Thinking of Renting Out Your Primary Home? A Checklist
Thinking of Renting Out Your Primary Home?
Checklist of 15 Considerations Prior to Placing Your Primary Property on the Rental Market
It is no longer unusual for properties of all kinds to be placed on the rental market. Couples who each retain their own residences may decide to rent one out and live together in one. Snowbirds may lease their primary home while away for the winter season. There's no shortage of anecdotal stories of guests who prefer a private residence or apartment when staying in another area for a weekend or longer.
More than ever, reputable third party online brokers such as vrbo.com, airbnb.com and bringfido.com connect owners with guests. Other web sites such as cozycozy.com gather info from hotels and third party brokers to give a comprehensive overview of what is available in an area for any budget.
Over the years I've been asked about the rental business by friends who are seriously considering placing their property on the rental market. It has lots of appeal due to popular acceptance of rentals as well as potential revenue. However, it is not without a lot of work and risks, which is why it is not a decision entered into lightly. It's perfectly OK to decide it isn't a good fit after all.
Before proceeding with any decision, thoroughly research your options and look at the best and worst case scenarios. Consult with your professional advisors for the impact on taxes, insurance, legal/liability and much more.
With many years of experience owning/managing a long term condo rental in my primary city and a few years owning a vacation rental in my southern community, I can assure anyone that there's no way to anticipate everything. Do your best and know when to hire a professional, it can be worth every penny. With our vacation rental we didn't hesitate to immediately hire the same property manager who managed it with the previous owner. It was and remains the best decision we made once we purchased the property.
In the meantime, I've created a general checklist of 15 considerations prior to placing your property into a rental program. The goal is to think about, research and be informed of what is involved and be prepared as much as possible. As they say, you never know until you try.
Checklist of 15 Considerations Prior to Placing Your Property on the Rental Market
What is the draw?
It's critical to identify what distinguishes your property from the competition. What does your property offer? Fully furnished? Recently updated? Water, mountain, wooded or scenic views? Privacy? Fenced yard? Covered parking? Proximity to area attractions?
Who is your target market?
Are you seeking weekend guests? Vacationers? Business travelers? Families with children? Solo travelers? Couples? Sports enthusiasts? Pet owners? Guests who are relocating to the area? Corporate housing? Tenants who are constructing new homes? Groups? Guests with special interests? Guests who are celebrating a special occasion?
How will you promote your property?
Do you plan to promote your rental based on any or all of the following: Referrals? Paid advertising? Online broker sites? Signage? Local agents such as realtors and housing services? Corporate relocation services?
Will you have an online presence?
An online presence is essential for most short term rentals. The primary method is via a web site and/or social media landing page at the very least. Do you have enough basic knowledge to create and maintain your own web site or landing page, such as a business Facebook page? If not, are you comfortable hiring someone or a third party entity to create your site for you?
Do you plan to take your own photos or hire a photographer to promote your rental? Can you create and write the copy to promote your property?
Who will manage your rental?
Who will take care of the following: Cleaning? Maintenance and repairs? Pricing? Schedule, bookings and collections? Guest relations? Lock-outs? Property damage? Snow removal and yard work?
Have you figured out how much time you need in-between guests to clean and prep?
Do you plan to hire a property manager? Are you familiar with the scope of work property managers provide and their standard fees?
How will you handle dispute/conflict resolution? All of these areas and more will need to have solid systems in place. Be prepared for what you will do if your cleaning crew is ill or quits. It does happen , it's only a matter of time.
Are you comfortable screening potential guests?
Private rentals have more flexibility to screen potential guests than hotels do. Check your local, state and federal laws of course, but you are perfectly entitled to refuse to allow pets, guests under a certain age, such as 25 and guests who exceed the maximum number of occupancy as an example.
Check your max occupancy before renting your property. As an example, if your property has three bedrooms and a sleeper sofa with a max occupancy of 8 and you have a group of 15 guests asking to book your space, they will need to be turned away. If you allow pets, check with your insurance company of the potential liability for that, including prohibited breeds. You need all of the facts before being faced with the difficult questions from potential guests. It is not worth risking everything you own because you made a bad decision to host a guest with a pet that isn't covered by your homeowner's insurance.
Have you determined your burn rate?
Calculating your burn rate is the first step of knowing what your daily/weekly/monthly/annual costs are. How much is the mortgage? Insurance? Utilities? Cable/wi-fi? HOA fees? Taxes? Administrative and professional fees? Cleaning costs? Credit card/payment fees? Marketing and promotional fees? Maintenance/upkeep and repair expenses? Property manager fees? Damage/theft costs? Don't forget to calculate depreciation of your property and furnishings because it will wear out faster with rental guests. Replacing linens every season as well as furniture are examples of costs for your rental business.
Have you calculated your maximum rental income?
It's easy to get starry eyed about the rental dollars rolling into your bank account. It all might seem so lucrative until you actually get into the realities of running a rental business.
Be realistic about your profit margins. If your property is available a maximum of 52 weeks of the year and your total possible revenue is $50,000 for filling all 52 weeks, don't think for a minute it will be booked solid. You will need to allow for vacant dates, reduced rates, standard expenses and unexpected costs. Loss of use from fires, floods, disasters and other problems is another potential issue that should be factored into your business plan.
Who will handle the administrative duties?
Who will take care of the administration of your rental property? What method of payment will you accept? Who will collect the funds? Who will pay the bills such as mortgage, utilities, HOA, etc? Who will keep track of the bookkeeping? Refunds? Credit card and other fees? Federal, state and local taxes? Unexpected fees?
How will you handle complaints?
Complaints are part of any business and there's many motives for guests who complain. Some are looking for refunds and freebies and others are offering valuable feedback, no matter how difficult it may be to receive. Having a complaint resolution procedure in place is important for any rental program. There may be complaints regarding cleanliness, linens and furnishings, odors, bugs, noise, broken or missing items and even ridiculous complaints that are beyond anyone's control, such as weather and traffic. You may also find that complaints are not only from guests, but your own HOA and neighboring property owners as well. Being able to separate and resolve valid complaints is essential to managing a rental. All too often guests wield the power of posting a negative review online and you will need to be prepared for that.
Do you have adequate security?
Setting up an adequate security system is the lifeblood for not only the security of your property, but the security of your guests and their belongings. Deadbolts, privacy latches, key-pad coded entry systems, cameras, alarms, drive-by inspections and much more are required. Only you can decide to what degree your security will entail, but you must have a security system. It's non-negotiable.
Where will you lock up your personal belongings?
Guests who stay in a rental home are going to expect plenty of space for their items, including closets. You will want to make sure your personal belongings are not accessible to your guests. Therefore, it's essential to create a space where you can move your stuff and keep it locked up. This is not easy for many people. Locked owner's closets, garages and entire rooms are options. However, you may encounter guests who find it irresistible to stay out of your locked areas. They may use excuses such as "the lock broke" or was left open and on and on. If you are going to store your personal items on site, be ready for anything. Do not store anything of sentimental or high value on site unless you are OK with it possibly getting ruined or coming up missing.
Are you prepared for being on call 24/7?
Rental/s are not a nine-to-five weekday business. Being ready for after-hours requests for everything from help with entry access to malfunctioning tv's or wi-fi, missing remote controls, housekeeping issues, maintenance/repairs and much more are all part of the deal when your property goes onto the rental market. Our property manager jokes that she never makes social or dinner plans on load-in day because it will almost always be interrupted.
If you are your property manager, plan on taking time to help your guests with any real or perceived problems as they arise. Never underestimate your guests. I've heard stories of guests expecting help with the TV in the middle of the night. Set boundaries, communicate what they are and stick with it.
Can you say "No"?
If you are unable to politely say "No" when appropriate, it will be very difficult to run a successful rental business. Requests for mundane and outrageous demands and everything in between will come up. You may get requests for below market rental rates, extensions/modifications of dates that may not be available or reasonable and/or early check ins and late departures.
You may not want every guest to come back if you've had a bad experience with them. Family and friends may ask to stay at your place for free. If you cannot or will not say no, consider hiring a property manager to be the buffer. They are worth every penny if it will help you run a profitable business, which is the point of doing it after all.
Are You Able to Handle the Emotional Costs?
Real estate, particularly your primary home, is the largest emotional and financial investment most people make. It can be difficult to deal with the thought and/or reality of someone living in your home and very likely not treating it the way you would. Things happen. Items come up missing or break, get dirty, ruined and wear out. There's also the emotional cost of rejection of your rental property from harsh feedback or online reviews. Many properties will be vacant for periods of time due to rental cycles and competition. Not every rental earns a profit. Sometimes you might be fortunate to break even or you may even lose money. Do you have enough reserves to cover costs when your property is operating at a loss? Be honest with yourself and decide if you can cope with the ongoing stress of renting your property to strangers. It's not easy and although you may believe you're ready to let go and give it a try, it's not for everyone.
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