Yahoo Finance The Homeowner's Guide to Vacation Rentals
As the summer travel season approaches, homeowners with a spare room or a vacant beach home may be considering cashing in on the popularity of vacation rental websites.
A 2015 Barclays report estimates that home rental platform Airbnb books around 37 million night stays, which could increase to as many as 129 million by 2016. Rooms on the site range from Manhattan penthouses that cost close to $1,000 per night to West Coast couches for around $50, and hosts pocket all but a 3 percent service fee. Other options include HomeAway.com, which also runs a site called VRBO.com (short for vacation rental by owner).
But before capitalizing on the growth of these sites and their potential for extra income, homeowners should do their due diligence before putting out the welcome mat. Here's a rundown of several key areas to consider.
Check local ordinances. "Rentals are treated like hotels in most geographies now, and owners need their properties to comply to local rules," says Andrew McConnell, co-founder and CEO of VacationFutures, a platform that pairs homeowners with vacation rental managers. "The biggest one is occupancy tax, and a number of different municipalities have licensing requirements to be able to rent out on a short-term basis."
McConnell says using a property management company, rather than renting through a website, can help you comply with these requirements. For instance, Napa and Sonoma, California require permits for short-term rentals of less than 30 days, but Napa issues a very limited number of permits. Failure to secure the proper permits or pay occupancy taxes (not to mention posting your apartment as a short-term rental if your landlord or city doesn't allow it) could get you into hot water. Your homeowners or condo association may also prohibit short-term rentals, which could result in fines.
Two years ago, Damon Rogers was among the first homeowners in Franklin, Tennessee, to offer short-term rentals, and she says the city was unsure how to handle her application for business license. "Franklin doesn't have problems with long-term rentals, but they didn't know what to do with me as a short-term rental," she says. After she obtained a license, she started renting out a guesthouse behind her house and later added a studio apartment to her listings on VRBO and Airbnb.
Get the right insurance. Don't assume your current homeowners insurance policy will cover damage caused by an unruly guest or liability associated with a guest's stay. "The insurance is key because regardless of how good the contract is, if the person doesn't have the money [to cover damage they caused], they don't have the money," says Shawn Potter, an attorney in Park City, Utah, who's represented homeowners who rent their vacation homes and property managers of rentals. In some cases, he adds, homeowners may be able to add a rental rider to their existing policy or switch to a different type of policy if they're renting out an entire vacation property on a short-term basis. "Insurance companies see a higher risk with a nightly rental as opposed to a monthly lease, particularly if the homeowner rents for a few days," he says. "More likely, it's going to be considered a hotel-type policy." Some vacation rental sites also offer insurance to protect the homeowner against damages, but they might not cover personal liability and certain possessions such as jewelry and artwork.
Create a plan for cleaning and maintenance. Thanks to keyless entry, Rogers doesn't have to be physically present to greet guests (she mails the code to guests two weeks before arrival), although she's available if they want to chat. Vacation rental guests may not expect daily maid service, but they certainly expect a clean space upon arrival and prompt help when, say, the toilet clogs or the air conditioner gives out. "It's not just welcoming people," Rogers says. "You get back there when things go wrong, and you've got to have your repair people on standby. If somebody's paying $325 a night, they want their toilet to flush."
She puts out fresh banana bread for every guest and hires a cleaning service to ready the rooms between guests. "If I have a real quick turnover, my husband and I will get back there and clean it, but we prefer being the innkeeper and not the housekeeper," she says. If you're not physically present or don't have the time to clean, this is another area where a management company could help.
Despite these potential wrinkles, Rogers loves hosting guests. "The people I meet are absolutely interesting," she says. "They don't want to stay in an hotel. They want to live in the ambience of the city and get to know the people on the property."
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