It sounds like a great idea – you won’t be using your home during a specific period of time, so why not rent it out and make some quick cash? Sounds like a win-win, right? Eh…. maybe not.
Listing your home for rent through Web sites like Airbnb, HomeAway and VRBO (Vacation Rentals by Owner) can be fairly simple. But playing host to unknown people in your home, can be complicated, and pricey.
Here’s a few things to consider before letting Mr. and Mrs. Smith move in for a week:
Check with your town or home owner’s association. Surprisingly, there are some towns and cities that prohibit renting out your home to short terms renters. Also, if you don’t live in a detached single family home, you many need to check with your building manager or home owner’s association to see if there are any rules that would prevent you from renting out your space.
Paying Uncle Sam. There’s a pretty simple rule to determine if you need to pay taxes on any rental income collected. If you rent your primary home out for 14 days or less – you should be in the clear and off the hook on paying taxes for any income earned. However, if your home is rented out for 15 days or more, you must report the income to the government as earned income. Worried you might forget to report it? Don’t worry, if you use Airbnb they will send tax forms documenting the income to the IRS.
If you are renting out a home that isn’t your primary home, say a vacation home, any money you receive must be reported as rental income on Schedule E of your tax return. You may be able to deduct any rental costs, but those costs need to be separate from your personal use expenses.
Service Fees. While the fees may look small, they can add up quickly. Airbnb charges a 3 percent fee that covers the cost of processing payments, however HomeAway, which owns VRBO.com charges hosts just for listing their homes on the site. If you plan on using the site regularly, you can pay a $349 annual fee to advertise your property and avoid a commission charge for each booking. If you plan to rent your home less frequently, you can avoid the annual fee by paying 10 percent for each booking made through the site instead.
Rules and Regs: Make sure you are crystal clear about the rules of the house. What they can use, what they can’t. What is included and what isn’t. When they should give you deposits and when they can expect them back if the contract was fulfilled. Grey areas will only get you in trouble.
Amenities and Cleaning. Just like with a hotel, guests will be expecting nice, clean linens and towels for use during their stay. Keeping a separate set of linens and towels just for guests is a great idea. It’s also a clever idea to have your home professionally cleaned both before and after you have guests. If you plan to keep any of your house off limits to guests, you should also invest in locks for rooms or closets you’d like to keep private.
Insurance. It’s always an excellent idea to talk to your insurance agent before renting out your property. Depending on your policy, you may be covered for short-term rentals. However, if you have multiple short-term renters, you may be required to obtain a commercial policy like that of a hotel or a bed and breakfast. If you plan on renting out your home for extended periods of time to one person/family, a rental or landlord policy may be needed. Because you have added liability risk, we would always advice to increase your liability insurance with an umbrella – the amount would depend on what you could potentially lose if sued.
Jumping on the home rental bandwagon seems like fun, and can make you a few bucks, but it’s important to know all the risks and necessary steps to make sure it doesn’t turn into a disaster. If you’re thinking about taking the leap into the home rental business – give us a call today to make sure you’re protected.
Personal Lines Customer Service Representative