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

[Robin4]

@Sarah 

From reading a lot of your posts over a long time I have come to the conclusion, you have some seriously wierd friends Sarah!

I would like to be at a dinner party you host, I could no doubt re-invent myself yet again!!

Cheers......Rob

[Paul154]

@Ben551

Welcome to the dissappointment of real estate.

Real estate is a terrible investment. High risk/ Low reward.

Professionally run Real Estate Inverstment Trusts *REITS" are earning 10% in these last few favorable years.

They lost 20% in 2006 and 40% in 2007.

Buying your house to live in is a good investment, cuz you need to live somewhere. and Airbnb helps by letting you rent your rooms out.

Buying a rental to rent out is difficult. A mixure of stocks, bonds and cash is often more rewarding and certainly much easier. 

[Ben551]

Thanks @Paul154 ! Quite scary isn’t it.  I actually shudder to think what happened to all the people with giant rental property portfolios before the ‘07 crash... all leveraged to within an inch of sanity... stuff of nightmares.

[Paul154]

@Ben551

Yes, That's why I was trying to be so depressing about it all. 

I lived through that crash with a giant portfolio of rental properties.

It was a lot of fun, until it wasn't.

I'm not against real estate, but best to be realistic.

Don't quit your day job 🙂

[Ben551]

@Paul154oh my, I'm so sorry to hear that.  That must have been terrible. It's very kind of you to share wise advice (and caution) with the rest of us!

[Robin4]

@Paul154 @Ben551

Yeah Paul, you and I have been through times when we seriously knew what it was like to not make ends meet.

When we married and built a house in the early 70's our interest rate was 3.5%. We did pretty well out of that place when we decided to sell and build again in 1980....interest rates still around 4%. We of course borrowed too much but, we could afford it!

The stock market crash of '87 saw our interest rates spiral to 18%....yes that is right 18%. There was no way we could meet a trebbling of our monthly mortgage payments,  even both working harder but, there was always talk that the crisis would not last long and we actually just borrowed more money and bought cheap land. Thank God we did because as soon as the financial squeeze ended we had good saleable assets to easily repay what we had borrowed.

Most young investors now Paul would have no way of coping with a situation like that, you and I Paul, we went through that and came out the other side!

Cheers......Rob

[Sandra126]

But the expenses you have listed are tax deductions surely? That is where the profit lies for you. Or?

[Ben551]

@Sandra126  I think we covered this in the initial post and earlier discussion, but I have a feeling it's going to keep coming up so.... how about a picture?

In my own sitaution I'm definitely part of the 'Group A' of hosts in terms of Indirect costs, i.e. I rent a portion of my own home so I do consider my Indirect costs only tax deductions.  However, I included them in the first post because I anticipated that others might be in 'Group B' and therefore may wish to see a full example.  It's easier for people to ignore a section entirely rather than add one.  I was also partly interested, with almost scientific curiosity, at looking at a "what if" scenario in terms of gearing for my own property.

[Ann72]

I live in New York, and I got the two houses in Maine in my divorce and put them on Airbnb after a failed break-in attempt on one.  I'm very happy I did, because I would have had to maintain them anyway, and the (very seasonal) Airbnb income largely covers the costs.

Four years in, I'm ambitious and would like them to make a profit, but my accountant is happy as a clam that they don't.  He had me form an LLC and when that shows a loss, it's applied to my personal income tax return and gives me relief from estimated taxes.

I do obsess over the numbers in QuickBooks, but every time I run numbers, I realize there's another way to run the numbers., but I stop short of trying to factor in the relief from estimated taxes.  So in the end, because I run reports often and have a pretty good grasp of what comes in and what goes out, I just accept that the Airbnb income is roughly covering my costs.  I keep a chart of what goes on each year and note the percentage increase over the year before, in both dollars and nights booked, and feel it's going in the right direction - but can probably only go so far.  Someday in the not too distant future I'll retire and live most of the year in one of them.  And then I'll run the numbers in a whole new way!

[Ben551]

That sounds like good advice from your accountant!  Good use of tax losses too. Thanks for sharing @Ann72  My wife is secretly hoping we generate a few losses for tax purposes for just the same reason 🙂

[Ann72]

@Ben232, thanks for starting the conversation.  My sense (from other discussions in the community and from some Facebook groups) is that not enough people take a good hard look at the hidden costs of doing this.  The rush to lower prices to get more bookings seems wrong-headed to me and I'm not convinced it's effective.

I'll join your wife in her hope!  🙂

[Kathy33]

Ben just wanted to let you know our cost per day. Utilities ( water,sewer,garbage & power) is 7.50 a day. Supply’s ( cleaning,replacement sheets,towels,mattress etc.) 8.50 a day. Property Taxes 3.50 a day. Insurance .50 a day. Cleaning 0 because I do all the cleaning. Mortgage none. I built the cottage from left overs from different jobs. And Paul real estate has been pretty good for us . You can drive by look at your investment and see how it’s going where as a stock you can’t. Also with real estate you have a write off every year. And at the same time see the gain. Paul we live in the same town. 2009 was a bad year but it’s come back two times. And this is why we are now hosting. Hosting is like traveling around the world and haven’t walked out your door. Robin we get a lot of Auzzie’s and they are all great. Thanks for all your posts. Happy Hosting.

[Ben551]

@Kathy33hey thanks for sharing.  Slightly off topic, but I really like the sound of your space - built from leftovers, that's my kind of spot!  I quite like to make furniture fittings out of free pallet wood I find on the side of the road.  People just leave it laying about everywhere, so I pick it up.  I built most of our Airbnb furniture with it, including the kitchen cabinets!  It started as an experiment then it grew... we were tempted to call our space the Pallet Wood Corner lol

[Ann72]

@Ben551 Oh wow!  I just looked at your listing and it's AMAZING.  The pristine beauty of the interior definitely does not say "roadside wood pallets."  It's just perfection.  If I ever go to New Zealand, that's where I'm staying!

[Ben551]

@Ann72  Oh thanks so much! That’s so incredibly kind of you. It was actually quite fun working out all the ways I could tart up pallet wood and make it modern. But yeah the sound of a place made from roadside pallet wood does make you wonder huh! Hey I really love your wood cabin listing with all the exposed wood, that’s magic!