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. See 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

Costs go in The Assumptions Ledger alongside revenue — each line with its value, its source (the quote, the record, the rate), and its haircut — 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.

Your action plan

1. Source every line — price the stack from the tax record, a real STR-rate insurance quote, utility history, current software pricing, and a cleaner's actual per-turn rate. No percentage shortcuts.
2. Get insurance right — confirm a true short-term-rental policy, not a homeowner's, and budget the real (higher) premium; assume nothing carries over.
3. Put the reserves back — a maintenance line and a capex line, every year, never zero.
4. Decide management up front — self-manage (no fee in the stack, but know you're buying a job) or hire out (add the real fee, commonly a fifth to a quarter of revenue); underwrite the version you'll actually run.
5. Round costs up — where a line is a range, underwrite the top of it.
6. Record it — every line, value, source, and haircut, in The Assumptions Ledger; subtract from revenue for NOI.
7. Stress it — hold the fixed lines flat against a soft revenue year and confirm the property still covers itself.

The bottom line

Revenue and cost are the two halves of the same honesty problem: one gets inflated, the other gets forgotten, and both make the deal look better than it is. You build the cost side the same way you build the revenue side — from the bottom up, sourced line by line, rounded the conservative direction (here, up), recorded where you can defend it, and stressed against a slow year. Do that and NOI stops being the number left over after the costs you remembered, and becomes the number that survives the costs you didn't want to.

About the author

Matt Nunn is the founder of Builders Finance. He has spent two decades working with the financial side of real estate businesses, and started Builders Finance to give short-term-rental operators the financial systems, frameworks, and plain-language education that most hosting advice skips over. Builders Finance publishes educational content for STR owners and is not a substitute for advice from your own qualified tax professional.

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Educational information only — not individualized tax, legal, or investment advice. The worked example is an illustrative model, not a projection or a recommendation.