Even though it can be a terrific way to make additional cash and create a passive income, then renting your house isn’t without its drawbacks.
I own a second house in a popular coastal town. I’ve decided that this year I want to rent it out using Airbnb. What are the costs associated with this? What should I expect in terms of taxes? What about risk? Should I have an extra layer of insurance to cover any potential mishaps? Should I make all my guests sign a damage waiver?
There’s no doubt that the short-term and vacation rental business has exploded in recent years, thanks to easy-to-use sites like Airbnb, HomeAway and VRBO.
Though it can be a great way to earn extra money and generate a passive income, renting out your home isn’t without the downsides. You will find insurance costs to consider, the capacity for a huge tax bill come April, although the price of damage to a house, and of course the simple fact that lots of cities are attempting to tightly regulate the business.
We talked to experts about some of the significant problems to consider when leasing a second house: taxes, insurance and shielding yourself against harm.
What to Consider
- Make Sure You’re Covered
- Consider Your Taxes
- Final Thoughts
Make Sure You’re Covered
When leasing a second residence, it’s significant to be aware that a homeowners coverage generally doesn’t cover holiday or rental actions. Thus, you probably must obtain another policy.
"From an insurance perspective there are risks, and buying the right type and amount of coverage is important, and it changes dependent on whether you’re keeping your vacation home for you or renting it out to others," says Loretta Worters, vice president of media relations in the Insurance Information Institute.
If you intend to rent your house out to other people, the price of your homeowners insurance will most likely boost. You might have to buy extra protection, also, Worters states.
"Your insurance needs will depend on how often you rent out the property and for how long. For a one-time, short-term rental, you may be able to add a simple extension (an ‘acceptance ‘) to your existing homeowner’s policy," Worters states.
"On the other hand, if you plan to regularly rent out your second home, you may need separate business coverage or a landlord policy. While some rental services, such as Airbnb and VRBO, offer coverage for homeowners, it’s important to read the fine print to determine limits and exclusions," she states.
Airbnb provides a Host Protection Policy, which protects hosts against liability claims, property damage and physical injury of around $1 billion. VRBO and HomeAway equally provide their own related coverage, HomeAway Assure, made to replace your homeowner’s insurance and to pay you in the event that you opt to rent out your house for holiday rentals.
Renting a second house can contain more complicated dangers which you might not have considered, therefore that it’s a fantastic idea to speak to your insurer to be certain to ‘re insured, Worters notes.
Requiring visitors to sign a damage waiver can be also a fantastic idea, experts note.