The sharing economy has introduced all kinds of services that make being a landlord easier. Thanks in large part to these services, many Americans have found financial gains in renting out rooms or entire homes to vacationers as well as long-term tenants.
If you think this might be steady source of income for you, know going in that while you can make money, being a landlord is not as easy as it looks. And even though there is money to be made in short-term rentals, running what is essentially a small hotel can be a lot of work.
Paula Pant, founder of AffordAnything.com, converted one unit of the Atlanta triplex she owns into a vacation rental for a year and wrote a four-part series comparing her short-term rental experience with her experience of being a landlord with annual rentals.
"The conclusion I ultimately reached was, yes, it's better income," says Pant, who notes she made about $600 more per month for her unit. But she admits the extra income came at a price. "There is a certain stress level associated with it as well," she says.
The two major services people use to list their guest rooms, cottages or second homes are Airbnb.com and VRBO.com. Airbnb collects a 3 percent fee on each booking, and VRBO offers a choice of a $349 annual listing fee or a 10 percent fee per booking. Some homeowners also seek short-term or vacation tenants on Craigslist, which is free but provides no booking infrastructure such as collecting payments and managing an availability calendar. If you own a property at a resort, some of those companies will manage rentals for you, but that comes at the cost of a percentage of the booking or a fee, which varies by property.
If you're renting out a stand-alone unit, you'll need to furnish it as well as provide such amenities as irons, shampoo, kitchen equipment and full-length mirrors. Keep in mind that some resorts set standards for rental units. "If you're going to be in their rental program … your interior furnishings and setup have to be at such a level for them to include you in their rental program," says Marian Schaffer, president and founder of SoutheastDiscovery.com.
While Airbnb and VRBO don't set such standards, vacationers choose their lodgings based on photos and reviews, so looks matter a lot. Pant estimated she spent about $2,000 to furnish and equip her one-bedroom unit.
Property owners also worry about damage, theft and security. While most of her vacationers were interesting and respectful, Pant did have one guest that required her to call the police during a domestic dispute. After that experience, she temporarily accepted only guests with previous reviews by landlords on Airbnb. (VRBO does not allow property owners to review guests, and Craigslist does not include reviews.)
Rob Stephens, general manager of Avalara MyLodgeTax.com, has been renting out his vacation condo in Vail, Colorado, for about 15 years. In all that time, his unit has suffered a modest amount of damage only twice, both times accidental. "These are professionals," he says of his guests. "They are people who are very successful and very appreciative of your property."
From a safety standpoint, renting a room in your home to vacationers is different from having a roommate or seeking an annual tenant because you won't be able to do a credit check and check references on vacation renters, though Airbnb has reviews of repeat guests that may provide some insights.
Here are 11 things to know if you're thinking of renting a room, apartment or house to short-term tenants:
People expect hotel-like amenities. That means shampoo, irons, ironing boards, hair dryers and coffee makers, to start. Guests will likely make a variety of requests for anything from breakfast to rollaway beds, but setting the limits on what is provided is up to the landlord.
Have a plan for emergencies. Both Pant and Stephens had water heaters go out while vacationers were in residence, requiring quick repairs. You need to have a relationship with a contractor or handyman who you know will be available if the toilet is stopped up, or be ready to unstop it yourself.
Take good photos and write detailed descriptions. Travelers want to know exactly what they're getting. Show every room and describe the setup of the space and surrounding area. Do you have to climb two flights of stairs to reach the apartment? Is there a microwave? How close is public transportation? "Photos are very important," Stephens says. "That's the big differentiator for your property."
Be prepared to respond quickly to requests. People who book online are in a hurry. If you don't respond in a few hours, they will move on to another listing.
Experiment with different services. Airbnb and VRBO are the two biggest services for vacation rentals. Rules are different on each, as is the fee structure. Craigslist is still the most common service for long-term tenants, though you may find some short-term tenants there as well. HomeAway, which is part of VRBO but a separate website, and FlipKey are other options if you're considering renting out your home.
Have a way to take money and let tenants in and out. Some services handle payments for you and others may let you collect via PayPal or credit card services. If you don't want to be on site to let guests in and out, you can use a lockbox or keyless entry system, giving guests the code before they arrive.
Find a reliable cleaning service. If your property is popular, you may have only a few hours between guests, and if your house cleaner doesn't show up, you may have to do the work yourself, which Pant ended up doing. If you're renting property in a different city from where you live, the cleaners can also be your eyes and ears.
Expect things to be damaged or disappear. Pant and Stephens have found most guests to be respectful and careful. But glasses break, and people may forget which are their beach towels and which are yours. Many short-term rental landlords charge refundable security deposits as well as cleaning fees. Be sure to factor in some cost for fixing or replacing items.
Weigh the amount of time involved against the money you'll receive. Resort rental programs and property managers take a percentage of income but also do most of the work. Weigh the costs against the value of your time. Pant found that she made more money renting to vacationers than to long-term tenants, but she also did more work.
Know the laws and rental rules. Many cities prohibit short-term property rentals, though enforcement is lax in most areas as long as the renters don't create a disturbance. Many homeowner and condo associations ban short-term rentals and are likely to enforce those bans. Before you go to the trouble and expense of setting up a rental business, make sure you can rent out your place without running into legal trouble.
Expect to pay taxes. Most cities and counties consider rentals of less than six months the equivalent of hotel rooms, Stephens says. His company helps vacation rental owners comply with local tax laws. In most cases, you need to pay resort and occupancy taxes, though you can pass those costs on to guests by raising the price to cover them or including taxes in the bill like a hotel. For example, you can charge a rate of $100 a night plus 20 percent tax (or whatever the tax is where you live) or charge a rate of $120 per night and then pay the tax yourself. Your net income also is subject to federal and state income taxes.