larger issues. In fact, cleaning fees can directly influence booking decisions, with some guests discouraged by high costs and others appreciating the clarity of an all-inclusive price:
- Cleaning Time: Expect to pay an average of $50 to $70 per hour for cleaning services. This typically does not include the cost of linen, which can add significantly to your overall expenses. If your cleaner doesn’t clean properly, it may necessitate additional cleaning or repairs.
- Linen Services: If your cleaning service doesn’t provide linen, you’ll have to either purchase and maintain your own or hire a linen service. This can cost you anywhere from $15 to $25 per set of linens, which can significantly add to your ongoing expenses. If you choose to supply your own linen, remember that the costs for washing, maintaining, and replacing linens can add up quickly, especially if items get damaged or stained by guests.
- DIY Cleaning: Some hosts opt to clean the property themselves to save money. However, this quickly turns what should be a passive income into an active job, detracting from your overall investment goals.
- Linen Services: If your cleaning service doesn’t provide linen, you’ll have to either purchase and maintain your own or hire a linen service. This can cost you anywhere from $15 to $25 per set of linens, which can significantly add to your ongoing expenses. If you choose to supply your own linen, remember that the costs for washing, maintaining, and replacing linens can add up quickly, especially if items get damaged or stained by guests.
- DIY Cleaning: Some hosts opt to clean the property themselves to save money. However, this quickly turns what should be a passive income into an active job, detracting from your overall investment goals.
Consumables and Restocking Costs
Managing an Airbnb property requires budgeting for consumables and restocking costs that enhance the guest experience. Key items to consider include:
- Kitchen Essentials: Stock basic cooking supplies like salt, pepper, cooking oils, sugar, and coffee to make the kitchen inviting.
- Refrigerated Items: Leave milk, basic condiments (like ketchup and mustard), and a welcome beverage (like wine or juice) in the fridge to enhance guest satisfaction.
- Bathroom Supplies: Provide quality soaps, shampoos, and plenty of toilet paper for guest comfort.
- Laundry Supplies: Offer laundry detergent and dryer sheets for guests using laundry facilities.
- Cleaning Supplies: Keep essential cleaning items like trash bags and surface cleaners readily available.
- Restocking Costs: Regularly monitor and replenish consumables to ensure your property is always well-stocked.
- Guest Expectations: Understand that guests expect these items; failing to provide them can lead to negative reviews.
- Quality Matters: Invest in quality consumables to enhance guest experiences and boost reviews.
By effectively managing these consumables, you can create a welcoming atmosphere that improves guest satisfaction while controlling your costs.
Unexpected Damage and Loss
One of the most frustrating aspects of hosting is dealing with damage and theft. While you may prepare your property to welcome guests, it’s nearly impossible to anticipate the wear and tear that comes with frequent use. Here’s what you should be aware of:
- Cutlery and Household Items: It’s common for cutlery and small kitchen appliances to go missing, with items disappearing left, right, and centre. Guests may take utensils or dishware for personal use or misplace them, resulting in costly replacements over time.
- Scratches and Scuff Marks: Each new guest brings in their own luggage and belongings, which can inadvertently cause scratches and scuff marks on walls, floors, and furniture. Even well-meaning guests may not realise how their items can impact your property, leading to ongoing repair needs that chip away at your profits.
- General Wear and Tear: Household items can suffer from misuse or unfamiliarity. For example, if a guest uses a delicate dish or piece of furniture in a way they would at home—perhaps without realizing the item is more fragile than it appears—it can lead to breakage or damage. This can be particularly problematic with new or high-quality furnishings.
- Unreported Damages: Not all guests will be forthcoming about damages. Many may not inform you if they’ve broken or damaged something, either out of embarrassment or simply forgetting. As a result, you may never know who caused the damage or how it happened, complicating your ability to address the situation or take preventative measures in the future.
- Recurring Issues: Some types of damage may become recurring problems. For instance, if you find that certain items consistently break or go missing, it may indicate a need to reassess what you provide in the rental. Consider whether it’s worth replacing high-risk items or if it would be better to use more durable or less expensive alternatives.
- Emotional Toll: The emotional impact of dealing with constant repairs and replacements can be significant. Each incident may feel like a personal slight, especially if you’ve put time and effort into making your property a welcoming space. This stress can lead to burnout, especially if you’re managing the property yourself.
When you add up these hidden costs—platform fees, management fees, cleaning costs, consumables, and potential damages—what initially seemed like a profitable Airbnb venture can quickly become a financial burden. Understanding these expenses is essential for making an informed investment decision.
