Where the Rent Goes
The headline “$120,000 in rent!” is a fiction until you subtract the cost stack. On a representative $1.5M oceanfront 6BR grossing $120k, here’s where it goes: MED
The stack, itemized
Section titled “The stack, itemized”| Line item | Amount | ~% of gross |
|---|---|---|
| Property management (18%) | ~$21,600 | 18% |
| Insurance (3 policies) | ~$12,000 | 10% |
| Property tax (0.712% oceanfront) | ~$10,700 | 9% |
| Pool + hot tub service | ~$4,500 | 4% |
| Utilities (owner portion) | ~$5,500 | 5% |
| HOA / community dues | ~$1,500 | 1% |
| Maintenance + storm reserves | ~$12,000 | 10% |
| Total operating (ex-debt) | ~$67,800 | ~56% |
Net Operating Income ≈ $120,000 − $67,800 ≈ $52,200 → an unlevered yield of ~3.5% on $1.5M. That low number is the crux of everything.
The one that isn’t a cost: cleaning
Section titled “The one that isn’t a cost: cleaning”Departure cleaning is typically charged to the guest as a separate fee and flows through the manager — don’t double-count it as an owner expense. This is a common newcomer modeling error that makes deals look worse than they are.
Why “half the gross” is the rule of thumb
Section titled “Why “half the gross” is the rule of thumb”Across coastal-seasonal short-term rentals, operating costs run ~50–60% of gross before debt service. That’s why the fast mental model is NOI ≈ gross × 0.45, and why ERP (a gross number) always overstates the real yield by roughly 2×. If a pitch quotes you a cap rate off gross rent, it’s off by half.
The three biggest levers — each gets its own page:
- Property management — the 15–22% off the top.
- Insurance — three policies, rising fastest.
- Taxes & special districts — low base, sneaky nourishment kicker.