Owning a vacation home may be a hardship during an economic downturn. If selling is not an option, renting it as a vacation rental might relieve the financial stress.
Studies show that the Baby Boomer generation has dramatically increased the number of homes that have been purchased for recreational purposes. In a periodical written for HUD User (Policy Development and Research Information Research) entitled, “How Many Second Homes are There?”, they provide interesting facts regarding these homes. For instance, In 1995, the American Housing Survey (AHS) determined that 9.1 million households owned additional residential housing, 1.9 million used for recreational purposes. Also the 2001 PSID (Panel Study of Income Dynamics) data estimates that 7 million households own at least a share in a second home.
Were you one of the baby boomers who bought during this time period, longing for a place to escape the hustle and bustle of everyday life? Are you feeling the financial pinch, however, by having two mortgages and properties now to maintain? Do you find that you aren’t using the home as much as you had intended due to the money crunch? If you answered yes to these questions, a viable solution might be to turn your home into a vacation rental.
From personal experience with my vacation home, I can tell you that renting out your home for even part of the month, may provide enough income to offset your cost of ownership. Before you make your decision to do so, however, you should check with your homeowner’s association (if you have one), and your lender to make sure that there are no restrictions that apply. The next step is to consider the advantages and disadvantages of such a plan.
Advantages of Renting Out Your Home as a Vacation Rental
Short term rents are higher than long-term rents – In most cases, the amount you can collect by charging a nightly or per weekend rental rate is more than renting out the home on a standard lease. Check for websites that list both privately owned homes as well as those that are commercially owned to determine possible rental rates for both options.
For instance, in an Arizona town where a cabin is located, a local resident might be willing to rent a 1200 sq ft cabin for $1000/month on a twelve-month lease. If that same cabin was rented out on a nightly basis, the homeowner might be able to charge $125/night during the week and $150/night on weekends. If the cabin was rented for 5 weekday nights and 2 weekends (4 nights) this would provide $1,225 in monthly rental income. In this scenario, short term rental income would be better than a longer term lease by $2,700 per year. The annual amount could be even higher if the homeowner was also willing to rent the home during high demand times, such as holidays, spring vacation and summer months, when higher rates can be charged.
Availability for owner – By renting out your home for a partial month, it is still available for you or family members and friends during the balance of the month. So, it might actually be possible for you to use the home on a regular basis and still collect decent rent income.
Quality of Renter – Usually a couple or family who can afford the nightly $125 – $150 for a vacation get-away will take decent care of the property. This type of “guest” tends to differ from the typical nightmare “renter”. Of course, you will still need to establish a written contract with the guest renter, collect a refundable deposit, and outline the expectations of their stay.
Disadvantages of Renting Out Your Home as a Vacation Rental
More time expenditure – Renting out a property for four separate vacation stays during a month requires more work and better organization than leasing out a home for a twelve-month lease. Running this like a part-time business is key, and organization is a must. It will require an investment of time, but one that can be accomplished long distance.
Less availability – If creating rental income is essential, tying up the cabin for private use will need to be second to renting out the cabin to paying guests.
Private belongings – The home’s furnishings will be available to strangers. Valuable items should be removed and, if possible, personal items (shampoos, clothing, sports equipment, etc) should be locked in a closet, cabinet or storage unit. If that is not possible, you will need to pack and unpack for each trip just like your guests do.
Adequate insurance coverage – You must make sure you carry enough insurance to cover any unexpected accident. Homeowner’s or renters insurance is a must, and it may also be wise to get an umbrella policy in case someone sues.
If the numbers work and you can accept the disadvantages of this plan, you may be able to improve your personal cash flow by renting out your vacation home. This can eliminate your need to sell low or experience foreclosure if faced with extreme financial hardship.
Setting up the Rental Business
The next step is to set up the rental business. It’s not difficult, but will take an initial upfront investment of time and research that will payoff in the long run.
1, Address liability – Every landlord should limit their personal liability. You can set up an LLC, if preferred, or simply rent out on a personal basis, obtaining supplemental insurance coverage such as an umbrella policy. In either scenario you will also need to design a rental agreement which your renter will sign. You can find standard rental contracts online and also on other vacation rental websites, which is a good way to find a document you can adapt for your needs. If there are specific concerns, speaking with a legal consultant or insurance agent is advised.
2. Hire someone local to oversee your vacation home – A very important part of renting out your home is arranging for someone living in the area who can give guests the keys, allow maintenance entrance and clean up after your guests. Your choices might be a property managment company or a real estate agent in the area who will manage your property for a fee. If you have a neighbor or friend nearby whom you can trust, they might be interested in managing the property on a per rental basis. This expense can be built into your rental rates.
3. Determine the best advertising option – Don’t limit your advertising to a local audience buy just sticking a “For Rent” sign in the window or advertising in the paper. People vacation to destinations worldwide, therefore advertising online is the obvious way to go. You have two primary options to advertise your home online: listing with an existing vacation home advertiser or setting up your own website. I did both, and my experience was that 75% of my guests came to me through my own website.
Advertising Option #1 – Use a Vacation Rental Website
Using this option, you will pay to advertise on a website such as VacationRentals.com, or Vacation Rentals By Owner (VBRO.com). This option is the easiest to set up but gives you less control and may not be the most lucrative. You just join, complete the template and publish through their website. There is usually a calendar provided displaying available dates (that you maintain) as well as a reservation request form . You will receive an email from the site when someone is interested in information and you take it from there.
The cost to use this type of advertising is between $150 to $250 per year, and some sites offer special pricing for short-term advertising (3 months, Holidays, Summers or Winters, etc.).
Advertising Option # 2 – Create Your Own Website
Creating your own website gives you a larger array of options, but will take a little more effort setting up. If this is the option you choose, there are many good “how to” articles online that would be helpful in setting up your own website. Type “setting up a website” in the search box. T
here are three basic things you’ll need to do:
Obtain a Domain Name – Think of a name for your website, then visit a domain provider such as GoDaddy.com and use their search field to see if that name is available. If it is, you can register the URL with Go Daddy for $9.99 per year. But research all options first, as this domain option is sometimes provided free with some web-hosting services.
Pick a Web-Hosting Provider – These companies provide World Wide Web (www) access to individuals or an organization’s websites. For business purposes, I don’t recommend a free hosting service, as these are limiting and web-hosting companies provide full service for a modest monthly fee as low as $3.95/ month. A good informational site for hosting services is AlreadyHosting.com.
Create a website – You can pay to have someone set up a website for you, or build one yourself through some websites or by purchasing software such as Microsoft FrontPage or Namo WebEditor. Whether you hire a website creator or use a do-it-yourself method, you’ll want to make sure you have certain options that provide day-to-day control over your website, including:
– The ability to add several pictures of your home
– The ability to update the website yourself when necessary.
– A calendar that provides available dates
– A way for interested parties to send an email to you from the website.
– A secure payment method that links to a payment site, such as Paypal.com
– A testimonial page
Improve Your Odds of Renting Out Your Vacation Home
Once a website is designed it must be found to do any good. The title of your website, sub headings and text need to contain keywords that someone will use to find a vacation rental. There are many websites that discuss Search Engine Optimization (SEO). If you are serious about renting out your home as much as possible, you can enhance your chances for your website to come up on the first search page by signing up for a pay-per-click service. One sourch for this service is Yahoo’s Small Business Services.
Pay-per-click works like this: You bid on a price you are willing to pay for a specific search phrase which, in turn, improves your search position. For instance, let’s say you want someone to find your website when they type into the search box “Arizona Cabins for Rent”. If you are the highest bidder on that search phrase (say 25¢ per click) your website will move toward the top of most search engines (sometimes at the #1 spot) and you’ll pay 25¢ if someone then clicks on your site. While this does add to your expenses, it is well worth it.
A few tips on pay-per-click: 1) Be specific. For instance, don’t bid for “Cabins for Rent” , because this might attract someone who wants to vacation in Florida and not Arizona. In this instance, you wasted a paid-for-click and lost a quarter. 2) Pay attention. Since the highest bidder wins the top spots, you’ll need to check in with the pay-per-click service on a regular basis to make sure someone else hasn’t outbid you. You can usually tell when this happens because emails and calls slow down, or if you use your search phrase yourself, you discover you’ve lost your search position. 3) Shoot for first page position. Being at the top of the search list is great, but your real goal is just to be on the first page. Number 5 or 6 on the first page may attract the same renters at a lower per-click price. Try making a lower bid and see if you still land on the first page.
Vacation Home Furnishings and Supplies
Before you are ready to rent out your home you need to prepare the home by removing valuable or personal items. Also, you should add items or supplies that you think will draw guests and stage your home for the ambiance your guests will expect. Look at other homes advertised to get an idea of what you may want to include such as: a television, video and board games, phone and cable, waffle iron, toaster, blender, bedding and linens, fully furnished kitchen, firewood, soaps and paper goods.
Vacation Rental Contract and Payment
Once your prospective guest has found your website, and contacted you to reserve a stay, you should ask for a deposit to hold the dates (non refundable after a certain period of time). You’ll provide them with information they’ll need to know about the home, such as how to operate the fireplace, where to dump trash, noise restrictions or curfews, along with a rental agreement. Before they head off to the home to pick up the keys, be sure you have the signed agreement and the full payment in hand.
If you collect a refundable deposit, define the time period for refund within your contract (i.e., within 10 days from checkout). If a refund is in order, you can pay the refund through your bank’s online bill pay whereby the bank will mail a cashier’s check to them (for free!). I recommend this instead of sending a handwritten check because 1) your rental business will appear more professional, 2) your private information won’t be given out, and 3) the billpay records will be a handy reference.
Keep Good Records!
Once your vacation rental business is set up and you are getting calls weekly, you must start keeping good records! The important things to track are booked dates, payments, refunds and information on your guests. In addition, you’ll want to track expenses for year-end tax purposes. (A simple Excel worksheet can be set up to collect this information.)
Once your business is organized, you will be amazed by what a good business person you have become. If you are like me, you might even enjoy it! You’ll probably get compliments from your guests often, and before you know it, you’ll have a smooth running operation and a vacation home that is paying for itself!
Note: This article is informational and does not constitute legal advice.
Reference Source: HUD User Website http://www.huduser.org/