Investment Series: Expectations on Profitability

Updated: January 4, 2024

Ahh, the million dollar question! Well... maybe not "million"... but the ten's-of-thousands-of-dollar question! (doesn't sound as good). Alas, let's dig into some numbers so you can expect how the dollar flows and what you can reasonably expect to make!

First off, what we're looking at is how Gross Revenue leads to Net Revenue. These rentals homes are a business, one in which that we manage for you (i.e. we're running your business for you), but there are costs that go into operating this business.

Gross Revenue - This is the overall amount received from the guests before any expenses. - Ex: Guest stays for three nights @ $300/night and also pays a $100 cleaning fee. This Gross Revenue = $1,000 ($300 x 3 + $100).

From there, we do have standard expenses that go into facilitating this rental, which includes...

1. Platform Fee - this is the fee paid to Airbnb (3%), VRBO (8%) or Direct Bookings (2.9%, credit card processing).
2. Cost of Cleaning - this is different than the cleaning fee (above). The cleaning fee is what the guest pays to you, the "cost of cleaning" is the amount you pay to have your home cleaned. We have our own in-house cleaning team that helps us drive down the cost of cleaning while providing the right in-home experience. Our management fee oversees the facilitating of cleaners and making sure the home is cleaned but does not cover the cost of cleaning (we have to pay our cleaners!), which is why this is listed as an expense here. This cost may be anywhere between $100 and $300 depending on the size of the home.
3. Material Restocking - We require the ability to provide turn-key experiences for our guests. Clean linens on the beds, towels placed out and certain "materials" placed out so they can maximally enjoy their stay (first impressions are important!). This includes, but not limited to... toilet paper, paper towels, detergents, soap, toiletries, coffee, tea, sugar, etc. Once again, we cannot provide these for free but are able to do so at a greatly reduced cost, and we are currently honoring a $3/bedroom/stay (i.e. 4BR = $12/stay).
4. Hot Tub Management - If you have a hot tub, we can handle the management (or you can work with an outside company). If we manage the hot tub, we provide the chemicals and do the hands-on treatment. For every turnover, we clean the filter and balance the chemicals, at a cost of $35/turnover. Every ~6 weeks, depending on need, we will need to dump the hot tub, clean the shell, refill the hot tub, reheat it and add new chemicals and that is provided for $200.
5. Management Fee - Our management fee does change depending on the size of the home (larger homes make more money so we reduce our management fee) but our rate starts at 25% of the Gross Revenue. This fee covers quite a bit (which you can see here ) but essentially covers us stepping into your shoes to handle the responsibilities you would have to incur if you were to self-manage your home. For example, if you were to self-manage, you still have to restock materials, pay cleaners, hot tub specialists, registration costs and platform fees, and this is true with our services as well .

Illustrations are important! The below example is showing all possible costs. Please keep in mind, this is a directional example. Registration costs change per community and cleaning fees change based on the size of the home.

* if the image is rendering too small, you can also see it here

So in the above example, The Gross nets down to ~57% of the Gross Revenue.

Keep in mind there can also be unexpected costs. An example would include the water heater breaking. In a case such as this, we can contact the plumbers, ensure they come out to replace the water heater and ensure it's completion. If we pay for this service upfront, we will be deducting the actual cost (no upcharge) from the end of month proceeds. So if you were owed $4,000 and we paid $1,000 to replace the heater, we will pay you $3,000.

The real-estate market has changed a lot over the last few years, and while we will always put our best foot forward to make you money responsibly (after all, we only get paid if you get paid!) we still cannot guarantee profitability. Please see our Buying Guide and if you do have any questions about profitability, please fill out our Inquiry Form and we will get back to you at our earliest convenience. Thanks!