“surprise” expenditures: a septic pump that fails mid-season or a heated water line that needs replacing while you have winter guests in residence, to mention a couple. These might not be planned, so an emergency fund is helpful for such circumstances.
Electrical costs
Let’s assume that you are planning to rent year-round. This will mean you’ll be heating the property right through the winter, albeit on a minimum setting when it is empty. Be realistic when forecasting electricity costs. Depending on your location, take into account the strain that running air conditioning can place on a budget.
When you are making any forecast, make sure you include all the expenses, as forgetting some could have quite an impact on your break-even calculation. If in doubt, it’s better to overestimate expenses now, rather than getting a nasty surprise later.
Don’t expect your guests to economize on fuel in the winter or air conditioning in summer, although you can do some things to encourage them to be more thrifty with your power supply. Fitting individual thermostats in each room may help, but you then have to hope they will turn them down when they go out. Saving electricity is often a hit-and-miss affair with guests. Unless you are charging them separately for the fuel they use, why should they bother? Some owners stick a small label onto each thermostat as a reminder; others have a notice on the outer door so that it will be seen as guests leave to go out for the day. This is fine, but from experience, it’s sensible to forecast for the worst case: high electricity bills while you have renters in the winter and/or air conditioning units in hot seasons.
“We live about half an hour from our property and drive by regularly. In winter, you can see the back of the place from the 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
