Renting Your Recreational Property for Profit. Heather Bayer
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road, even more so when the Christmas lights are on. We’d rented it to a group for New Year’s, and my husband was incensed each time we went past in the daytime to see all the outside lights on. It was obvious the group hadn’t switched the lights off throughout their stay. We’ve now installed a timer that turns all but one of the exterior lights out at midnight. Not only does this lower the electricity costs, but it’s much nicer for our neighbors not to have their night sky polluted by several hundred watts of lighting.”
If you have a wood-burning stove or open fireplace, you may need to decide early on in the planning process whether you will provide unlimited wood for your guests to use in the winter, or if you plan to leave a reasonable amount free of charge and expect them to buy additional firewood as required. The first option is more likely to please your guests, and you can increase the winter rental costs accordingly. There’s more about adding value to your rental package in Chapter 12, Generating Return Visits.
Telephone
Many owners put a block on long-distance calls and ask guests to use a credit or other calling card. However, others have found that opting for a long distance/international plan with the telephone company gives substantial discounts, while you charge your guests full price for such calls. This works particularly well with overseas guests who do tend to call home quite regularly. When the discount on international calls is anything up to 60 percent, it is well worthwhile allowing unrestricted phone access. Providing it is made very clear on the rental agreement that payment for phone calls will be invoiced after the telephone bill arrives, or deducted from the security deposit, there should be no problem. It’s important, however, to hold onto the security deposit until the bill has been received and payment made.
For forecasting purposes, however, simply record the monthly telephone service charges (including any for long distance plans), making the assumption that any call charges will be recouped soon after the bill has been paid.
Satellite TV
Offering full satellite service is definitely a value-added option for winter rentals. You may see your cottage as a getaway from the conveniences of modern life and can’t understand why others would want to use their leisure time doing what they do at home; however, there are plenty of people out there who want to do just that.
A cottage owner told me of her amusement when she noticed a party of guests arriving at her property for their summer vacation with a U-Haul trailer containing many of their comforts of home, including a 42-inch TV, DVD player, and assorted game consoles for the children. The two televisions included with the cottage were simply not enough to keep the family occupied!
You may find that your satellite TV provider offers a limited number of free connections/disconnections or changes of viewing packages during a year. If this is the case, you might want to switch off full facilities in the summer and reconnect them in the off-season. Whatever you decide, forecast the expenditure accurately. A note of caution here: make sure any pay-per-view function is either disabled, temporarily disconnected, or password protected or you could find yourself with some very unexpected additional costs!
Property management and maintenance costs
Property management and maintenance costs will depend on whether you will be doing your own management and maintenance, using a dedicated property management company, or a bit of both. Chapter 11, Managing Your Property Yourself, addresses this topic in more detail and will help you understand the benefits and drawbacks of each approach.
For the purposes of this book, the term rental management refers to the method you use to look after the rental aspects of the business: advertising; taking bookings; handling deposits, security deposits, and final payments; and looking after the needs of renters while using your property. Property management refers to the short- and long-term maintenance requirements: year-round yard work, storm checking, handling emergency problems, etc.
Once you have decided which method will suit you, you’ll be in a better position to assess the costs involved. It’s usually best to apply a proportion of fixed costs for yard maintenance, which will include mowing and general yard care in the summer and snow clearance in the winter. Naturally, there will be some variation, as the weather plays no small part in these costs. In general, it’s OK to spread property management costs throughout the year on a monthly basis, averaging the expenses. Once you are into the second year of renting, your forecasting will become more accurate as it will be based on actual costs recorded in the previous year.
If you are going to contract with a property management company that has an annual fee spread equally throughout the year — including contingencies such as checking for storm damage and regular security visits — you will be able to assign these as fixed costs. If, however, you intend to use the do-it-yourself method, more care needs to be taken in forecasting costs as many incidentals can be overlooked, leaving you out of pocket. For example, remember to include additional fuel costs incurred when traveling to and from the recreational property.
Insurance
Your household insurance policy may already cover you for rental for a few weeks of the year. If you plan to rent for more than that, check your coverage with your insurance company.
Marketing, promotion, and advertising
The forecast costs for marketing, promoting, and advertising your recreational property will depend on your decisions regarding marketing strategy and budget, and, of course, your decision about using a rental agency or not. If you have chosen to use a rental agency, you will not need to consider the costs of marketing, as that will be done for you. And if you have selected a rental agency that actively markets its properties out-of-season, you have no worries at all on this front. If you are going it alone, read Chapter 9, Marketing Your Vacation Home, which covers marketing in greater detail.
If you have chosen to do your own marketing, there will be up-front costs for a website, marketing literature, web advertising, and other promotion. Although you can allocate a figure for ad hoc advertising through the year, setting a marketing budget at the beginning of the year will help your bottom line and profit margin. Otherwise, it is all too easy to drift along month by month, registering here and there with different agencies and Internet advertisers, only to find you have overspent badly and received insufficient return on your marketing investment. Play with the figures until you settle on a sensible figure for marketing. Then decide how best to spend that budget.
Contingency funds
Regardless of how meticulous you have been in estimating your overhead costs, there will probably be something you have overlooked, or some equipment failure or damage that requires additional funds. The amount you forecast for contingency funds depends on many factors, including the age of the property and when items such as water pumps, roofs, and appliances were last replaced. Then there is an element for sheer bad luck: Only you can judge how much to budget for that!
How Many Rental Weeks Will You Have Available?
Once you have a clear objective about how much income you want to generate, have set a realistic rental rate, and have accurately forecast the expenses, you will know the minimum number of weeks you’ll need to rent to cover your expenses. Readers already involved in the financial aspects of a business will recognize this as identifying your breakeven point — the amount that you have to make in order to cover all your outgoing expenses. Once this has been defined and you have set a contingency amount to cover unexpected expenses, you can then forecast how much profit you will make.
To rent your cottage as a business rather than a hobby requires a commitment from the entire family, so once again, it’s decision-making time!
When do you want to use the cottage for yourself and your family? Will you want several high-season weeks? What about Christmas/New Year’s, public holidays, and school breaks? Unless you and your family are flexible enough to use