What STRs Actually Cost to Run

The number buyers forget

Sellers overstate revenue; buyers understate cost — and the second error is quieter, because you don't overstate a cost, you simply leave it off the page.

A revenue estimate at least gets scrutiny — it's the headline number, so buyers argue about it. Costs get a glance. The mortgage, the taxes, the cleaning fee, maybe utilities, and the spreadsheet moves on. But an STR is a small hospitality business, and it carries a business's full expense load: software, resupply, turnover labor, licensing, insurance at the short-term-rental rate, and — the ones most likely to be missed — a reserve for what wears out and a real cost for who manages it. Every line you leave off doesn't vanish; it just shows up later as the gap between the profit you modeled and the cash you actually keep. This guide is the complete stack, so nothing shows up later.

Source it: build the stack from the bottom up

The first move of the Method applies with a vengeance to costs: source every line from real evidence, and build the total from the lines — never as a percentage of revenue. You'll hear rules of thumb ("operators run 30–40% in expenses"). They're worse than useless for underwriting a specific property, because many of the largest STR costs are fixed — they don't scale with revenue — so a percentage that looks right in a good year understates cost badly in a slow one.

Sort the stack into three groups and price each line from a real source: the tax record, an actual insurance quote at the STR rate, utility history for the property, current software pricing, a cleaner's real per-turn rate. (Management — the fourth big cost — is its own decision, handled in the next section.)

Fixed — continues whether or not the property books:

• Property taxes (often reassessed higher for a non-owner-occupied or vacation use)
• Insurance at the short-term-rental rate — a true STR/commercial policy, not a standard homeowner's policy. A standard homeowner's policy may exclude or limit short-term-rental activity, leaving important coverage gaps; an STR policy typically costs materially more than a homeowner's premium. Get a real quote rather than assuming your current policy carries over.
• HOA or community dues
• Base utilities — electric, gas, water and sewer, trash
• Internet and streaming/TV
• Software — dynamic pricing, a property-management/channel tool, smart locks, noise and security monitoring
• Licensing and permits — the annual STR permit and business license

Variable — scales with bookings:

• Cleaning and turnover labor, net of the cleaning fee guests pay — the part the pass-through doesn't cover, plus the turns between same-day bookings. (Underwriting note: this model excludes cleaning-fee revenue from the top line and counts only the net cleaning cost the owner bears — that keeps the estimate clean. In your actual books, record the cleaning-fee revenue and the cleaning expense separately; netting them is an underwriting shortcut, not a bookkeeping method. The bookkeeping side of that distinction has its own article: Net Payout vs. Gross Revenue.)
• Consumables and resupply — toiletries, paper goods, coffee, welcome items
• Platform host-side service fees
• Restocking and ordinary wear — the towels, linens, and small breakages that don't survive heavy turnover

Reserves — not optional, and the most-skipped lines in the stack:

• A maintenance reserve for ongoing repairs — HVAC service, plumbing, appliances
• A capital-expenditure (capex) reserve for the big-ticket replacements you know are coming, amortized into every year — roof, HVAC, water heater, and the furniture refresh a heavily-used STR needs far sooner than a home

This stack assumes you self-manage — so it carries no management fee. If you'll hire a manager, add their fee (see the next section); it comes straight out of NOI.

Management: the biggest single decision on the cost side

Say the management assumption out loud, because it's the largest swing in the whole cost stack and it's a choice, not a given. A full-service short-term-rental manager commonly takes on the order of a fifth to a quarter of revenue — on this property, roughly $13,000–$16,000 a year (call it about $14,000), enough to move NOI from $39,000 down to about $25,000 by itself. (That same management allowance is what a cap-rate comparison folds into a normalized NOI, so this property's asset yield can be judged against others on equal footing — see Cap Rate for STRs (and Why It Misleads).)

So underwrite the version that matches how you'll actually run it. If you'll hire out, put the real fee in the stack and see what it does to the deal — for many STRs, whether it pencils with professional management is the whole question. If you'll self-manage, you can leave the fee out, but go in clear-eyed: you're buying yourself a job as well as an asset, and the economics change the day you want to hand it off. Underwriting a self-managed deal as though a manager would cost nothing is how a property that "works" quietly turns out to depend on your unpaid time.

Haircut it: round costs up

The Method's second move has a direction on the cost side that's the exact mirror of the revenue side. You round revenue down; you round costs up. The lines you're least sure of — cleaning in a high-turnover season, maintenance on a property you haven't lived in, the software stack you'll add once you're actually operating — are the ones that drift higher in reality, not lower. So where a number is a range, underwrite the top of it. Conservatism isn't a mood; it's a direction you apply to every input, and on costs the direction is up.

Record it, then stress it

Record every cost line alongside revenue — each with its value, its source (the quote, the record, the rate), and the haircut you applied — so the whole NOI is auditable and you can defend it to a lender or a partner.

Then stress the stack. The trap in a slow year is that revenue falls but the fixed lines don't: the taxes, the insurance, the software, and the debt are all still due, and the reserve you were quietly borrowing against is now being drawn. Model a soft year — revenue down, fixed costs flat, reserves drawing — and confirm the property still covers itself. If it only breaks even when every cost behaves and nothing needs replacing, it doesn't have the margin the base case implied. (Sizing the buffer that carries those fixed lines through the slow months is its own piece: Calculating the Seasonal Cash Reserve Floor.)

The Builders Finance Underwriting Method

Source it — trace every number to real evidence, not a headline. Haircut it — discount for the year you'll actually have; round revenue down, costs up. Record it — write down the value, its source, and the haircut you applied. Stress it — move the numbers that matter to their downside before you trust them.