By Mike Heraty, License Partner & Managing Broker, Engel & Völkers Pagosa Springs
One of the questions I am asked most often by prospective buyers is, “Can my short-term rental income cover the cost of owning a mountain home?”
My answer is straightforward: it may offset a significant portion of your ownership costs, but it rarely pays for everything. Buyers who begin with realistic expectations are almost always happier with their investment than those expecting the property to generate enough income to make all of the mortgage payments.
Based on years of observing the Pagosa Springs and San Juan Mountain market, an above-average quality home that is professionally marketed and well managed should realistically expect approximately 140 rental nights per year. Exceptional homes with premium locations, outstanding views, luxury finishes, and excellent guest reviews may perform better, while many properties will perform below that level. Building your financial projections on substantially higher occupancy is generally unrealistic in today’s marketplace. Market information published by companies such as AirDNA’s Pagosa Springs Market Data can be a valuable resource for understanding occupancy, average daily rates, and seasonal trends, but buyers should understand how those statistics are calculated before relying on them to make an investment decision.
One word of caution: prospective buyers should avoid placing too much reliance on revenue projections published by some of the large short-term rental marketing and analytics companies. Many of these projections are designed to attract new property owners and may be based on assumptions that do not reflect the actual performance of a specific home in the Pagosa Springs market. Published occupancy rates and projected revenues can be overly optimistic and, if accepted without careful analysis, may lead buyers to overestimate the income their property is likely to generate. Instead, prepare your financial projections using conservative assumptions for occupancy, nightly rates, and operating expenses. If the numbers work under conservative projections, any additional rental income becomes a welcome bonus rather than a financial necessity. Conservative planning almost always leads to better investment decisions and fewer disappointments after closing.
Pricing is another critical factor. Successful owners don’t simply choose a nightly rate and leave it unchanged throughout the year. Professional managers use dynamic pricing, adjusting rates according to seasonal demand, holidays, local events, weather patterns, and competing inventory. Intelligent pricing often produces considerably more annual revenue than a fixed-rate approach.
Before purchasing, prepare a complete operating budget. Include professional marketing and management fees, which generally range from 20% to 35% of gross rental revenue, depending on the level of service provided. While management is one of the largest operating expenses, experienced managers often improve occupancy, guest satisfaction, and overall financial performance enough to justify their fees.
Owners should also establish a reserve for repairs, maintenance, and replacement of furnishings. Mountain homes experience significant wear from both guests and the climate. Furniture, mattresses, linens, towels, cookware, televisions, flooring, appliances, decks, outdoor furniture, grills, and hot tubs all require periodic replacement or repair. A reasonable guideline is to budget 5% to 10% of annual gross rental income for repairs and replacement, with additional reserves for larger capital improvements over time.
Utility costs are another expense that many buyers underestimate. Heating, electricity, propane, internet service, water, sewer, trash collection, fireplaces, and hot tubs can add considerably to annual operating costs. During the winter months, many homes also require snow plowing, driveway maintenance, and walkway shoveling to ensure guests have safe access regardless of weather. Depending on snowfall, owners should include an annual snow removal budget appropriate for their property’s location and driveway length.
Insurance deserves careful attention. Verify that your homeowner’s policy specifically covers short-term rental operations and provides adequate liability protection. Standard homeowner policies often do not provide sufficient coverage for vacation rentals. The Reuters article, Insurance Coverage for Airbnb and Vrbo Rentals, provides an excellent overview of why vacation rental owners should review their insurance coverage carefully. Property taxes and any homeowners association assessments should likewise be included in your annual ownership budget from the very beginning.
When all of these expenses are honestly evaluated—including marketing, management, dynamic pricing services, repairs, maintenance, replacement reserves, utilities, snow removal, insurance, property taxes, HOA assessments, and mortgage payments—most owners discover that short-term rental income rarely covers the total cost of ownership.
The short-term rental market has also become considerably more competitive. The growing supply of vacation rentals throughout the Pagosa Springs area has given travelers more choices and greater pricing leverage. At the same time, Colorado continues to attract millions of visitors seeking outdoor recreation, skiing, hiking, fishing, rafting, and mountain vacations. The Colorado Tourism Office Industry Resources provides useful information about statewide tourism trends that help shape demand for mountain destinations such as Pagosa Springs. Even with strong tourism, however, increasing inventory means today’s guests have more choices than ever before.
Today’s travelers expect attractive furnishings, updated interiors, comfortable beds, quality linens, fast Wi-Fi, immaculate cleanliness, thoughtful amenities, and prompt communication. Simply furnishing a home with inexpensive second-hand furniture, allowing carpets to age without regular cleaning, or postponing maintenance while expecting premium rental rates is no longer a successful strategy.
The properties that consistently outperform the market are those that deliver an exceptional guest experience. They are professionally furnished, meticulously maintained, exceptionally clean, thoughtfully equipped, and located in desirable settings with convenient access to the outdoor recreation that makes Southwest Colorado so special. Guests are willing to pay premium rates for premium accommodations, and outstanding reviews become one of the owner’s most valuable marketing assets.
For most owners, the greatest financial benefit of a short-term rental is not that it completely pays for the home. Rather, it helps offset a meaningful portion of the annual cost of ownership while allowing the family to enjoy a beautiful mountain retreat whenever it is not occupied by guests.
The most successful short-term rental owners are not necessarily those with the highest occupancy—they are the ones who purchased wisely, budgeted conservatively, managed professionally, and understood from the beginning that rental income is intended to offset the cost of ownership, not eliminate it.
When approached with realistic expectations, conservative financial planning, quality furnishings, professional management, and exceptional hospitality, a short-term rental can be an outstanding investment. It provides meaningful income that helps reduce the cost of ownership while allowing you and your family to enjoy one of Colorado’s most spectacular mountain communities. Buyers who understand that reality before they purchase are almost always the ones who are happiest with their decision.
