It's not very often I post guest blogs on the Safford Insurance website . . . but when Dylan LeCompte, the author of this article, showed me what he'd written, I thought it was more than worth sharing. As always, the below information is general in nature and we always recommend consulting with an appropriate professional (attorney, accountant, insurance agent, etc.) when making decisions for your unique situation.
Renting out your house instead of listing it on the real estate market is a common, and even profitable, way to hold on to your property when you aren’t currently living in it as a primary residence.
Some homeowners choose this direction when they want to wait to sell when their second home’s value increases or the market turns in their favor. Others may want to come back to this property for retirement or are holding on to it for their family’s future use.
Whatever your reasons for deciding to rent out your property, some planning and preparation need to go into your home — not to mention your new role as a landlord — before you can start advertising it to the world. The first decision to make is determining if you want this to be a long-term rental, as in asking for year-long leases from tenants, or a short-term rental, such as listing your property on Airbnb or VRBO. This guide will walk you through:
- Setting up your house as a short-term or long-term rental
- How to find out how much to rent your house for
- Knowing your legal rights and responsibilities
- Putting on your landlord hat
- Pros and cons of short-term vs. long-term renting
Before continuing, a quick reminder. If your property is in Massahttp://short-chusetts and you plan on renting the property on a short-term basis, there are tax and insurance regulations you need to comply with. You can read about the MA insurance requirements here.
Setting up your house as a rental
Whether you’re setting up your home for a long-term or a short-term rental, you’ll need to be sure that it’s ready for your renters to move into. Either way, you want to double-check to make sure that:
- All appliances are safe and in working order.
- Entry to the house, whether by key or lock pad, is secure and accessible.
- The house is clean, and if furnished, the furniture is not broken or damaged and in good condition.
If you’re going to be renting your house for short periods on a site like Airbnb, you’ll want to take the right steps to set up your profile correctly. You will need to include information like:
- Your home type and how many people your space can accommodate.
- If you allow children and pets, and if there are any additional fees for them.
- An overview of your home and the area nearby, along with highlighting any amenities that guests can expect to enjoy when they stay in your house.
How to find out how much to rent your house for
When renting out your house, you’ll need to understand how much rent to charge to make sure you cover all of your costs — mortgage, property taxes, insurance, utilities — and be able to set aside some funds to put toward maintenance and upkeep. You’ll also need to cover costs associated with rental applications like conducting background and credit score checks on tenants, as well as hiring cleaning services, a property manager, and contacting referrals.
However, once you determine a price that covers your needs, you’ll need to search and compare it to other rental homes of the same or similar quality in your zip code area; this applies to both short-term and long-term rental properties. Redfin offers a rental estimate that will help you in determining how much to rent your home for.
When getting your business and finances in order to list your home as a short-term rental, you’ll want to:
- Do your research on Airbnb or VRBO to see the price range that other homes in your area rent for.
- Consider offering a discount for extended stays. Also consider increasing the rent on weekends, holidays and other high-travel seasons.
- Factor in cleaning costs, pet deposits, and other upfront non-refundable fees.
- Protect yourself and your property with insurance.
Pro tip: For new hosts, Airbnb recommends listing your price lower than the suggested rate, so you can get a few immediate reviews and build up your credentials.
When organizing your finances and business to offer your home as a long-term rental, you’ll want to:
- Determine the length of the lease you’ll offer.
- Set a price for security, pet, and other deposits.
- Consider hiring a rental manager such as a property management company to handle rent and late fee collection, take care of repairs and deal with vacancies and evictions.
- Protect yourself and your property with insurance.
- List your home on applicable rental sites such as Craigslist, Facebook, etc
Once you have settled and secured the business aspects, you’ll want to speak with a lawyer or real estate company to make sure you not only understand your legal responsibilities but that you have them all covered.
Know your legal rights and responsibilities
The essential contract for a long-term rental is a lease agreement. As a landlord, you need to be sure all of the terms of the rental situation are outlined on paper and signed by all parties involved. You’ll want to make sure your lease outlines the following:
- Length of lease
- Security deposit amount
- Rental due date and penalties for late or missed payments
- Responsibilities for repairs, basic upkeep, and maintenance — be sure to be specific about lawn care and pest control
- List of names of all tenants
- Policies about pets, painting, noise levels, homeowners association dues and rules, and smoking
- All related deposits
- Eviction terms
- Consequences for damaging the property
When thinking about the length of the lease, keep in mind that a month-to-month lease gives you the flexibility to sell when you’re ready, while an annual lease is a more stable option for those holding on to the property. Either way, have a lawyer look over the lease to make sure you’ve included all of the necessary components. You also need to research the landlord and tenant laws in your state. When it comes to disputes, some states automatically favor the tenant over the landlord, so it’s important you know the laws, rules, and regulations for your specific state.
When it comes to a short-term rental, signing a lease is usually not involved, but you still need to make sure that your renters understand and follow your policies. You want to be specific about cancellation policies, adding additional guests, steps for clean-up or check-out, and roles around any amenities like swimming pools, hot tubs or kitchens.
Put on your landlord hat
When you decide to rent out your home, you have to be sure to separate yourself emotionally from your renters. While it’s important to be flexible when you can, remember that this is a business. A good landlord is someone who is firm but kind, understanding but not easily taken advantage of. Other qualities of a good landlord include:
- Good communication with quick response times
- Reliable and responsible, and always acts honestly and with integrity
- Well-organized and thorough, paying close attention to detail
Utilizing and developing all of these qualities will enable you to establish a strong, cordial and candid landlord/tenant relationship.
Pros and cons of short-term vs. long-term renting
There are many reasons to rent out your property, but deciding how to rent it out can be just as challenging as deciding who to rent it to. How do you know which is the best choice for you?
Short-Term Rental Pros
- More lucrative, especially if you live in a tourist destination
- Adjustable in regard to time and money in order to fit the demand
- Flexible with scheduling so you can use the property for vacation when you have the time
- Possible qualification for tax breaks & deductions that are specific to short-term rentals, like the 14-day rule
- Generally less wear and tear on your property
Short-Term Rental Cons
- Necessary to furnish and clean on a frequent, regular schedule
- Some states, cities or municipalities require short-term rental landlords to complete complex paperwork and hike a mountain of red tape.
- Accounting for negative financial gains during slower periods
- More competition from surrounding properties
- Typically more tasks and items to manage
Long-Term Rental Pros
- More stable and reliable tenants with less rental turnover
- More consistent pay & income
- Fewer bills that need to be covered by the landlord
- Generally does not need to be furnished
Long-Term Rental Cons
- Potentially larger gaps between tenants
- Less control over the property
- Finding the right tenants may take time
- The eviction process can be time-consuming and costly
You won’t find a one-size-fits-all package when it’s time to decide on a short-term or long-term rental plan. The benefits — and shortcomings — associated with both are clear. It’s important to always keep sight of your goal: maximizing your property’s return on investment.
Want to learn more about insuring rental properties? Give us a call at 774-847-1106 or use the handy form below to send us your questions.
Lastly, an important disclaimer: This information is general in nature and intended to be educational. Nothing in this should be considered an offer or provision of coverage. Every insurance company, situation, person, and animal is unique and pricing and coverage will vary. Depending on the situation, in some cases coverage may simply not be available. At the time of this posting, Safford Insurance, LLC services the states of MA, RI, and TN.