Vacation rentals in Ocean City, MD have been a popular option for real estate investing or offsetting your cost of ownership. Not only do you need to target rental properties to buy, you need to focus on the extra expenses you'll take on.
There's some expenses you may not even be thinking about. In this article, I'll share hidden costs related to owning an Ocean City, MD vacation rental property.
As the real estate market continues booming in Ocean City, and finding the best vacation rental properties are becoming more attractive. Online booking websites like VRBO, HomeAway, and AirBnB have made it easier for owners to manage their own short term rental and generate high rates of return if marketed properly.
You'll want to make sure you prepare the best rental plan! Your management and cost of ownership will impact your rate of return on your coastal real estate investment. Understanding the extra expenses will help you make sure your investment is successful and profitable.
Property taxes are standard with any real estate purchase. However, there are a few additional expenses that come with a short term rental in the Ocean City, MD real estate market.
Ocean City, MD real estate taxes are split with the State of Maryland, Worcester County, and the town of Ocean City. Tax rates are based on the Worcester County tax assessment value which is recalculated every three years based on sales data comparable to the property.
Property taxes in Ocean City are based on the following calculations:
Rentals in Ocean City may be subject to a 4.5% room tax payable to Worcester County and a 6% sales tax payable to the State of Maryland. There may be some accounting loopholes based on the amount of rental income earned. It's a good idea to hire a tax accountant or tax attorney to help you best structure your investment strategy.
It's possible to charge your tenants your room and sales fees. You'll need to factor these fees into your rental rates.
If your property is within Town of Ocean City limits, you'll need a rental license. You'll apply for your rental license with the Town of Ocean City, MD. You're able to mail your application and payment or visit City Hall on 3rd Street in Downtown Ocean City. There are different rental licenses that may be required.
The standard rental license for one calendar year, which is from May 1st through April 31st the following calendar year. The total fee is $141 which covers your $116 rental license fee and $25 for a noise control permit.
A partial year rental license is used when you start your rentals mid year. It is offered at a reduced rate. The license and noise control permit may vary depending on when you apply for your license.
Even if you don't have bookings until later in the year, you'll still need to obtain a license. If you're advertising your property for available dates in the future, you may need a license. Since many bookings start as early as January, it may be best to have a partial year license, so you can maximize your bookings and online exposure.
For example, if you buy a vacation rental in Ocean City, MD in January, and start advertising available bookings for the summer season, you may need a partial year rental license.
A R-1 District Rental License in Ocean City, MD is a newer licensing requirement. R-1 districts in Ocean City are single family home communities and areas. These districts also have additional restrictions for short term rentals.
R-1 districts include, but not limited to:
The R-1 District Rental License fee is $191 for one year, which is from May 1st to April 31st the following calendar year. The $191 fee covers $166 for the rental license and $25 for the noise control permit.
You can review information regarding licensing applications on the Town of Ocean City, MD's website.
If you're renting your property that was built on or before July 1978 for longer than one month, you'll need to get a lead based paint certification from the State of Maryland. You'll need to hire a qualified professional to inspect the property and issue a lead free report.
This can cost $300 per unit. Inspection fees will vary on the size of the unit and the scope of work performed. However, this is a one time fee. Once certified, you're good.
Summer season rentals are an alternative to managing short term rentals. You could get one person or a small group of tenants for the summer months. The standard summer season is May 15th to September 15th.
If you're buying a condo in Ocean City, MD or a property with a Homeowners Association, your association dues carries additional expenses. It's important to review the rules and regulations of the condo association or the homeowners association related to short term rentals.
For the most part, associations in Ocean City allow short term rentals. When searching for the right vacation rental property in Ocean City, MD to buy, you'll want to evaluate these types of situations.
If you're planning on advertising your property on booking platforms, there will be additional expenses. Advertising with online bookings websites like VRBO, HomeAway, AirBnB, Booking.com, and TripAdvisor are valuable resources to maximize the exposure for your property.
Costs for listing your property on some of the top booking sites:
If you're looking to hire a vacation rental management company in Ocean City, you'll have additional fees. However, your management choice is critical to your success.
Most Ocean City vacation rental companies don't use online booking platforms. They utilize their large databases from years of managing rentals in the coastal real estate markets.
There's a few things to consider:
Companies using online booking websites have been seeing greater returns on owners real estate investments. Take a look at the blog for an online Vacation Rental company, Evolve. They publish case studies on the their clients' investment returns.
Typically rental management companies charge 10%-35% for various management services. If you're buying a rental property in Ocean City or the coastal Maryland and Delaware areas, you'll want to consult with an experienced real estate agent familiar with the different ways you can manage your Vacation Rental Property.
Cleaning fees are common and will vary depending on the type of service you want for your rental. Short term cleaning services are a little more expensive compared to standard home cleaning services.
Your cleaning company will help you prepare for the next guest during the turn over. The turn over is the period of time between a guest that checks out and the new guest check in.
If you're buying a condo, fees can range from $65 for a one bedroom to $95 for a three bedroom. Again, it will all depend on the services you want your cleaner to perform.
Some owners enjoy handling the cleaning during the turn over. However, if you have a short timeline from check out to check in, it could be beneficial for you to hire a company to perform the service. Many owners in Ocean City live 2-4 hours away, and it can be difficult to commute during the summer season for every turn over.
Deep cleanings are best performed at the end of the vacation season. This cleaning is used to steam clean furniture, carpet, and/or grout in your tile floors. Cleaners will be more detailed during this cleaning to ensure you're unit is ready for the next season or off season stays.
Some of the best properties are honored with great reviews from guest. Thinking of even the smallest items to make your guests stay enjoyable can help you get great reviews and increase your nightly rate as you become successful.
Some items that are thoughtful to include:
Adding these items might be an extra $5 per booking or as much as $25 per booking.
Linens for a vacation rental have to stand up to a lot of wear and tear. Since they are being used on a regular basis and your cleaning company is laundering them between each stay, you'll want to have extras.
It's a good best practice to be on the lookout for sales throughout the year. If the sale price is a good deal, buy extras, even if you don't need any at the time. You'll want to get comfortable sheets. The more comfortable your guest is during their stay, the better chances you'll have for getting a great review, and more bookings in the future.
Your utility bills are standard with your cost of ownership. Short term guests don't pay those bills. There are some great resources to help you save money and manage your utilities.
Since Ocean City is primarily a summertime vacation market, it can get hot at the beach. Most condos in Ocean City have electric heating and air conditioning systems.
To help you regulate your air conditioning settings, you can install wifi enabled thermostats. The company Nest, makes some great thermostats that you can control from your smartphone. After your guest leaves, you can turn up the air conditioning. This is a great resource for managing your heat and a/c when no one is in the unit.
Electric bills can be relatively low in the off season when your unit isn't being used. Most condo associations will require your heat is set to at least 55 degrees in the winter. Winter electric bills can be as low as $50 depending on usages and the size of the property you buy. During the summer, electric bills can be $100-$250 for average sized condos.
It's important to make sure your guests are comfortable and have access to internet and cable. Especially if your guest has a rainy day and they need something else to occupy their time.
Many guests don't care about cable TV. However, internet and wifi is often a must have on the wishlist of most. As an alternative to cable, you could offer your guests Netflix, Hulu, or HBO Go. Subscriptions to services like these can be a cheaper alternative compared to cable TV.
In Ocean City, Comcast is the primary service provider of Cable and Internet. They even offer special winter rates, so you can reduce your services in the off season when you're not using the unit.
Water and sewer bills for condos are relatively inexpensive. You'll pay a flat rate per fixture in your home or condo which as of 2019 is $1.60 per fixture per month. You'll also have a $5 per month Bay Restoration Fee. Water and sewer bills are billed quarterly. With a condo in Ocean City, you're condo association fees contribute to the common area water and sewer usage.
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