If your house has extra rooms you’re not using or sits empty for weeks every year while you travel, converting your home into a vacation rental could be a fantastic way to turn your unused space into cash. However, before you snap pictures and post them on the leading vacation rental platforms, there are a few things you need to know about running a short-term rental property. Read this to decide if operating a short-term rental is right for you.
Pros and Cons of Running a Vacation Rental
The greatest benefit of turning your home into a short-term rental property is the income. Whether you want to offset the costs of homeownership, secure passive income in retirement, or just earn a little pocket money on the side, operating a vacation rental from your primary residence is a low-risk way to do it.
If you enjoy hosting travelers and meeting people from across the country and around the globe, you’ll also enjoy the social aspect of vacation rental ownership. This is especially true if you’re only renting out part of the home and will be on-site during visitors’ stays.
However, there are downsides to using your house as a rental property. A short-term rental requires more investment into cleaning, maintenance, and security than a primary residence and necessitates a separate insurance policy. You’re also responsible for marketing the property, liaising with guests, and supplying the amenities vacation home renters expect.
Converting your home to a vacation rental also makes it feel less like yours. To create a comfortable environment for guests, you’ll need to depersonalize and declutter. If you don’t want to change the look of your living space, construct an accessory dwelling unit to rent out instead.
Expenses to Consider
There’s a lot of money to be made in vacation rentals, but there’s also a lot of competition. Standing out in a crowded marketplace requires a certain amount of investment.
At a minimum, homeowners need to account for insurance, taxes, and increased maintenance costs when calculating their vacation rental’s return on investment. However, to limit vacancy rates and attract high rents, the minimum isn’t enough.
These upgrades will maximize a short-term rental’s success:
● Professional cleaning between tenants.
● Cosmetic improvements like new paint, furniture, and appliances.
● Landscaping upgrades to create outdoor living spaces.
● Improved home security, including a keypad lock for 24-hour check-in.
● Professional photography for property rental listings.
● Luxury amenities such as coffee and tea, toiletries, and top-tier linens.
● Property management expenses.
While the last item is optional, it’s a smart choice, especially for property owners who are operating a vacation rental on the side and not as a full-time job. Note that not all vacation rental management agencies are created equally. You’ll want to do your research to find an agency that offers more than just a place to list your property. One example is Turnkey Vacation Rentals; this company will keep your bookings up to date, provide 24/7 local customer support, market your Scottsdale rental so it stands out and ensure a thorough cleaning between guests. This not only means less for you to manage, but it also leads to higher occupancy rates so your vacation rental stays booked and earns you more money. There are many management agencies out there, so be sure to do your research carefully so that you know you’re making the best choice.
Legal and Financial Implications of Short-Term Rentals
A growing number of cities regulate short-term rentals. While few places have banned short-term rentals entirely, it’s important that homeowners familiarize themselves with local laws to ensure they’re not in violation.
Owners should also be aware of the tax implications of using their home as a rental property. Homeowners who rent their property for more than 14 days per year don’t have to pay federal taxes on rental income and can’t deduct expenses. Beyond 14 days, you must pay taxes and can deduct expenses. If you’re only renting out a portion of your house, expenses must be apportioned accordingly. State and local governments may also charge lodging taxes.
Do you like the idea of operating a short-term rental but aren’t sure about doing it from your own home? If so, buying a separate property to use as a vacation rental may be a better choice. While you’ll face higher up-front expenses, you’ll also have greater income potential and less confusion at tax time.