Thanks to Maria Lamb for letting us reprint her article on the basics for renting out your home.
Back when I worked as an exclusive buyer’s real estate agent, most of my clients were looking to purchase vacation homes. Almost every home that we looked at, the selling agent included in his or her sales pitch, “And it would make a great vacation rental.”
So just WHY do people consider renting out their vacation homes to strangers? Well, duh – ninety-nine percent of the time, it’s money. (Although we started renting one of my properties because, as an old house, it needed to be lived in instead of sitting and rusting away 50 weeks out of the year).
With the popularity of AirBnB, I’m seeing people all around me jumping on the bandwagon to purchase vacation rental homes. It sounds so easy — buy a house in a vacation location, list it on AirBnB and sit back and rake in the cash.
And then I sit next to the woman at the vacation rental conference. We exchange information — she has a lovely home on a lake. She’s been renting it as a vacation rental for about 20 years. For a lady of a “certain age,” she seems very internet savvy about listing on all the rental websites. We chat for quite awhile. Then she says… “You don’t actually make a profit from your vacation rental, do you? I’ve never met anyone who actually made a profit.”
I think she hit the nail on the head — most folks who purchase homes specifically as a vacation rental will most likely be out of business within a few years or so. Most naively go into rental business not realizing the work that goes into it. Yes, you can break even. You can even make a profit, but not without lots of work and elbow grease (both the physical and mental kind).
Before you take the leap, consider these basics for renting your vacation home.
Understand the Legalities of Short-Term Renting
I think that too many people go into business… and YES, it is a business… without really thinking it through. Depending on where you live, you may need to register with your town, county or state, obtain a business license, pay sales tax and most definitely pay income taxes. Yes, that’s right. If you rent out your vacation home for more than fourteen days per year, you will have to declare the income and pay income taxes on the income. Of course, expenses and trips to the house can sometimes be written off, but talk to your accountant!
Get Vacation Home Rental Insurance
My first 10 years in the rental business, I had the wrong kind of insurance — I was darn lucky I was never sued. In most cases, your regular homeowners insurance isn’t going to cover you if a guest trips over a tree stump and and sues you. So, insurance shopping you must go…. Luckily, with vacation rentals becoming more popular, companies offering commercial coverage for short term rentals are becoming a tad easier to find, although, insurance for a vacation home that’s rented out might be pricier than regular homeowners insurance.
Keep Your Vacation Home Home Safe
Once insurance is taken care of, safety issues must be addressed. Smoke detectors, CO2 detectors, fire extinguishers and/or fire blankets should be up to date and tested regularly. Upstairs rooms should have two means of egress — one of my rentals was an old house, and I needed to enlarge a window to make it big enough for someone to escape in case of fire. Banisters and deck railings must be secure. If you provide kayaks or bicycles (or even a highchair or crib), make sure your insurance will cover the liability and the product has had no recalls. Providing kayaks and bicycles adds another set of safety concerns — remember to provide PFDs (personal flotation devices) and helmets, and make sure that someone inspects the equipment after EVERY rental to make sure it’s all in good working condition.
Make Sure Your Vacation Home is Clean
So now you have insurance and have taken care of all of the safety issues. The next step is to concentrate on cleaning. It is a new world — the world of yelp and reviews. If your home isn’t clean, you will hear about it. The entire world may hear about it, if the guest is so inclined. Since owning vacation rentals, I find myself much more understanding when I find a spare dust bunny in a hotel room. Changeover days are usually weekends and, believe me, those cleaners work hard! They may have multiple homes to clean in a very small sliver of time, and they never know what kind of mess they might walk into. Cleaning standards for vacation rentals need to be higher than for an ordinary house cleaning. You should also consider doing a spring deep cleaning, especially if your property has been closed up for the winter. When you find a good cleaner — treat her (or him) well.
Arrange for a Vacation Home Manager
Speaking of cleaners, unless you live nearby, you’ll need to start interviewing and hiring a local team to service the property. Sometimes a neighbor can step in and do the work (make sure you reward him or her handsomely). Sometimes you’ll need to hire a property manager, someone to do the changeover cleanings, do the yard care, pick up the trash, be available in case of questions, and be on hand for emergencies — and sometimes there will be real emergencies: Hurricanes. Broken water heaters. Dry water wells. The St. Bernard that will pees on the sofa . (Did you know that there is a company that will ship you a new sofa in boxes via UPS? Homeware.com – awesome!) It’s all going to happen at some point and you’re going to need someone reliable to be on it immediately.
Decorate Your Vacation Home
Decorating your vacation home before renting it out is usually the fun part. Once upon a time, vacationers didn’t expect much in the way of decor in a vacation rental. But today’s travelers don’t want to lounge on threadbare sofas and feel the springs coming through the bed mattresses. Linens and towels must be clean and unstained. You never know what particular amenities that a guest may want, and you can’t please everyone. But there are some no-brainer amenities that should always be included, depending on your area (e.g. a lobster pot in Maine). Some items will need frequent replacing — towels, washcloths, fitted sheets, pillowcases, mattress covers, potholders, dishtowels – every year if not more often.
Advertise Your Vacation Home and Handle Rental Inquiries
You might want to hire someone to do your bookings and handle the management of rents and guests or you may want to do it yourself. You certainly can take pictures yourself and put them on a listing site – AirBnB, VRBO, Flipkey are just a few of the dozens that are out there. You’ll need to decide on rates, whether to charge a security deposit, what amenities to offer, the number of guests you can host. Then you need to be available when an inquiry come in — I’ve found that in the northeast, most inquiries seem to come late in the evening or on weekends. The more quickly you respond, the better the chances of getting the booking. From my experience, older folk like to communicate more and sometimes like to hear your lovely voice on the phone. Younger folk (and I’m talking about under the age of 50), usually like to do everything online quickly. Each year, more and more of my bookings are quickly done online with little conversation with the guest.
Manage Your Vacation Home Rental Finances
As far as finances go, PLEASE speak to an accountant, but generally, you’ll want to keep all income and expenses in a separate bank account from any other household funds. You’ll also want to keep careful records as much of what you spend on your rental home may be tax deductible at the year end (that is what your accountant will determine). Even some of your own vacation may be a write-off if you spend more time of the day working than lounging (I only WISH I had time to lounge when I’m at my rentals). Your attorney and/or tax professional should also advise you if it’s wise to put the property in an LLC to further protect you from liability. I am not an attorney nor an accountant so I’ll just leave it with the advice to get advice from the appropriate professional.
Are you Discouraged Yet About Renting Your Vacation Home?
I don’t mean to be discouraging. But unless you pay a property management and booking company to run your rental business for you, it is a job. Even before I opened my rental business — when I just rented out my two (at the time) vacation homes, I spent a geeky amount of hours improving and marketing my properties. I find it fun. Will I make a profit after all is said and done? Maybe. Will I retire rich from my vacation rental properties? Hardly.
Maria Lamb is the owner of Wicked Awesome Maine Vacation Rentals, based in beautiful Washington County, Maine, which specializes in waterfront, affordable vacation rentals. This article originally ran in the Bangor Daily News.
See Short-Term Rental: Easy Cash? Think Again for more.
Have you ever tried to make money renting out your home or vacation home? Share your tips for people who are thinking about doing the same.