6 Mistakes People Make When Renting Out A Vacation House

Back in the day, vacation rentals were often part of a pre-planned rental community — much like a hotel, except someone owns the home or condo that you rent.

But with easy-to-use services like Airbnb and HomeAway, anyone can rent a house anywhere. If you’re a homebuyer looking to rent out your vacation house, that gives you more options. But it also means you may have to do a little more homework first. Here are common mistakes vacation homeowners make.

1. NOT KNOWING THE LOCAL LAWS

Laws that govern the short-term rental market vary widely depending on where you are. If your property is part of an association, the by-laws may restrict your ability to rent the home on a short-term basis.

Local safety ordinances can have requirements, too, such as installing a carbon monoxide detector.

2. OVERLOOKING THE TAX IMPLICATIONS

One of the key provisions of the Tax Cuts and Jobs Act was a decrease in the mortgage interest deduction. Whereas homeowners used to be able to take a mortgage interest deduction on a loan up to $1 million, that amount has been reduced to $750,000 — on the total of all of your properties. So that means if you are deducting interest on the $550,000 loan on your primary residence, you can only deduct interest up to $200,000 on your vacation home, even if the mortgage is $300,000.

The new tax bill also included a new $10,000 cap on deducting property, state and local income taxes so factor in the tax consequences if you’re in an area where you might incur more. And remember you’ll need to pay taxes on your rental income if you rent the home for more than 14 days during the year.

3. IGNORING NEIGHBORHOOD DYNAMICS

Neighbors can be quick to report nuisance conditions to city agencies and elected officials, and that can spell trouble for your rental. Neighbors with a long history in the community may be less likely to tolerate a revolving door of tourists, as they find it detracts from their neighborhood and quality of life. The best way around that is to talk to them before you buy to assess their comfort level, and then maintain an open dialogue and enforce strict rules for your renters.

4. FAILING TO GET ADEQUATE INSURANCE

Many homeowners’ insurance policies do not cover short-term rental business activities. The gap in coverage could leave you dangerously exposed if guests cause significant damage to your home. A short-term rental insurance policy may keep you adequately protected.

5. UNDERESTIMATING THE STARTUP COSTS

First impressions are everything, and you want to make sure your property shines both online and when your guest arrives. But furnishing the home can be costly. Aside from indoor and outdoor furniture, you’ll need a fully appointed kitchen, linens and décor, and using old furniture that’s been gathering dust in your garage might affect profits.

Having a beautiful and updated space is crucial, not only for securing bookings, but for being able to command a higher price.

6. BEING A BAD HOST

Of course, the “bad host” title can be in the eye of the beholder, but making your guests feel unwelcome is sure to garner bad reviews that can harm your home’s appeal.

Customer service can be the key to success. Responding to questions quickly, accommodating any reasonable guest need and doing all of it with a smile will help you accumulate a long list of 5-star ratings.