Short Term Rentals and You

Short Term Rentals and YouAs winter has gotten underway, a lot of people are already starting to plan their spring and summer vacations. They’ll want to go somewhere sunny, or to a fantastic resort, possibly even to your house!

Maybe you’ve heard some good things about being an AirBnB host. Your guests will end up paying for most of your planned vacation expense, creating a win-win.

Not so fast!  Let’s look at the In’s and Out’s of Short-Term Rentals…

Using your personal home, in whole or in part, as a short-term rental can certainly help pay the bills, but the truth is that short-term rentals also have some issues you need to consider. It’s not as simple as listing on AirBnB and just hoping for the best. You’ll need to do some important legwork before getting started, otherwise you may find yourself in a lot of trouble with expensive problems that eat up all your profit.

Still, short-term rentals can be a solution for some homeowners. Before you list, make sure you’ve considered these five things that could complicate your situation:

Do your mortgage terms allow you to rent your property without penalty? Many owner-occupant loan programs secured with a low down-payment have restrictions on the ability to rent out the property. There may be language in your loan terms that spells out what constitutes a breach by turning your house into an “investment property.” Generally, if you rent your property for more than 14 days in a year, you could run this risk.  Be sure to check on the terms of your loan before attempting to do a short-term rental of your primary residence.

Using your home as a rental when it goes against your mortgage agreement is serious business. Your mortgage likely has an acceleration clause that explains under what conditions your loan will essentially be revoked, with the entire balance immediately due and payable. If you can’t cough up the entire balance, your bank will foreclose.

Find this paperwork that you received at closing and carefully scour it before you move forward. Be sure you know what your mortgage paperwork says.

Do you have adequate and appropriate insurance coverage? Even if your mortgage lender permits you to use your place as a vacation rental, you’re still going to need the blessing of your insurance company. Be sure you have adequate coverage to pay out on claims.

Don’t take risks with insurance coverage; talk to your agent about the best way to cover your home and property. You may want to add a comprehensive insurance policy that will cover pretty much anything, including slips and falls.  Your agent may simply advise you to increase your current coverage.

Consider what your neighbors will think. There have been a number of articles written about neighbors pushed beyond the brink by short-term rental guests. Even if you’ve checked with your HOA and local Planning and Zoning Office, disgruntled neighbors could cause you even bigger problems.

First check your zoning, then talk to your neighbors.  Discuss your goals for a short-term rental, including the guest time frame and how long they’re likely to stay. Starting a conversation with your neighbors about your vacation rental plans before diving in can make the process less of a dramatic situation. Before renting out your home on AirBnB, read this article.

It’s also important to check with your municipality about how long a guest can stay before they are considered a bonafide renter. In many areas, a “guest” automatically turns into a renter if they occupy the property for 30 consecutive days. It is then assumed to be a month-to-month rental agreement, which means that you will have to actually evict them if they refuse to go quietly.

Can you refinance your property? This is a tricky question, especially with rates on the rise. You may want or need to refinance at some point. The bad news is that many lenders won’t count the AirBnB income you’ve generated when calculating your debt to income ratios.

Luckily, there are a few banks that are capable of dealing with AirBnB income properties. Even if your lender is open to a refinance, you may be required to get a commercial loan because of how often you rent out your property, effectively making it an investment property according to the bank. However, if you purchased the property using a loan eligible for a streamline refinance, you may not have to explain the AirBnB rentals at all.

Do you really want to manage a rental? Many people believe that owning investment property is the key to a better retirement, increased wealth and easy income. But, owning rental properties (especially short-term rentals) is a lot of hard work. From stocking consumables like soap and toilet paper to keeping things in good repair, as well as doing background checks on applicants and keeping your taxes straight, it’s not a low-stress investment. For this reason, many property owners rely on Property Managers to handle the day-to-day stuff.

At the end of the day, even if your Property Manager is doing everything right, you will still have a decent work load of your own. If you’re not “all in” with owning a rental, don’t do it!

Thinking of purchasing an investment property?  Contact me to get started!

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