As with any home you own, there are predictable, ongoing expenses to consider—such as mortgage payments, property
taxes, insurance, utilities, and routine maintenance. But a vacation rental home also comes with
operating costs that are easy to underestimate, especially in coastal and seasonal markets like
Cape Cod, Martha’s Vineyard, and Nantucket (and similar beach destinations across the country).
A helpful way to think about vacation rental expenses is to separate them into three categories:
fixed carrying costs (that exist even if the home is empty),
variable costs (that scale with bookings), and
reserve items (bigger repairs and replacements you’ll eventually face).
Fixed carrying costs: the expenses you pay year-round
Fixed costs are the foundation of your budget. These are the expenses you’ll pay regardless of occupancy, and they
often determine how comfortable you feel during the shoulder seasons.
- Mortgage payments (principal + interest, if financed)
- Property taxes (and any local assessments)
- Insurance (homeowners or specialty coverage, plus any required liability coverage)
- Utilities (electric, gas/oil/propane, water, internet, trash service)
- Baseline maintenance (seasonal servicing, pest control, routine upkeep)
In many vacation markets, utilities are higher than owners expect because renters typically use the home
differently than a household does—more laundry, more hot water, more AC, and more time spent inside during rainy
stretches.
Insurance: plan for higher premiums and market-specific coverage
Insurance is one of the most important (and often most misunderstood) operating costs for a vacation rental.
Premiums can be higher simply because vacation properties may be unoccupied for extended periods,
and because short-term rentals can create different risk considerations than a primary residence.
Homes located near the water may also require additional coverage—such as flood insurance—and some coastal homes may
need separate policies or endorsements depending on local conditions and lender requirements.
Massachusetts note: required liability insurance
If your property is in Massachusetts and you operate it as a short-term rental, state law requires operators to
maintain liability insurance of at least $1,000,000 per short-term rental, unless equal or greater
coverage is maintained through a hosting platform or similar arrangement. You are also required to notify your
insurer that the property is being used as a short-term rental.
Insurance requirements can change and may be affected by how the home is used, so it’s wise to review coverage with
a licensed insurance professional who understands vacation rental properties.
Maintenance and repairs: budget realistically (especially near the coast)
Owning a second home typically brings higher maintenance costs than a primary residence—particularly if you live
far away and can’t handle small issues yourself. Coastal properties may also be more vulnerable to salt air, wind,
and moisture, all of which can accelerate normal wear and tear.
A practical way to estimate ongoing repairs is to budget a percentage of the home’s value each year. Many
homeowners and housing professionals use a range of 1% to 4% annually for maintenance, repairs, and
general upkeep.
For example, if you purchase a $500,000 vacation home, you may want to plan to reinvest roughly
$5,000–$20,000 per year back into the property. At the low end, a newer or recently renovated home
may have fewer large repairs in the near term. At the high end, older homes—or properties exposed to coastal
weather—often need more frequent attention.
Don’t forget seasonal opening and closing costs
In seasonal markets, you may also have costs tied to opening the home for the rental season and
closing it down afterward. These can include HVAC servicing, outdoor shower setup, deck and outdoor
furniture maintenance, winterization (if applicable), and spring cleanups.
A good way to estimate realistic maintenance costs is to speak with a full-time local homeowner or property
professional who understands what it takes to keep homes in the area in good condition.
Variable operating expenses: what increases with bookings
Variable expenses rise as your occupancy rises. These line items often make the biggest difference between “gross
income” and actual net performance.
- Turnover cleaning between renters (and laundry service, if used)
- Trash and recycling services (including extra pickups in peak weeks)
- Landscaping and lawn care (and irrigation maintenance)
- Snow removal (where relevant) and storm response
- Periodic deep cleaning and mid-season refreshes
- Supplies (paper goods, soaps, lightbulbs, batteries, basic kitchen items)
- Linens and towels replacement over time
- Property management fees, if you use a manager for bookings, turnovers, and guest support
Even if you self-manage, it helps to budget for professional help during peak season. When demand is high,
availability can be limited—and urgent issues (like a broken screen door or a clogged outdoor shower drain) often
cost more to address quickly.
Compliance costs: registration, inspections, and local requirements
Some towns require homeowners to register their rental property and pay a registration fee. Others may require an
inspection—often at the owner’s expense—to ensure the home meets basic safety standards.
In Massachusetts, the state building code also includes periodic inspection and certification requirements for
certain short-term rental situations in one- and two-family homes, and municipalities may charge fees for these
inspections. Requirements vary based on how the property is used, so it’s important to confirm what applies to your
home and your town.
A practical budgeting approach is to assume there will be at least some ongoing cost—either fees or professional
time—associated with staying compliant.
Offsetting expenses: tax deductions and recordkeeping
When you rent out your vacation home, you are effectively operating a business. As a result, many expenses related
to operating the rental—such as mortgage interest, utilities, supplies, furnishings, maintenance, and advertising—
may be tax deductible.
This makes it essential to keep detailed, accurate records of all rental-related purchases and expenses. Many
owners find it helpful to use a dedicated credit card and a simple bookkeeping system so every expense is captured
and categorized.
In some cases, you may also be able to deduct travel expenses if you are visiting the property specifically to
perform maintenance, repairs, or other rental-related work. Because tax rules are fact-specific, it’s best to
discuss deductions and documentation with a qualified tax professional.
Investor takeaway: build an expense plan you can maintain
A vacation rental can be a rewarding investment, but success depends on realistic planning. Before you buy, take
time to outline fixed costs, estimate seasonal operating expenses, and build a reserve for repairs and
replacements—especially in coastal environments where weather and wear can be demanding.
- Underwrite conservatively: assume higher maintenance, higher utilities, and periodic upgrades
- Budget for responsiveness: the ability to fix issues quickly protects reviews and repeat bookings
- Maintain reserves: plan for big-ticket repairs (roofing, HVAC, exterior work) over time
- Track expenses carefully: good records help you evaluate performance and simplify tax prep
FAQ: Vacation rental expenses
Q: What are the biggest ongoing expenses for a vacation rental?
A: Most owners budget first for mortgage payments, taxes, insurance, utilities, and ongoing
maintenance. Operational costs like turnover cleaning, landscaping, trash service, and supplies can also add up
quickly in peak season.
Q: How much should I budget for vacation rental maintenance?
A: Many owners use a rule-of-thumb range of 1%–4% of the home’s value per year, then adjust based
on age, condition, and climate. Coastal environments often justify planning toward the higher end.
Q: Do I need special insurance for a vacation rental home?
A: Often, yes. Vacation rentals can require different coverage than a primary residence, and homes
near the water may need additional policies. Review coverage with an insurance professional who understands rental
use and local risks.
Q: Are vacation rental expenses tax deductible?
A: Many operating expenses may be deductible when you rent out the home, but the details
depend on how the property is used and your situation. Good recordkeeping and advice from a tax professional are
essential.
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