Frequently Asked Questions
This really depends on your personality and the time you want to spend on your vacation rental business. Of course, there are benefits to both. Lets start with doing it on your own. If you decide to forego the management company you will keep all of your profits. The flip side of this is that you will need spend a lot more time on your vacation rental. Specifically, you will be answering inquiries, talking to guests, sending out quotes, creating a guest book, creating leases and getting them signed, keeping track of the rental calendar, dealing with maintenance, scheduling cleaning and resolving guest issues. This is a long list and is not comprehensive and I truly believe it is foolish to try and do everything. However, I also believe that by creating a trusted team (cleaning crew, handyman, attorney, accountant, etc…) you can do it without a management company. I have done it with relatively little headache and profitably without a management company.
If you don’t want or have the time to spend on getting a team together or you just don’t want to deal with it a property management company is a great way to go. They will handle just about everything. Now the question becomes, “Is it worth doing it after paying the property management company?” You will have to crunch numbers to determine what makes sense in your particular situation.
Absolutely. This is one of the greatest benefits of getting into the short-term rental business. You still have a great place to vacation. You can just schedule guests around your visits to the property. One thing to keep in mind is that the number of days that you use the property for personal will make a difference on tax implications. Basically, if you use the property 14 days or less a year for personal use then you get a benefit in your taxes if you have your short-term rental set up as a small business (which you absolutely should).
In treating my vacation homes as a business I do get some great tax benefits. First of all, I can write off my travel to and from my homes as a business expense as long as I can say that I was working on the business while I was there. That could be to do some routine maintenance, to check on the condition or make repairs. It’s fair to say that almost every time I am at one of my properties I am doing some sort of work related to the business. The good news is that ‘work’ is something I would be doing whether I was renting the house or not. There are also some pretty specific IRS rules that deal with the amount of time that you spend at the property strictly for personal use that help define the tax requirements. I recommend that you work with a good CPA who is familiar with vacation rentals to make sure that you are following all of the IRS requirements and that you are taking advantage of all of the benefits of the business. See my blog post dealing with Tax Consideration of Short-Term Vacation Rental.
I would recommend it. Even if the entity is just to keep all of your accounting straight and separate from your personal accounts. This way you are able to take advantage of the tax benefits of a small business entity. Its important to have an attorney in your area who is knowledgeable about short term rentals help you get set up. They can advise, based on your particular situation, the best entity to create. Generally, there is not much to creating the entity other than registering with the Secretary of State and creating some formation documents. Once you’ve got the initial creation set up then it requires a very little amount of time to maintain it once a year. It may seem like more work now but it is definitely better.
I hear people ask about transferring the property into your entity name and they often believe that this removes the personal liability in the event something goes wrong or you get sued. I am not a big advocate of that because by doing that you are often times violating the “due on sale” clause in your deed of trust. I, personally, do not think it is worth it. I have kept my property in my personal name and created contracts between my entity and myself to basically lease out the property to my entity. It makes it easier to keep it separate this way.
Now, of course, if you have numerous properties and you are purchasing them in your businesses name then it is worth the time and money to meet with a business attorney who is also familiar with real estate and short term rental to do some business planning and ensure that you and your business have the best protection.
The proper insurance is an absolute necessity to protect yourself and your business from liability. You should not rent your home short term without the proper insurance. There is specialized insurance specifically for short-term rental owners. Being up front and completely honest with your insurer is imperative. You do not want any surprises when/if you have to file a claim.
Many people have the misunderstanding that creating a separate business entity will protect you. This is not always the case. If someone is coming after you they can often find a way to get around that entity to get to you. This is especially true if you do not keep the entity and you personal finances separate.
The combination of being set up as a business with a separate entity and the proper insurance is the best protection.
You absolutely need a special kind of insurance that is specific to short-term rental property. This is a specialized niche in the insurance industry and not all insurance companies offer it. I found that my home insurance company (a very well known national insurance company) did not offer it and I had to do some research to find a company that offered all of the protection I needed. It is a little more expensive but it protects me when I have renters in the property and when I am in the property for my personal use. The policy even covers when an accident occurs that makes my properties unrentable for a time by paying me for lost income while the property is being repaired…pretty good, right?!
Again, the proper insurance is so important. Its also worth noting that many regular homeowners policies include a specific provision that excepts any coverage when you are renting your home. See my blog post on Short-Term Rental Insurance.
Please takea look at my blog post dealing with the ins and outs of insurance for short term rental.
This is a great question. This is actually where you should start your journey to decide whether you are going to rent your vacation home on a short-term basis. Your HOA has a document called Covenant, Condition and Regulations (CC&R) that regulate what you can and can not do with your home. Its important to read these carefully to determine if there are any prohibitions to short-term rental. Short-term rental usually is defined as less than 30 days. There are some HOA’s that do prohibit short term rentals in that community. You should also check the by-laws and even call your HOA president to determine the policy as well as to learn if it has been discussed by the board and if so what the generally opinion of the board on the issue of short term rental. Its better to know up front. You would put your self in a really bad situation to have gone through the process of getting your home ready and scheduling guests only to find out that you are in violation of the HOA CC&Rs. Do your homework first. Take a look at my blog post on this subject.
You will also need to check with your county and state to ensure that there are no prohibitions to short-term rental.
Research. There are numerous ways to determine what other in your area are charging for a short-term rental rate. Please look at our Super Map on this site and it can show you what is in your area and what they are charging. You can also go to one of the big short-term vacation sites and see what comparable rates are in your area. The bottom line is you are going to have to do some research but it should not take long with the Super Map and other information you can find on the internet.
When you are first starting out you might consider a lower rate than comparable properties in your area just to get guests. Once you have become established and you have some reviews to support your property you can increase to a more comparable rate. I found that when I first started renting people were reluctant due to the scams that they had heard about short term rental homes that did not really exist. Guests want to see positive reviews that show that other people have rented and enjoyed your home. They want to know that it is not a scam.
A solid short-term rental lease is so important to your success. It allows you to lay down the terms, the rules and the expectations for your guests. I would recommend a one-time expense of having a knowledgeable attorney in your area review your lease before using it. Every state has different laws regarding tenancy and you want to make sure you are compliant in order to protect yourself. I have a sample lease on the website under Resources that can provide some guidance but as I said you should have a local attorney look it over as the laws may be different where you are located.
I have all of the forms that I use in my short-term rental business on my site on the Resource page. These include, various checklist, lease, Welcome Book, Pre-stay emails to my guests, post-stay emails to my guests, Driving Direction, Recommendations for local grocery, liquor stores and activities, contact information, etc…