Holiday Home Times

Turning a Profit: Managing Costs and Balancing Income

It is a big mistake that many holiday home owners commit - they do not calculate the running costs of their property vis-à-vis its rental income potential.

It is a big mistake that many holiday home owners commit – they do not calculate the running costs of their property vis-à-vis its rental income potential.

For a holiday home owner who has decided to make it a profitable venture, knowing the running costs of the property is very important.  It is perhaps the first and foremost step to preparing a holiday home business plan – even before you decide on your rental rates.

The running costs of a holiday home can vary depending on where your property is situated and how you decide to address issues like repairs or maintenance and expenditure on your staff (if any).

Here, I’m assuming that you have bought your vacation home, and now you have decided to set up a holiday rental business after you had your first vacation in the property.

KNOW YOUR RUNNING COSTS

While most of you will be aware of the running costs involved in property ownership and also for running a holiday home rental business, for your benefit, I’m running the pointers again:  

Furnishing costs: You will have some up-front costs to prepare your home for guests. How you decide to furnish your home will be a major factor whether guests will book your home or not. The cost of furnishing of your home will directly reflect on your tariff card, because you will able charge more if your furnishing list includes certain luxury items like a swimming pool, a Jacuzzi, a well-manicured garden and outdoor sitting area, etc.  

Annual running costs: Invariably, whether your property is in a gated community or is a stand-alone villa or bungalow, there will be some annual running costs involved. These costs include property tax, income tax on holiday home rental earned, service tax, rental repairs and maintenance, your home insurance premium, etc. It will also include the annual servicing costs of your air-conditioners, the generator or inverter and the other appliances you have in your home.  

Monthly running costs: Most of the holiday home monthly expenses will be related to making sure that the guests have a comfortable stay in your property. For instance you might decide to employ a caretaker, a cook or housekeeping staff or a gardener. Apart from these, some monthly costs like utility bills – electricity, cooking gas, water, internet, satellite TV – also have to be accounted for.  If your property is in a gated community your monthly running costs will also include the security, common area maintenance, common area lighting, maintenance of public utilities like the gym, swimming pool, etc.

Additional running costs in gated community: In many gated communities they might charge you a fee for running a holiday home, because guests will be using the common facilities like the swimming pool, the gym or the clubhouse. Ask your homeowner association to give you a breakup of these charges. Sometimes although they charge on a monthly basis, they give discounts on quarterly and yearly payments.

RENTAL INCOME POTENTIAL OF YOUR HOLIDAY HOME

Once you have made a list of these running costs of your holiday home, you need to now calculate the potential your property holds in terms of rental income. Here are some pointers to determine your holiday home rental income potential:

TOURIST SEASON: If the tourist season of the area where your holiday home is situated lasts the entire year, you have the chance of greater rental income than any other season-based tourist destination.

CLIMATE: The climate of your holiday home location will have a direct bearing on your monthly running costs and thus also on your rental income. For instance if it’s a coastal climate like Goa, where you need the air-conditioner throughout the year, it means that your monthly electricity bill will go up and you will also need to service your air-conditioners more than once a year.

FURNISHING: As I stated earlier, if you have installed any items of luxury in your holiday home, your rental income potential goes up by a couple of notches. So give a lot of importance to the facilities or amenities you will have in your property.

COMPETITION: Is there any competition in your area? If there are, what are the facilities/ amenities they are offering? These are question, the answers of which will determine the potential of your holiday home rental income. I would suggest visit these competitors and see how you can stay a step ahead. If your holiday home has that extra zing, go ahead announce it in your online holiday home listing.  

HOLIDAY HOME SIZE: Ideally the running costs of a 3 bedroom holiday home and a 5 bedroom is very minimal. But when it comes to rental income, it makes a huge difference. So if you have a 5 bedroom property, but have kept one under lock and key because you haven’t furnished it, get it done and open it up for guests! Doing-up is only a one-time investment. If you get the marketing strategy right, you can break even pretty soon.