About half a million Americans buy a second home each year. If you are like many of these fortunate second homeowners, you may be considering renting your second property this summer to generate extra income. Before you jump into the rental market, be sure to take these steps:
Where to list your rental property
Before you list your unit for renters, you should do research on where renters are finding properties to rent in your region and how much to charge. You’ll want to make sure that it’s legal to rent out your property and understand what steps and payments are required (check with your city and county for regulations). Condominiums and HOAs may limit vacation rentals as well.
It’s important to know how involved you want to be in coordinating with your renters. You can consider listing your property on multiple marketplace platforms or just stick to one. Some second home owners choose to delegate the renting process to a third party property manager. The property manager takes a portion of your income in exchange for finding renters and making sure the home is cleaned and maintained after each use. If you don’t hire a property manager, you’ll have to get the keys to and from renters–consider adding a keycode combination lock to your door, which will make things much easier for everyone.
Seasonal and Vacation Home Property Insurance
Even if you choose to use a third-party marketplace like Airbnb or VRBO, you could still be liable for any injuries or damage to your second home caused by a visitor or renter, and your standard homeowners’ insurance may not apply. You will want to make sure your current insurance covers rental properties (landlord insurance). The policies are often available from most insurance carriers and can be purchased as add-on policies.
You may want to consider installing burglar and fire alarms in your second home if there will be times that the property is unoccupied. While law often requires smoke alarms, an alarm system will notify the fire department and/or police while you are gone. You may also get a discount on your insurance for having these two systems in place.
If you have a pool, make sure that it is secured by either a fence or a safety cover. Small children and animals can quickly drown, and renters may not be aware of the dangers. Before renting out your property, make sure all hazards are mitigated or at least marked. For example, you may want to make sure that any household cleaners or chemicals are stored appropriately.
A good tip is to be overly communicative with signage about how to operate machines like washer dryers, dishwashers, or fireplaces.
Even the most conscientious renter has been known to accidentally damage property. While it is important that your rental property not be bare and empty, too much clutter and tchotchkes can be distracting, prone to loss, and hard to clean.
Tax Tips for Rental Income
If you rent out your home for 14 or fewer days a year, then you do not need to report the rental income because the income is tax-free.
If you rent for more than 14 days, you must report all of your Rental Income, but you can deduct many of your expenses. To deduct your rental property expenses, you must determine which expenses were personal and which expenses are related to the rental property.
If you decide to rent out your property this summer, you should contact an insurance broker and a tax advisor to understand how the rental property will impact your taxes and overall liability.