Real Estate

Vacation Rentals, Airbnb and VRBO

Diana Hill
Professional Real Estate Investor Instructor

I’m headed to London to visit my son and daughter-in-law so I thought it would be a great time to explore the phenomenon of short term vacation rentals such as Airbnb and how you can use that to create income from your home.

According to the Airbnb website, “… it all began in 2008 when two designers who had space to share hosted three travelers looking for a place to stay.  Now, millions of hosts and travelers choose to create a free Airbnb account so they can list their space and book unique accommodations anywhere in the world.”  Airbnb offers listings from simple apartments to castles and everything in between.

Personally, I recall back in 1984 in Los Angeles when the Olympics were in town many business associates who had apartments in Brentwood and Santa Monica were renting their place out. They rented them for two weeks (went on vacation) and made four times what they were paying in rent.  So this isn’t a new phenomenon.  The technology along with the growth of the travel culture of the younger generation has made this market explode.  According to Forbes, “Young travelers now represent 20 percent of international tourism, making the group an important economic force.”  These travelers use technology (phones, tables and laptops) to make their accommodation decisions while on the go.

So what are the advantages of renting your home or even a room? What do you have to watch out for? Are there any tax advantages?

So let’s start with the first question, what are the advantages?  The first one is obvious, extra cash.  This even holds true if your home is going to be vacant while you are out of town.  According to the HomeAway site, its average listing generates $28,000 in bookings a year, and more than half the owners said that 75% of their mortgage was paid by the regular renting out of the their home.  Another advantage for some people is creating relationships, both with the renters and local businesses that you may refer.

free real estate investing workshopWhat are some of the draw backs and things you have to watch out for?  First, are short term rentals permitted in your city?  For example, recently in San Francisco they legalized short term rentals but with conditions and the host must register with the city and pay for a business license (everyone wants their piece).  Also, if your home is a condominium or apartment, you need to check the bylaws of the HOA.  People try to sneak it but if you are caught it can cost you a heavy fine.  There can also be temporary rules set in place when big events come to town (such as the Olympics I mentioned earlier).  If you have a single family home, you are less likely to have these kinds of restrictions.

Are there tax advantages? – First and foremost you must contact your tax professional, but here is some basic information – If the property is considered your personal residence you must divide your total expenses between the rental use and personal use based on the number of days used for each purpose.  Also, a little known rule is, if you rent your home out for fewer than 15 days you don’t have to report income or expenses.

Diana D. Hill

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.