Have you calculated your host costs per night lately?

[Ben551]

Hi folks,

As new hosts, my wife and I decided to calculate how much it actually costs us to provide our space for a single night, in the hope that it would help us with pricing, so we wondered if anyone else had calculated their cost per night lately?

We were taking a leaf out of Alex Polizzi's book, since we quite enjoy watching the Hotel Inspector.  Having watched a recent episode, we learned that we had fallen for Alex's biggest gotcha - running an accomodation based business without calculating the bare minimum we need to charge in order to break even.  We were operating on the assumption that if money comes in, we must be making a profit somewhere.  Terrible planning, now that I think about it.

I thought it would be hard to whip up a calculation, given that we don't yet have 1 years worth of profit & loss to look back at, but after about 30 minutes we managed to come up with a very good picture of what our direct costs are likely to be (the costs that would no longer incur if we stopped renting our space) and what our indirect costs are likley to be (the costs we attribute to our Airbnb business for tax purposes, but we would incur anyway if we ended the business tomorrow).

Here's a close example of what we ended up with:

Cost of 1 night in my Airbnb
Income per night
Base price (average)		$147.12
Cleaning fee (average)		$13.81
		$160.93
Direct costs
Airbnb 3% service fee	$4.83
Cleaning costs (average)	$19.73
Gardening (average)	$16.44
Linens & laundry	$5.43
Toiletries & consumables	$1.01
Food supplies	$9.39
Batteries & lightbulbs	$0.27
Garbage	$0.26
Superhosttools	$0.30
Accounting	$1.37
Printing	$0.07
Gas & Electricity	$6.16
Advertising & promotion	$0.10
Maintenance & Depreciation	$6.47
Office supplies	$0.11
Income taxes	$5.58
	$77.52
GROSS PROFIT PER NIGHT		$83.41	52%
Indirect costs
Alarm monitoring	$0.69
Council rates	$6.43
House insurance	$2.93
Mortgage interest	$54.89
Telephone and internet	$1.64
Bank charges	$0.12
Parking permits	$0.17
Vehicle mileage	$2.19
	$69.06
TOTAL COST PER NIGHT	$146.58
NET PROFIT PER NIGHT		$14.35	9%

The key assumptions that we found changed the numbers (particularly indirect costs) were the occupancy rate and floor area for attributing overheads.  Even so, it was helpful to see what both the gross profit and net profit were likely to be.

We're not experts so I'd be interested in what examples other people have!

~ Ben

[Ben551]

@Denise80  Hey that sounds perfect! A great point to, the objective isn’t always about making a profit, it can also be about covering costs to support a longer term goal. Great stuff.

[Mariann4]

I'm a bit of a nerd when it comes to reading adverts for houses on sale @Ben551. I read the new ones almost every day (small city, 50 new ads is a lot). I have actually come across ads for units in the city center where there is given a calculation on how to finance the purchase by doing STR with Airbnb and Booking etc. When I break down the calculation to a daily rate on/off season I see that they CAN get by. But the breakdown is slim. They cannot have much maintainance/damage happen... BUT: they can benefit in the end by the increasing prices when they sell... I think the key is to have a low mortgage. And having a positive income on STR is only possible in the city center.

Also regulations are about to happen here. The politicians are about to agree on a maximum 90 night stay a year on STR that are in entire units. Then the bottom falls out of the profit for the city center units.... For rooms in your own home there will be no restrictions.

Being a high-cost society we already have a hard time balancing to get adequate pricing that provides profit for owner and value for guests...

Mariann 🙂

[Ben551]

Hey thanks @Mariann4. that’s interesting. The council where I live are also talking about changing the laws and local taxes, which will have the effect of making primary STR’s unattractive.

There is a national housing crisis in New Zealand (widely published, thousands of homeless and growing) so they need to put the brakes on it. Like you, people who STR in their own home will be fine, although some cities (like Auckland) might even cap that to 180 days per year to encourage longer term letting. 

[Mariann4]

We had a change in taxation last year @Ben551. Our renting taxation legislations are fairly simple: if you rent a room in your home the income is tax-free. But from 2018 I have to pay tax for every stay that is less than 30 days. No deductions possible. But we only pay tax of 85% of the income above NOK 10.000. So we have a flat 15% reduction in the income above NOK 10.000 that is meant to cover expenses. If I have a lodger (I think that is the word used by Huma) for 6 months or a year, anything more than 30 days, it is tax-free again. But if I rent my entire home I can make NOK 20.000 tax-free (still if more than 30 days stays). If I make NOK 20.001 I have to pay tax from the first krone.

This new STR taxation has made some hosts quit. As I said: high cost already. Adding 25% to the price to level out the loss of income that the taxation takes is hard on already high prices. Taking the loss of 23% tax makes the business not interesting anymore...

What's with the crisis? Too few houses? Too high prices? Loss of jobs?

Mariann 🙂

[Ben551]

@Mariann4  wow, yeah that's a whole system wide impact.  

Oh in NZ it's a combination of things.. inward immigration has been too high for a while, population growth exceeded housing supply, not enough tradespeople (separate crisis on that front), and the NZ housing stock itself has degraded, yet the price of NZ housing ignored the financial crisis in 2008 and kept growing... and growing... like a hot air balloon.  We now have a thing called "generation Rent" where people under 30 today can kiss their dream of home ownership goodbye, because the average house price for a 2 bedroom crap shack in Auckland (with a leaky roof and single glazed windows) is $1 million.

Fun times... the government has had to step in aggressively over the past year to look at addressing it.  Their are thousands of people being put up in emergency housing. Some living in their cars or in caravans, at levels never seen before in NZ history.  Measures are being taken are on all fronts: government housing build projects, government funded home improvements for damp and insulation, increase in apprenticships for tradespeople, reserve bank pulling fiscal levers to slow house price growth, stopping overseas ownership of NZ property, introducing a living wage... now talk of slowing STR ownership etc.  Hell you can google New Zealand housing crisis and read more, it's endless.. will take years and years to correct.

[Mariann4]

Sorry @Ben551... Tradespeople? Why do you need more? (Trying to learn and as I know the word tradespeople (I worked sale before I quit last July), I didn't know it was an issue if there are few...)

Mariann 🙂

[Ben551]

@Mariann4  I found a cool video that explains the New Zealand housing crisis in rather an entertaining way! 

http://players.brightcove.net/3921507366001/Syx4Zr1Keb_default/index.html?videoId=5846719346001

PS: Tradespeople is the term we used to describe the group of people who learn trades that ultimately build houses (like builders, plumbers, electricians, engineers and architects).

[Mariann4]

Thank you @Ben551 🙂 Just opened the video to have a look.

Same problem with the tradespeople (I'm used to the term craftsmen) will occur here very soon. We have imported a lot of labor from eastern Europe (as many as 35% of the Polish population live and work outside of Poland) and they are now starting to get better living and working conditions in their home countries. So they are about to go back home, leaving us with a gap in the amount of educated tradespeople.

Mariann 🙂

[Ben551]

@Mariann4  Ahhh... that makes sense. I hope it doesn’t get too bad. Some of our friends back in the UK are worried that Brexit will have the same effect if a lot of qualified people head back to Europe. All that turmoil is one of the reasons I left the UK and moved to NZ 2 years ago...

[Rebecca160]

@Ben551I am guilty of not having done a formal analysis of my STR! It was clear early on that I had to change the minimum rental night from 1 to 2 nights, as the cleaning was killing me physically and cost wise.

I do keep records of all my costs and income statements and then hand it all over to my accountant once a year for tax purposes, yet I have not paid too much attention to it. Since my home is paid off, I figure that any money coming in is a bonus. It would be good to know exactly how much profit this translates to...

[Sarah977]

@Ben551 What you list as indirect costs have nothing to do with your short term rentals, IMO. Your mortage and so on are to do with your property investment, your equity in the home. To me, it's erroneous to count that as part of your hosting costs.

I have a friend who was complaining that her vacation home wasn't "paying for itself". She comes down and uses the house herself for 2-3 months a year, the rest of the time it's a rental. I asked how it could possibly not be paying for itself, considering that it's almost fully booked and prices are normal for the area. Turned out what she considered "paying for itself" not only included her property manager, maid service, and a part time gardener, plus the utility bills and maintainance, she also expected it to cover her flying down twice a year, renting a car for her entire time here, and eating all her meals out.

[Robin4]

@Sarah977 @Denise80 @Rebecca160

Sarah, I think you are missing the point!

Ben concedes exactly what you are saying as far as indirect costs are concerned. What he wanted to find out.....'Is it worth mortgaging yourself to buy and run a property specificly to use as an STR'?....and the conclusion he has come to is ....it is a qualified,yes!

Even taking into account all conceivable running costs including gardening costs and general maintenance costs (which, as you rightly point out,  one can't include in a primary property),  a property in Ben's situation would still be positively geared and as long as property values made some headway that would be the icing on the cake.

I had an involvement in an apartment in inner Sydney which had a market cost of $275,000 in 2003 after the Sydney Olympics. That property and similar ones in that apartment block now sell for between 1.8-2 million dollars. To increase your asset value by 7 times is a handy return to have over a 16 year period!

@Ben551 Thanks for putting that analysis up for all to see, with your permission I might put that up here as a picture with the costs removed that other users can download and then open in 'Paint' or similar program and put in their own figures as I have done.

That's a good post Ben, this is the sort of thing that really does help the community.....good on you mate!

Cheers.......Rob

[Ben551]

Oh thanks @Robin4 that’s kind of you, and yeah no worries. A blank template for people is a great idea. I know our numbers aren’t perfect but it was more about having an honest go to see what we could learn from it. You’re spot on about indirect costs and the gearing angle, that’s just what we were thinking!

[Robin4]

@Ben551 @Sarah977 @Rebecca160 @Denise80

Thanks Ben,

I am not familiar with Apple, but for others to use in Windows PC, this picture is what is called a portable networks graphic file! Rest your cursor on the picture and you will see a magifying glass with + sign. Right click anywhere on the picture and from the box options select 'Save Image As' and save to your pictures, or your Airbnb work folder.

When you wish to use this picture from wherever you have stored it, right click the thumbnail of the image and from the option box click 'Open with Paint'!

Now you will have the tools to insert your own figures into the graphic Ben has very kindly provided......

Thanks again Ben, this is good stuff.

Cheers......Rob

Edit: If I was starting this like you did from scratch Ben, I would have included it as an 'excel' file....a bit easier to work with.  But, as I was starting from a picture I had to continue down that path rather than type it all out again!

[Ann72]

@Sarah977

LOL