Recently I had someone ask me about renting a home on a nightly rental basis. The next day I had another person ask the same thing. Both people said they make a lot of money but it’s too stressful, they live out of town, but want to stay in the home when they come to visit Salt Lake. So they asked if we manage nightly rentals. Well, the answer is no but we have some great companies we can refer them too. But I challenged them a little bit on why they felt nightly rental is better.  

I decided to take the challenge and break down the real cost of nightly rentals vs long-term leases using one of these properties as an example. 

Disclaimer - Stuff we will leave out:

Here are the specs: 2 Bedroom, 1 Bathroom, Fully Furnished, and No Garage. The average nightly rental is $72/night. 30 days in a month. Assuming there is zero vacancy (doesn’t exist), the gross revenue is $2,160. I can rent that home for $1400/mo on an annual lease. So at a glance that’s no brainer, right? 

Well you need to look at the whole picture. So let’s break this down further. 

I did the research on this rental and the home was booked 80% of the time. So your gross rents went from $2160/mo to $1709/mo. The owners managed the home themselves (super stressful because one lived out of state and the other lived 25 minute each way and had visit the home once a week.) 

So that $1709 – 3% is now $1658/mo. 

That’s still more than what I can rent it for on a long-term basis, right? Wrong. 

Let’s keep going. You still have to find: 

Cleaners ($50/visit/week for a total of $200/mo,) 

Check people in and out. (Average Utahn makes $18/hr X 1 hour drive time each every week is $72/mo)

Update availability and monitor advertisements and answer questions.$40/mo

You might even argue that nightly rental tenants are higher maintenance, harder on homes, and requires more of your time or you’d have additional handyman time. I don’t know how much to allocate to that but I’ll say, if you self-manage you get all the headaches and drama. 

So That $1658/mo minus $200/cleaning, minus $72/mo visiting the home, $40/mo managing the sites =  is now reduced to $1346/mo. Remember you’re doing all the work. 

Guess what you still have to monitor and pay for utilities too! On this unit utilities averaged $175/mo for water, sewer, garbage, gas, and electric. That’s a net of $1,171/mo.

So they heck with that! I’m going to call a vacation rental company. 

Now if you live out of state and need a professional to help you, a professional vacation manager charges 20% to 45% management fees. That 20% of the rents you receive so that’s $1709 x 20% = $342/mo in management fees. But you have to take that off of the $1709 - $342 = $1,367/mo because that is what your net is so far. 

Best-case scenario is you won’t have to worry about advertising fees (maybe), or cleaning fees (maybe), or other stuff because the vacation manager will do that for you. Oh, utilities. That is $1367 - $175/mo = $1192/mo net best-case scenario.

CONS:

So lets look at the other solution. Which is long-term rental. 

Rent is $1400/mo. Management fee is 8.9% of rent. $1400/mo - $125/mo = $1,275.  We do have a Leasing Fee of 39% of the first month’s rent. Our average lease length is 18/mos because people love us and stay longers. So you’ll see that fee less than once a year. Regardless that is $30/mo for a grand total of $1275 - $30 = $1245/mo Net Income

PROS TO LONG-TERM LEASE

CONS TO LONG-TERM LEASE

If you aren’t completely sold – that’s ok. We are still happy to refer you to vacation rental management companies, put together a rental analysis for your home personally, and discuss the nuances of your situation. Please think of as a resource!