Effective Cost Management Strategies for Short-Term Rental Properties

Industry Insights, Property Manager Tips
Effective Cost Management Strategies for Short-Term Rental Properties

Short-term rentals have become just as much a part of “big business” as many other properties for real estate investors and homeowners. 

Travelers increasingly enjoy staying in a home-like atmosphere instead of a cookie-cutter motel room. But shelling out to keep one’s property in good condition can quickly get out of hand, leading to owners only breaking even or wasting money outright instead of bringing in a profit.

The good news is that there are several ways for homeowners and property managers to control these costs. Here are some rental expense tips that can reduce management costs and generate higher income:

Set a Reasonable Budget

Property management budgeting should balance cost forecasts with adequate income. Your budget should address your expenses, such as the following, with realistic revenue projections:

  • Mortgage or rent payments
  • Utility bills
  • Taxes
  • Insurance
  • Repairs, maintenance, and cleaning
  • Management company fees, if applicable
  • Furniture, fixtures, and amenities

Experts recommend setting aside 10% to 20% of your rental income for a contingency or emergency fund. For maintenance fees, it’s recommended that you allow around 1.5% of your annual rental income for property maintenance. Another usable formula suggests budgeting one dollar per square foot for maintenance costs.

Remember to account for marketing costs such as advertising and listing your property. Keep watch over your marketing efforts to determine the channels that are most effective in attracting possible renters. Also, take a closer look at your vendor or service contracts to make sure you’re getting the best support for your dollar. Ultimately, you want to find creative opportunities to save money on rental expenses.

Leverage Technology

Optimizing your rental property can be made much simpler when you take advantage of modern technology. Certain tools can streamline your booking, maintenance, and property management budgeting.

You can start making use of these tools from the very first listing of your property. Use attractive property images, thorough descriptions, and reasonable pricing on your online listing. You can also automate booking and conduct communications via text messaging, prompts, and reminders.

For the property itself, consider investing in smart tools for security and energy control. These can include smart locks, access codes, and keyless entry systems, reducing the chance of lost keys or accidental lockouts.

If you haven’t already invested in property management software, do so now. These tools can help you streamline guest communications, cleaning schedules, maintenance, and tracking expenses. They also include features specific to the short-term rental industry.

Online tools, like Safely, offer advanced solutions for things like guest screening and managing your insurance, among other rental tools. Contact Safely today to find out more.

Watch Your Utility Bills

Utilities like gas, electricity, water, and Wi-Fi make for the second biggest expense for short-term rental properties, only trailing behind rental or mortgage payments. Review your utility’s costs carefully to identify times of peak usage and adjust your fees accordingly.

If your utility budget is running higher than you’d like, consider taking steps to improve your energy efficiency. Strategies that can improve your energy profile include installing appliances with high Energy Star ratings, switching to smart thermostats, and using LED lighting, among others.

You should also think about setting clear energy guidelines for your guests to follow. Your rental agreement can reflect requirements for keeping the unit within a certain temperature range, limiting the amount of showers to cut back on water usage, internet usage, and other cost-cutting measures. Make a fair but firm policy for charging guests for over-use of utilities.

Examine Your Pricing Structure

In 2023, the average short-term rental rates per night in the U.S. ranged from $97 for a small room to $337 for a three-bedroom house. The overall average for all properties totaled about $308 per night. And annually, the average short-term rental was found to have brought in more than $26,000 in the year. 

Each of these figures underscores how important a reasonable pricing structure can be to your revenue. With that in mind, your first step in establishing rental rates will be to research the markets for rental properties comparable to yours. You’ll want to consider factors like property size, location, amenities, and overall pricing trends.

As mentioned above, setting “dynamic” rates that account for peak- and off-season rentals is an option. You may also consider implementing tiered pricing for longer stays and larger parties. Additionally, offering amenities like a hot tub, outside deck, rooftop access, pet-friendly features, high-speed internet, and smart home features can add value to your rental and act as justification for charging a little extra.

Evaluate Your Occupancy Rate

In 2023, the average occupancy rate for U.S. short-term rentals was 56.7%. Common vacation hotspots, like Hawaii, saw rates running as high as 70% or 80%.

Keeping track of your occupancy rate helps you settle on reasonable rental rates. The more demand your rental unit attracts, the more you can charge visitors. Your occupancy rate can also dictate how much you can spend on marketing and maintenance.

Take special note of your property’s occupancy rate during specific seasons. You may think about adjusting your rates to reflect peak tourism periods and off-season occupancy.

Screen Potential Guests

Last but certainly not least, ensuring your rental property is properly taken care of is vital to your business. To that end, screening prospective visitors is an important step toward establishing security and guaranteeing you save money on rental expenses.

Screening can begin at the initial booking stage. Ask for detailed information from your soon-to-be renters, such as their full name, the expected length of their stay, their contact information, the purpose of their trip, and any specific requests they may have. Consider that guests who stay for extended periods are more inclined to treat your property as a temporary residence, not just a weekend party house.

Getting your guests to agree to your rental property’s rules and restrictions at this point is also crucial. They should also be aware of local occupancy limits and other registration requirements. You can also weigh the benefits of requiring a safety deposit before your guests arrive, with those who agree to it being more likely to take care of the property. 

Protect Your Short-Term Rental Investment

Each of these rental expense tips will go a long way toward maintaining a profitable rental property. Consider coupling them with Safely, which offers advanced screening tools and short-term rental insurance for your rental property, along with other ideas for maximizing revenue. Contact Safely today for an initial quote.

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Grace is the Chief of Staff at Safely and a licensed insurance agent. She began her journey at the company over a year ago in the Customer Happiness department, where she learned the ins and outs of the customer experience, getting to know Safely’s customer base and exploring Safely’s value proposition in the market. Grace was asked to step into the Chief of Staff role in 2023 and spends her time working on company-wide initiatives including investor relations, compliance, and expansion. Outside of working hours, you can find her trying new restaurants with her husband, walking her dog along the river, and exploring the city of Atlanta.

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