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. A line you leave off doesn't vanish; it shows up later as the gap between the profit you modeled and the cash you actually keep. This guide lays out the complete stack, so nothing shows up later. The dollar figures on this page come from the example deal these guides use, an illustration rather than a forecast, whose full assumption set is listed in The Assumptions Behind Every Model.

Source it: build the stack from the bottom up

Source it, the first move of the Builders Finance Underwriting Method, matters even more for 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, which may exclude or limit short-term-rental activity and leave 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 that fee doesn't cover, plus the turns between same-day bookings. (Underwriting note: this model leaves cleaning-fee revenue out of 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 has its own guide: Recording STR Income & Expenses Correctly.)
• 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

Repairs and the capital reserve — not optional, and the most-skipped lines

• Maintenance and repairs for ongoing upkeep — HVAC service, plumbing, appliances. This is an operating cost, inside the stack; the worked example budgets it as a fixed annual amount — an illustrative budgeting assumption, not a claim that repair costs never vary.
• A capital-expenditure (capex) reserve for the big-ticket replacements you know are coming, spread across every year — roof, HVAC, water heater, and the furniture refresh a heavily-used STR needs far sooner than a home. This capital reserve is set aside below NOI, as its own adjustment, rather than inside operating costs.

The full stack on the example deal

Each dollar figure is rounded independently, so the displayed amounts may not add up exactly. Stabilized revenue is $64,495.50 and management at 22% is $14,189.01, so NOI after the allowance is $26,306.49; that is why $40,496 − $14,189 appears to be $1 out. The management allowance is priced in even if you self-manage (see the next section), and the capital reserve is set aside below NOI rather than inside operating costs.

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 ($14,189 at the 22% this guide uses), enough to move NOI from $40,496 before the allowance to $26,306 after it by itself. (That same management allowance is what a cap-rate comparison folds into NOI after a management allowance, so this property's yield as an asset can be judged against others on equal footing. A cap rate is the property's NOI as a share of its price, its yield before any loan; see Cap Rate for STRs (and Why It Misleads).)

So price management into every underwrite, then be clear about which version you'll actually run. If you'll hire out, put the real fee in the stack and see what it does to the deal — for many STRs, whether the numbers still work with professional management is the whole question. If you'll self-manage, keep the allowance in the underwrite anyway and show NOI before it alongside, labelled: you're buying yourself a job as well as an asset, the work has a market price, and the economics change the day you want to hand it off. Once you're operating, record your actual results as they are — no management expense if you did the work yourself — and compare them with the allowance rather than writing in a fee you never paid. 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 can be checked 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 counting on is now being spent. 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.

Those four steps (source, haircut, record, stress) are the Builders Finance Underwriting Method, which The STR Deal Underwriting Manual applies across the whole deal.

Sizing the buffer those fixed costs demand

Fixed costs are what make a seasonal cash reserve necessary — separate from the capital reserve above: the mortgage, insurance, property tax, utilities, software and internet bills arrive on schedule whether or not anyone booked. So the buffer is sized off the fixed lines alone, not off total annual spend.

Add up the monthly fixed costs — every line above that bills whether the calendar is full or empty. Then count the slow months realistically: the stretch where bookings cover some of that number but not all of it. Multiply the monthly fixed cost by the number of slow months, subtract the revenue you genuinely expect across them, and the remainder is the floor. That is the cash that has to already be in the account before the slow season starts, because it is the money the property will not earn for itself.

Two adjustments make the figure usable. First, variable costs scale down when occupancy falls (occupancy is the share of available nights that are booked), so they do not belong in the fixed-cost base. But the variable costs that do not fully disappear, such as a cleaner on retainer or a minimum-charge service, belong in it at the level they bill when nothing is booked. Second, the floor is a floor, not a target. A single uncovered repair or an insurance renewal landing inside the slow stretch is what turns a tight buffer into a missed payment. So the number is where the decision about how much cash to hold starts, not where it finishes.