We’ve received hundreds of questions about the finances of running an Airbnb or other short-term vacation rental. Many people ask: “What expenses and fees eat into profits? Are there hidden costs? How do rental taxes work? What about insurance?” Whether someone is considering doing this themselves or is just curious, we’re laying everything out to demystify the process and help anyone deciding whether vacation rentals are a viable side hustle. We enjoyed learning the ins and outs and hope sharing our experience helps you plan.
Of course there are the obvious startup costs—purchasing, renovating, and furnishing a property—that will vary by project (and mortgage payments will differ too). You might even be using your own home and already have furniture. This article begins at the point of “OK, I have a rental-ready house, now what?” and covers the ongoing operating costs you can expect year to year.
We’re sharing real numbers from our duplex to illustrate typical costs. Please don’t treat these as exact predictions for your situation—your expenses will vary. Note that our duplex is one building but contains two distinct rental units (together totaling six bedrooms, six bathrooms, two kitchens, two living rooms, two laundry rooms, two backyards, etc.). If you have a single unit or a smaller space, your numbers may be lower than ours.
Utilities
Utilities are expected, but their annual total can surprise you if you don’t look at the year as a whole. Unlike long-term rentals where tenants often pay some utilities, vacation rentals usually cover them. For our duplex we pay:
- Water & sewer
- Electricity
- Trash pick-up
- Internet
- TV / streaming services (we provide Sling and Netflix)
Other properties might also have gas, oil, propane, parking, or HOA fees. For both sides of our duplex, utilities ran about $5,200 last year. Remember utilities don’t stop when the house is empty—seasonal vacancies still accrue minimum charges. Our electric and water bills fall in the offseason but still average around $150 per month due to base fees.
We explored pausing internet or trash services during long vacancies, but reconnection fees often negate savings. We did temporarily suspend some streaming subscriptions in long empty stretches, which helped a little—just be sure to restart them before the next guest arrives.
Lawn Care / Property Management
Most guests will see a cleaning fee on their bill. That typically covers post-stay cleaning, laundry, remaking beds, unloading dishes, and preparing the home for the next guests. We charge $150 per stay because that’s what our cleaner charges—so cleaning is a wash for us aside from a holiday tip.
Beyond cleaning, regular maintenance like lawn care, pool service, or snow removal may be needed. We hire a local landscaper to mow and maintain outdoor areas; because services are heavier in spring and summer, it totals about $800 per year.
Some owners use a professional property management company to handle bookings, cleanings, guest communication, and on-site issues. These services are convenient but typically charge a percentage of each booking—around 20% in our market—so factor that into your projections if you plan to outsource management.
Restocking Consumables
We provide consumables for guests and must replenish them regularly. Items we supply include:
- Toilet paper (six rolls per side)
- Paper towels (one roll per kitchen)
- Napkins in the dining rooms
- Tissues in bathrooms (replaced as needed)
- Sponges in each kitchen
- Trash bags for kitchens and bathrooms
- Aluminum foil and resealable bags
- Shampoo, conditioner, hand soap, and body wash
- Laundry detergent, fabric softener, stain remover
- Salt, pepper, and cooking oil
- Coffee grounds, tea bags, and sugar packets
What hosts supply varies by region; many Cape Charles rentals provide similar items. This year we spent about $900 restocking consumables. It may not be a major line item everywhere, but plan how much you’ll supply and budget for periodic replenishment.
Extra Linens & Towels
On a cleaner’s suggestion, we keep a complete extra set of bed linens and towels so laundry delays or stains don’t leave incoming guests without essentials. For each side of the duplex we purchased:
- 8 extra bath towels
- 6 extra beach towels
- 12 extra washcloths and hand towels
- One extra set of queen sheets plus a duvet cover and insert
- Two extra sets of twin sheets and quilts
We purchased these extras per side and stored them in a locked owner’s closet. While we rarely needed a full extra set, we used spares occasionally—especially the extra duvet covers. This reserve cost over $400 per side, or about $800 total. You’ll also want to set aside funds for occasional replacements as items wear out or get damaged.
Insurance & Taxes
Insurance and taxes are major considerations. Insurance for vacation rentals can differ from a homeowner policy, especially if your property is a short-term rental or located near water. For our duplex we carry three complementary policies:
- A vacation rental property insurance policy that covers short-term rental activity.
- An additional liability policy for added protection against accidents and injuries.
- A flood insurance policy, which we chose despite not being in a mapped floodplain due to local risk factors.
If you rent out your primary or secondary residence, consult an insurance expert to confirm your current policy covers short-term rentals—standard homeowner policies often do not for incidents occurring while a short-term guest occupies the property.
Taxes can feel confusing at first, but they’re manageable once you learn local requirements. For our duplex we pay:
- Annual county property tax
- Annual town property tax
- Quarterly county transient occupancy tax (a tax on vacation rental income)
- Monthly town transient occupancy tax
- Monthly state and local sales tax
Property taxes are based on the property itself, regardless of rental activity. Transient occupancy and sales taxes are percentages of rental income and require regular filings. In our area, transient occupancy taxes can be charged by both the town and the county. Between those occupancy taxes and sales tax, roughly 11% of every booking this past summer went to state, county, and town taxes—this excludes property taxes. For the duplex our combined taxes and insurance for the year were about $13,400. Understanding tax obligations up front is essential for realistic profit projections.
Airbnb Host Fee
Listing platforms also take a cut. Airbnb deducts roughly 3% of the nightly rate from payouts to hosts. Guests also see a separate service fee. We didn’t include the 3% hosting fee in our operating totals because it’s a portion of revenue that never reaches us—but you should remember this when setting rates. We chose Airbnb based on friends’ recommendations and ease of use; you can list on multiple platforms but managing calendars across sites can be prone to double bookings.
Miscellaneous Costs
Unexpected or miscellaneous expenses are inevitable. This year we spent about $750 on miscellaneous items and fees. Examples include a state and town business license fee and the cost of an annual rental inspection. We also invested $250 mid-season to add blackout curtains to two front bedrooms after guest feedback—the small improvements can enhance guest experience and reviews.
We like to leave a welcome gift for guests—a handwritten note with a small gift card to a local shop and a pre-stamped postcard. It’s optional, but we find guests appreciate the gesture and it supports local businesses.
To summarize, combining the categories above, our duplex’s annual operating expenses totaled about $21,750 this year. That number reflects two separate rental units and is likely higher than a single unit’s costs. Our goal is to highlight the range of expenses you should consider—utilities, maintenance, consumables, linens, insurance, taxes, platform fees, and miscellaneous items—so you can estimate your own operating budget.
Although the total may seem large, we booked enough nights in 2019 to remain profitable after operating costs. We’re not yet ahead of all construction and furnishing expenses, but we’re making progress, learning a lot, and enjoying the process along the way.