What Is Expense Leakage in Vacation Rental Management?

In the world of property management, a leak is never a good thing. That’s true for roofs, pipes, and expense management. But expense leakage is an incredibly common and painful challenge for short-term rental (STR) managers. Errors around expense reimbursement eat away at already-slim margins and erode owner trust over time. 

So today, we’re going to dive deep into expense leakage: what it looks like, why it plagues STRs, and how you can prevent watching your hard-earned profits go down the drain. 

What exactly is ‘expense leakage’?

As its name suggests, expense leakage occurs anytime that you lose money when you aren’t reimbursed by an owner for a billable expense. It could be a seasonal carpet cleaning, a coffee maker replaced during a guest stay, or a box of light bulbs. Even if you only misplace a stray receipt here and there, losing money is losing money — and leakage compounds over time and across your portfolio.

How much does expense leakage cost property managers?

There’s a concrete cost to expense leakage, and our data shows that short-term rental PMs lose about 10-20% of their attributable spend per month on each property. 

Let's look at a concrete example: Consider a property manager with 80 units, spending an average of $100 per property each month on supplies, maintenance, and repairs. That's $8,000 in monthly operational expenses. With typical expense leakage rates of 10-20%, this manager is losing $800 to $1,600 every single month in unreimbursed expenses. That's up to $19,200 in lost revenue per year – enough to hire a part-time employee or significantly invest in property improvements.

That’s just a conservative example. We talk to many managers who have much higher monthly costs per unit and found they were missing anywhere from $80-250 per unit per month.

Then, consider the secondhand (and possibly more significant) cost of expense leakage: damaged client relationships and owner churn. If managers make mistakes on statements or have to retroactively bill owners for expenses that should have been caught earlier, it can create uncertainty and be perceived as incompetency or even fraud. 

Our data has shown that owners will leave a PM company after just two financial mistakes on a statement. This means small leaks can cause major damage to your business. 

Why is expense leakage so common in short-term rentals? 

You aren't alone if you’re an STR manager struggling with expense management. We’ve heard countless managers talk about lost paper receipts, after-hours maintenance visits, and bulk purchases split between properties as examples of commonly missed expenses. 

As Riley Goldman, owner of Beachside Vacation Rentals, told us, “I would literally print out my credit card statement, and I would go through each line one by one. I'd call every single one of my people and say, what is this receipt for? What did we buy? Which cleaning supplies should be billed to this unit?”

In our experience, STR managers are especially susceptible to leakage because of the complexity of expenses and the manual processes used to manage them. Expenses travel through multiple hands and disconnected systems before finally landing on an owner statement. And when you don’t have an automated structure in place to track each expense’s roundabout journey, you can lose them more easily. 

The root cause of expense leakage: manual processes

A lot of STR managers rely on manual, repetitive processes to manage expenses. Typically, if an employee makes a purchase for a property, they need to itemize the type of expense it is, assign it to a certain property, and submit it to the property manager, who then has to file it, potentially reimburse the employee, and, finally, bill the owner. If one step is missed, the expense becomes a leak.

Depending on how manual or time-consuming the process is, some managers will just eat the smaller expenses instead of doingall the work to track down the receipt and information necessary to bill it back to an owner. Often, it is more costly for your team to spend the time tracking down the information than it is to bill it back to the owner. If you have a $10 charge that probably should be billed back to an owner, but it takes your $25/hour employee an hour to track down the receipt, figure out the property, and manually upload this to your PMS, is it really worth it? 

Probably not. 

Now you’re in a scenario where you’re losing money whether you bill it back to the owner (employee time costs) or not (cash leakage).

Jed Stevens, owner of Koala Kai Vacation Rentals, offers a glimpse of what that looked like in his day-to-day. “[Expense management] was all carried around in my head,” he said. “I had to make sure that when I grabbed a receipt, I filed it in my file system, and then I remembered to put it on an owner statement. I’m sure there were things that I reimbursed my employees for that I didn’t get reimbursed by the owners properly for. I’m sure there were tons of leaks in my system.”  

Book a demo to see how Topkey automates receipt tracking and property tagging.

The nature of short-term rental expense leakage

When you first start out and only have a handful of properties and expenses, these kinds of manual processes are manageable. But as you gain traction and grow, so do the holes in these shorthand solutions. This happens due to:

• Complex purchases: Housekeepers, maintenance staff, and managers all make purchases in-person and online — making it hard to track down and reconcile who paid for what item for which property. Accounts payable processes often require management authorization to make payments, adding more manual steps to connect transactions to specific properties. 
• Growing portfolios: The more units you manage, the more expenses you’ll tally, which makes tracking them even more unwieldy. Emily Burke, owner of ERB Properties, experienced this when her business took off. “Many things fell through the cracks,” Emily says. “With such a high volume of transactions, we couldn’t guarantee with 100% certainty that every reimbursable expense was accounted for.”
• Siloed data: When your credit cards and banking platforms don’t talk to your property management software (PMS) and don’t allow you to tag properties and match receipts automatically, it’s easy for expenses to be recorded but left unassigned to specific properties. The best time to get the expense and property information is right when you swipe your credit card, but most financial systems force you to wait (which forces you to waste time chasing data).
• Time-crunched bookkeeping: Even though expenses usually don’t follow a set schedule, financial reporting does. Most bookkeepers must send owner statements out at the beginning of the month, which puts a deadline on hunting down receipts, tracing paper trails, and matching expenses to their respective properties and owners. ERB Properties’ bookkeeper, Sasha Mascarenas, got a taste of this chaos firsthand. “We needed to deliver owner statements by the 10th, and we would be burning the midnight oil until 11:59pm on the 9th,” said Sasha. 
• Maintaining owner relationships: If you or your employees doubt who to bill for an expense, you may prefer to eat the cost rather than risk damaging a well-tended relationship with an owner by mistakenly billing them for an expense.

Now that we understand the underlying causes of expense leakage, let’s grab our toolbox and move on to the fun part: repairing the financial plumbing system. 

How to reduce expense leakage

First, stop the monetary bleeding. If you’re currently using manual processes, follow these best practices to minimize leakage as much as possible:

1. As soon as you or your employees make a purchase, upload and file a copy of the receipt right away.
2. After each purchase, immediately log who should be billed for each expense — be it the owner, corporate, inventory, or guests.
3. Make a note of the property each expenditure belongs to immediately after each purchase.
4. (Optional) Identify which bookkeeping category fits the expense.
5. Regularly import this data into your property management system (PMS) and bookkeeping software.

Following these steps consistently will help improve your expense leakage — but manual processes always leave room for human error. So consider adopting new expense management tools that can make an even bigger impact (and will likely pay for themselves).

Use expense management software with physical and virtual corporate cards

Using an expense management system allows you to consolidate all transactions into one unified platform, even across multiple credit cards. This centralization provides a single source of truth for all expenses, simplifying the process of compiling and itemizing purchases at billing time. With individual cards assigned to employees, tracking who made each purchase becomes straightforward, minimizing the time spent chasing down receipts. Plus, many expense management systems integrate with rewards programs, offering financial benefits alongside streamlined expense tracking.

If your expense management system has the option to use virtual cards, this can be an excellent way for you to use different cards for different purposes, making your life a little easier. Things get messy when everyone uses the same card. You can also implement better cost controls, allowing you to prevent accidental unplanned spending or fraud. 

However if your expense management software doesn’t integrate with your PMS, you’ll still need to do manual heavy lifting if you have to import each transaction across multiple platforms. Ideally, you’ll use a platform that allows you to use your choice of credit cards and can sync with your PMS and bookkeeping software (like Topkey corporate cards).  

Automate with purpose-built STR expense management software

The best way to prevent expense leakage is to use a comprehensive, automated expense management system that caters to the unique needs of the STR industry, and lets you focus on building your business — not repairing leaks.

Our customers are saving anywhere from $500 to $3k per property per year (for a portfolio of 200 properties, that is the equivalent of $100k to $600k to your bottom line).

With Topkey, you can avoid the pitfalls that cause expense leakage:

• Automate manual processes — Send your employees automated text reminders to upload their receipts and assign properties immediately after they make a purchase.

• Siloed data — Topkey allows you to bring in all of your cards to give one unified view of your expenses. Then we allow you to push these expenses into your PMS to make owner statement creation a breeze.
• Maintaining owner relationships — An automated expense management system like Topkey’s reduces the chance of manual errors and improves the accuracy of your owner statements. Not only are you billing owners for more expenses, but they are also happier because of the transparency.

Managing short-term rental expenses presents a specific set of obstacles. And a generic expense management tool won’t solve those problems. 

Our platform is the only platform that is purpose-built for the short-term rental industry, with integrations to the top PMS systems, and direct connections to the top corporate credit cards.

We’d love to show you how Topkey is helping STR managers like Riley, Emily, and Jed streamline expense management and minimize leakage.

Schedule a demo to see how Topkey can help you close the books faster and improve your profitability. 

*Topkey is a financial technology company and is not a bank. Banking services provided by Thread Bank; Member FDIC.

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