If you own an amazing piece of real estate, it’s easy to turn your property into a channel of passive income. Whether you’re living in beautiful Beverly Hills or another highly sought-after area of the country, hundreds of potential renters are waiting at your fingertips, eager to experience the life of luxurious living. Both short-term vacationers looking to get a glimpse into how the other half lives and long-term residents who want to make their claim to fame give you the opportunity to build your income with little work involved. But before you rent out a room in your home, be sure to read up on these few pointers in order to pave a path to profits—and avoid a bumpy road full of financial frustrations. (Images Credit: Shutterstock)
Renting out Your Home as a Short-Term Vacation Rental
Listing your property for short-term rent on sites such as Airbnb, VRBO, or through your local vacation agency is an easy way to make money off your home while you’re away—especially for homeowners who have invested in more than one real estate property and travel frequently. Here’s are advice.
- Is your property turnkey?
If you’ve acquired a turnkey real estate property, then you’re already set up for success. “Turnkey” essentially means that it’s ready to be lived in at the turn of a key and that the buyer doesn’t have to go through the overwhelming process of making the space livable before filling it with renters. Even if you didn’t buy in the turnkey property sector, you can still make your home ready to be rented and fully enjoyed by vacationers by making sure it’s equipped with all of the living essentials, such as:
- Fresh linens and towels
- Clean cooking utensils
- Cable and WiFi installed
If you were going on a luxurious vacation, which amenities would you expect from your 5-Star lodging? Think of those and more in order to get rave reviews and keep your property filled regularly.
Pro Tip: Hire a cleaning service on retainer to make sure the home is kempt and ready to go for the next renters while you’re away.
- Are you allowed to rent as short-term vacation property?
Before listing your property as a short-term vacation unit, make sure you’re not breaking any laws. Many cities have restricted or altogether banned this practice in an attempt to redirect tourist dollars to the hospitality industry, so check with your local jurisdiction to make sure it’s allowed within your zip code. Also, if you do not own your home outright and lease it on a monthly or yearly basis, it’s likely that you agreed to a clause which prohibited short-term rentals. Read over your contract to ensure you’re not violating your lease.
Renting out Your Home with a Long-Term Lease
Successful property investors know how lucrative it can be to purchase a home with the intention of filling it with long-term tenants whose monthly rent can pay off the mortgage. Prior to making any financial decisions, be aware of the best investment tips.
- Are you charging the right rent?
Use websites like Rentometer to compare the rent rates in the area with properties similar to yours. That way, you’ll know you’re getting your top dollar without scaring away potential tenants because your price tag is too high.
- Do you have a property manager?
If your rental property is out of state or you’re looking for a hands-off, passive source of income, you’ll need to hire a property manager who can collect rent, maintain the home, and respond to tenant repair requests.
- Are you keeping records?
When tax season rolls around, you’ll be kicking yourself if you failed to keep diligent records of your rental property. You’ll be required to report any capital gains from rental proceeds to the IRS, but you may be able to lower your tax liability with deductions on:
- Home renovations
- Maintenance costs
- Property taxes
In order to stay out of hot water with the government—and to maximize your return—you’ll need to keep comprehensive records of every transaction relating to your property.
Pro Tip: Prior to signing any lease, conducting a tenant background check is imperative. You want to feel confident about the person you’re entrusting your home to and pre-screening can inform you of a tenant’s negative financial or rental history.
At the end of the day, smart entrepreneurs need to make themselves aware of the monetary risk and reward involved with renting out your home. Speak with your attorney to make sure this is the best decision for you and your financial goals.
