Are you considering renting out your Vail Valley Home? Many of my clients consider the opportunity to generate income by renting their home when they aren’t there. This can be a benefit to help offset the costs of owning the home. There could even be additional income left over. Many mountain towns support rentals on a seasonal basis. This means that there will be many weeks in the spring and fall that nobody will want to rent your Vail Valley home.
Think about if you got 50% of your projected rental income and how it would affect your finances. The IRS considers an income property a business that has tax ramifications. I suggest discussing this with a financial advisor before making any rental decisions for your property. Here are some of the main things I tell my clients to think about when they are considering or intending to rent out their Vail Valley home!
When Will You Be Staying At The Home?
When will you use your home? Holidays? Christmas to New Years? 4th of July? What about Spring Break? These are fun times here in Vail Valley. But then you have to remember, it’s also a peak time to visit. Meaning there could be high demand to rent out your house. There are many variables that go into the financial equation. You need to decide how much you will use your home personally.
Will you be renting out your home yourself? Examples could be through Airbnb or Vrbo. This can be very time consuming as there is a long list of tasks to take care of. Or will you be using a broker? Most brokers will charge 20-50% of the gross rental income for their services to rent out your home. This means that they will be managing all aspects of renting your home.
Should you own the rental home or an entity? What if you get personally sued? I recommend separating your business liability and your personal finances, as well as get liability coverage to protect you. Anybody can sue you at any time. You will have to hire an attorney to defend you in this situation. It’s smart to have an attorney set up an entity that will shield your personal assets from a potential lawsuit. I recommend doing this before you start renting out your Vail Valley home.
Renting By Owner
Here is a list of some tasks that you could have if you were renting by owner:
- Website: create, manage and maintain
- Lease, liability waivers, security deposit forms
- AirBnb.com or VRBO.com registration
- Inquiries, phone, email, VRBO.com
- Screen renters (pets, college students, how many people…?)
- Deposit/security deposit, collections
- Final payment collection
- Referral payments
- Sales tax and lodging tax payments (just like a hotel, you will likely be required to collect and remit state sales tax and local lodging taxes)
- Accept checks, credit cards, and/or PayPal?
- Cancellations, refunds
- Renter check-in, keys
- Problems/issues during stay, local property manager contact
- Maid service
- Checkout timing (e.g. check out Guest 1, check-in Guest 2 same day)
- Multiple sets of linens/towels, laundry done offsite?
- Snow removal, drive, walkways, deck
- Put gravel/salt down on ice
- Hot tub service (daily?)
- Recommendations, complaints, ratings
- Security deposit refunds
- Wear and tear/upkeep/replacement of items
Insuring Your Vail Valley Home as a Rental
You will also need to get a vacation home insurance policy because most homeowners policies exclude properties that use rentals. Second homes tend to be riskier since no one lives there full time. This could mean that premiums may be higher. Potential serious issues for second homes can include water damage (frozen pipes), fires, or vandalism. What if the door to your home did not get locked and it blows open and your pipes freeze? What if no one notices a problem in your home till a week later?
You may need to install a security system that detects water levels under your sink, next to the toilet, and your water heater for helping detect problems while you aren’t there. Since most homeowner policies won’t cover these types of issues, you will need to get a vacation or second home insurance. Fire alarms and CO2 detectors are also a requirement. You will need to talk with your insurance company and make sure you have everything covered for when you’re renting.
A regular homeowner’s policy and a vacation home policy may cover personal liability, but personal liability coverage or a personal umbrella policy will not cover business activities. Renting your second home is a business activity. Personal liability is intended to cover you in the event that someone claims that you have caused them bodily injury, or damaged their property as a result of your personal actions.
When you rent your home, you are a business and you need commercial liability coverage (business liability). This is specifically designed for “business activities” like your second home rental business. Liability coverage protects you if someone slips on an icy sidewalk and they sue for damages. If there is severe damage to your second home and it cannot be rented, you may also want to ensure that your lost rental income is also covered.
Final Thoughts How Can I Help?
I hope this article was informative when you are trying to decide if renting out your Vail Valley home is right for you and your family. If you have any other questions or concerns please reach out and ask me! I want to provide my clients with interesting and up-to-date information so they can make informed decisions. If you think that my expertise and positive attitude might be of service to you don’t hesitate to reach out and contact me.
Would you like more information on the Vail Valley/Cordillera area or the real estate market specifically? To receive my detailed monthly market report immediately, click here!
Coldwell Banker Global Luxury Specialist
Coldwell Banker Distinctive Properties