If you own a second home in a popular vacation destination like Breckenridge, there are many benefits above and beyond just having a vacation retreat. Of the many different advantages that come with owning a second home in a popular area, one in particular is very exciting- rental income. Renting your second home can help offset many costs of holding the property and provide extra income to you, including:
- Renting your home can help cover your mortgage payments, insurance, and property taxes.
- You may have the ability to deduct your rental expenses on your taxes.
- Rental revenue can help pay for your HOA fees and assessments.
- You have the possibility of your property appreciating in value.
- Property maintenance costs can be offset with rental revenues, which increase your property’s value in the long run.
- Rental revenues can be applied to property upgrades and remodels, increasing your rental revenues and home value.
The average rental property brings in about $28,000 a year and including cleaning, repairs, guest relations, check in and out, and other assorted communication and preparation can take about fifteen hours a week to manage. This figure is higher than average here in Summit County, especially during our very busy winter season. Increasingly, guests are looking for a hotel experience and professional communications during their vacation, which can be a challenge for many homeowners to do well. When a guest is not provided with that experience, they will likely not rent the property again, or worse, leave a scathing review online to prevent others from renting the property. To succeed in renting your property, time and resources must be invested to provide the type of experience todays traveler demands.
Renting your property is a very challenging time commitment. If you’re interested in renting your second home for extra profit, here are some tips to ensure you are positioned for success:
1. Learn the laws and restrictions for rental homes in your state and town.
A good place to start would be to Google “[Your town] rental regulations”. You can also try calling your town’s community or tax office. You may have to apply for a rental permit, business license, pay taxes, and remit forms on a monthly basis to state and local authorities. Many towns restrict or outright ban rental activity. For those that allow rentals, regulations and tax remission are common, so don’t get yourself in trouble by not understanding the legal requirements. A professional management company is set up to take care of all these things for you, and keep in in legal compliance.
2. Read your mortgage agreement
Ensure rental activity is allowed on your property, and your insurance will not be at risk of being voided by the rental activity. Some mortgage agreements include restrictions on renting out the property. You want to ensure that yours allows it. If you’re part of a homeowners’ association, it’s always a good idea to find out if they allow vacation rentals, too. A professional manager will be aware of local HOA restrictions, and can help with ensuring you are compliant.
3. Find a Property Manager
Renting the property on your own is attractive for financial reasons, as there is no commission to pay. However, hiring a professional property manager can eaisly pay for iteself. Some property managers will request a percentage of the monthly rent as compensation. In the end, you will make more money. The professional property manager will pay for itself by reducing your time spent and burden, increasing rentals and decreasing vacancies, better guest service, and the convenience of having a valued manager just a phone call away. Most owners eventually come to learn that a professional property manager is worth much more than the 30-40% they charge.
4. Keep detailed records of your income and expenses for all rental activity.
Keeping a detailed record of every expense associated with the rental property so that you can potentially deduct them when tax season comes around. Most repairs and improvements can be deducted from your personal taxes, but asking your accountant is a good practice to ensure tax compliance. A professional manager can not only keep track of these costs for you, but also account for other items, and prepare reports for your tax professional.
5. Ensure your insurance is the correct type and level for rentals.
You likely have casualty insurance for your home, but ensuring you have rental and liability insurance will ensure coverage for you in the event of any sort of guest related issue. Guests can become injured, or sometimes injure your property, and being properly covered for that can protect you from a financial loss.
6. Prepare the property ready for guests, by providing the first class hotel experience they are looking for.
Removing your personal belongings is a good idea, for both their protection as well as the comfort of the guest. They want to feel like they are in a home, but not your home. Ensuring that the property has enough comfortable furniture will provide a relaxing and pleasurable gathering space for the guest during their time in your home. Stocking the property with a compliment of necessities and amenities will enable guests to relax comfortably, and will provide the type of experience that they desire. Fixing any hazards and deep cleaning the property will give the guest the first impression of an owner that takes pride in their home. A professional management company can take care of all these things for you, and do it at a high level to promote happy return guests.
7. Draft up a list of house rules for your guests to read.
Such rules may include no smoking, no pets, no loud music after 10:00 PM, and no big parties. Don’t forget to include local emergency phone numbers and your property manager’s contact information. Print out the list and put it in an obvious place where you know your renters will see it.
8. Ge ready for your first booking!
Good luck! You are on your way to increased revenue as well as helping other families make vacation memories!