Short-Term Rental ROI Calculation: Expense Structure

Calculating Short-Term Rental Profitability: Expense Structure 📊

Short-term rentals can be lucrative, but profitability depends on realistic expense accounting. This guide outlines expense categories, a simple percentage-based model, and practical tips to make informed decisions.

1. Why accurate expense calculation matters 💡

Gross bookings alone are misleading. Real performance is net profit after all operating costs, management fees, taxes, vacancy, and reserves. Accurate calculation prevents over-optimistic projections and supports better investment choices.

2. Main expense categories to track ✅

• Operational expenses
  • Utilities and internet
  • Cleaning and laundry between stays
  • Consumables (toiletries, coffee, etc.)
• Maintenance and repairs
  • Routine repairs and small replacements
  • Furniture and appliance replacement over time
• Administrative costs
  • Platform fees and booking commissions
  • Management company or agency fees
  • Photography and listing marketing
• Financial costs
  • Mortgage interest (if applicable)
  • Insurance
  • Taxes related to rental income
• Risk buffer
  • Vacancy and seasonal variations
  • Contingency reserve for unexpected costs

3. Practical approach to estimating costs 🔍

1) Use actual bills and receipts to establish baseline utility and service costs.
2) Calculate average cleaning cost per turnover; for daily rentals, turnovers drive cleaning expenses.
3) Model seasonality: reduce expected occupancy in low season and adjust variable costs accordingly.
4) Set a contingency reserve as a percentage of revenue for repairs and downtime.
5) Include platform and management fees explicitly — they often take a significant share of revenue.

4. Simple example model (percentage-based) 🧾

Working in percentages of gross revenue makes comparisons easy:

• Gross revenue: 100%
• Platform and service fees: roughly 10–25% of gross
• Cleaning and laundry: roughly 5–15%
• Utilities and internet: fixed portion, often 5–15% depending on nightly rates
• Maintenance and depreciation: 3–10%
• Management company fee: 10–25% if outsourced
• Taxes and insurance: typically 5–15% depending on local rules
• Vacancy/reserve: 10–30% depending on location and seasonality

Net profit = Gross revenue minus all the above. This approach highlights which items have the biggest impact and where to optimize.

5. Ways to reduce costs without hurting guest experience 🔧

• Optimize cleaning workflows or negotiate volume discounts with providers.
• Invest in energy-efficient appliances and monitor consumption.
• Choose durable, easy-to-clean furnishings to lower replacement frequency.
• Mix direct bookings with platform listings to reduce commission fees.

6. Common mistakes to avoid ❗

• Counting only booking revenue and omitting taxes or platform fees.
• No contingency for repairs or vacancy.
• Using peak-season occupancy to estimate year-round performance.

7. Actionable checklist: start today ✔️

1. Gather 6–12 months of actual bills and booking data.
2. Build a simple spreadsheet: revenue on top, detailed expense lines beneath.
3. Convert expenses to percentages of revenue to compare scenarios.
4. Define a target net margin below which operating the property is not worthwhile.
5. Evaluate whether to self-manage or hire a property manager based on time and cost.

Final thoughts and next steps 📝

Profitability for short-term rentals is about realistic assumptions and continuous monitoring. Start with a simple model, collect real data, and refine. If you need help building a tailored calculation or evaluating an asset, contact BuyHome. We can run a personalised analysis and help choose the right property for your strategy.

Explore listings and start modelling: https://buyhome.ge/en/search or https://buyhome.ge/en/apartments