10 questions to ask before renting out your vacation home
- Sep 21, 2017 | MyLodgeTax
With the rise of vacation rental platforms such as Airbnb, VRBO, and HomeAway, it’s never been easier for vacation home owners to rent out their property for extra income. However, renting out your home takes planning and work, and it’s important to think about whether it’s the right choice for you. Here are some questions to ask yourself before you make the leap.
1. Am I comfortable renting out my home?
First of all, you need to make sure you’re OK with the idea of strangers staying in your home. It may help to realize that fears about guest-caused damage are probably overblown.
“That concern is way, way overstated,” said Rob Stephens, general manager of Avalara MyLodgeTax, which handles lodging taxes for vacation rental owners. “These people are generally very respectful of your home.” Stephens has been renting out his vacation home in Vail, Colorado, since 1999 and said he’s had to deal with significant damage by a tenant only once.
2. Am I allowed to rent out my vacation home?
Vacation rentals are prohibited in some areas, so you’ll need to do some research on your local laws to find out which rental rules apply to your property. If you belong to a homeowners association, make sure you check its rules as well.
3. Will I be able to make money?
It’s important to crunch the numbers before you begin your rental business. Add up all your expenses, including mortgage payments, utilities, insurance, taxes, supplies, maintenance, etc. Do some research on properties similar to yours to come up with realistic rates you can charge, and do the math to see if renting out your property will be a good deal for you.
4. Do I have time to run a rental business?
Remember, renting out your home is a business, and in order to be successful, you need to treat it like one. Do your research on what running this kind of business will entail, and be honest with yourself in evaluating whether you can make the commitment.
5. Do I want to hire a management company or do it all myself?
Property management companies can help you take care of a lot of the details of managing your vacation rental — for a price. The more you do yourself, the more of your rental income you get to keep. Think about how much you can do and whether it makes sense for you to outsource management tasks.
6. What licenses will I need to rent out my home?
You’ll most likely be required to get a license in order to legally rent out your property for short-term stays. Make sure you check requirements from all the jurisdictions that govern your property (e.g., city, county, and state).
7. What kind of insurance will I need?
Your regular homeowners insurance most likely won’t cover damage done by paying guests, so it’s important to check your policy. You may need to get special insurance that will cover a rental business. Online listing platforms sometimes have partnerships with insurance companies to offer this kind of coverage.
8. What will I need to do about lodging taxes?
When you rent out your home, you’ll most likely be required to collect lodging taxes, just like a hotel does. You don’t actually pay these taxes yourself; your guest does. But you’re responsible for collecting lodging taxes and filing them with the proper authorities — and if you don’t comply, you may face penalties. Your lodging tax obligations will depend on the jurisdiction where you’re located. Don’t know what lodging tax rate to charge your guests? This tax rate lookup tool can help you determine the correct rate for your property.
9. What listing service should I use?
The most popular online vacation rental listing platforms are VRBO, HomeAway, and Airbnb. VRBO and HomeAway focus more on vacation home rentals in popular vacation spots, while Airbnb has a more urban focus, with offerings ranging from single rooms to entire homes. You may also want to look into listing sites that specialize in listings for your local community.
10. What are the income tax benefits of renting out my vacation home?
When you’re operating a short-term vacation property rental business, many expenses related to your home can be deducted from your income taxes. Deductions can be made based on how much of the time the property is being rented vs. how much time you have it for your own personal use.
Asking yourself these questions — and coming up with well-researched answers — will help you make an informed decision and set the right foundation if you do decide to rent out your vacation property.