How do I calculate profitability for my short-term rental?
Start with your gross booking revenue. This is everything guests pay including nightly rates, cleaning fees, extra guest fees, and pet fees. Then subtract platform fees. Airbnb and VRBO take 3% to 15% depending on your fee structure. What’s left is your net revenue.
From net revenue, subtract all operating expenses. Cleaning costs add up fast, whether you pay a service or do it yourself. Supplies like toiletries, coffee, paper products, and linens need restocking. Utilities run higher than a regular rental because guests aren’t paying the electric bill and don’t conserve like they would in their own home.
Insurance for short-term rentals costs more than standard homeowner’s coverage. Property management takes 20% to 30% if you use a service. Maintenance and repairs come up constantly. Yard care, pool maintenance, HVAC filters, and the random things guests break all cut into profit.
Don’t forget professional services. A QuickBooks bookkeeper in Santa Fe who understands rental properties will cost money but keeps you from making expensive mistakes at tax time.
One common error is treating mortgage principal payments as an expense. Principal reduces your loan balance and builds equity. It’s not an operating expense. Only the interest portion counts against profitability. Property taxes are an expense. HOA fees are an expense. The principal payment is a use of cash but not a cost of operating the rental.
Track a few key metrics beyond simple profit. Occupancy rate tells you how often the property is booked. Average daily rate shows what guests actually pay per night. Multiply those together and you get RevPAR, revenue per available rental night. Compare these numbers month over month to spot trends.
Seasonality matters in Northern New Mexico. Summer and fall bring tourists for Indian Market, Fiestas, and opera season. Winter has ski traffic from nearby resorts. Spring can be slower. Your profitability calculation should account for these swings. A property that loses money in March might still be profitable for the year if July and August are strong.
Calculate profit monthly and review the numbers quarterly. Vacation rental operators who wait until year end to look at the numbers miss opportunities to adjust pricing, cut unnecessary expenses, or address maintenance issues before they become costly. Knowing your true profitability gives you the information to make better decisions about the property.
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