6 Things Every Vacation Rental Homeowner Should Know

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When family matters called Robin Stevens from her Phoenix, Arizona home to the East Coast for months at a stretch, she decided to rent out her home to vacationers. She’d spent years curating items she loved, down to the pillowcases and coffee mugs, and her guests frequently commented on the décor and how good they felt there. Eventually, when her husband found a bounty of work in Georgia, it became clear that they’d need to settle across the country.

Their new, 6,000 square foot home in Fayetteville has a downstairs apartment, which they also outfitted for renters. The big difference between the two short-term rental experiences? “I wish I’d not left all my personal things in the Phoenix house,” she said.

She has a cleaner and a property manager, but when she came back to check on the place, she saw that some of her favorite items were damaged from wear and tear and had to be replaced. She realized she just had to keep the home impersonally attractive, and not be attached to anything. “I also switched out to white sheets. It makes it so much easier for the cleaning person.”

Experience is our greatest teacher, as Stevens found out, but the second best is someone who has come before. If you’re thinking about buying or setting up a vacation rental, consider absorbing these 6 pieces of wisdom from people who have learned along the way:

Know all the financial implications: Sara Claire Sharp rents out a studio in her Denver backyard. “I wish I’d initially appreciate the multiple levels of taxation we’d be subject to,” she said. In addition to state and federal taxes, you could be liable for city lodging tax.

“With affordable housing in such a bind, most major cities are enforcing regulations on short term rentals, forcing landlords to put their rental properties back on the markets for families as long-term rentals,” said Shawn Breyer, a real estate agent who, with his wife, owns a lake property in Holland, Mich. They’ve managed multiple properties through the years.

And if you try to skirt the laws and hide the fact that you’re renting the place out to vacationers, you could be fined extra, which is what happened to one San Francisco couple who tried to fool city inspectors (twice!) after renting out multiple apartments and ended up having to pay $5.5 million.

Understand the local, regional, and HOA rules: Anne Underwood and her husband, Jorge, purchased a Palm Springs property specifically as a short-term rental. “It seemed like a pretty cut and dry sort of deal. Unfortunately for us, not too long after we purchased the house Palm Springs changed their requirements if you wanted to do a short-terms rental. So the cost of the permit went up. We knew this was a possibility going into it, we didn’t know how extensive the changes would be,” she said. They were surprised and overwhelmed by all the fees charged by the city for mistakes and mishaps, such as putting trash out on the wrong day or having an alarm accidentally go off.

While some homeowners’ associations have a ban on any kind of vacation rentals, others may not – but that might not be the case forever. One loud party and the board might decide to change the rules overnight. If that’s the case, you might have to change your strategy to longer-term rentals and better tenant vetting, or find a property that’s not in an HOA.

Have an outside camera: If there’s a theft, forbidden pets, extra people, or parties, you’ll want evidence to back it up. Otherwise it just becomes your word against the guests, said Underwood. “We hoped that whoever came to our house would treat it like we treated other homes, but that wasn’t the case. One visiting group broke an expensive lounge chair in half, and the guests said that the wind broke it. “It was nearly impossible to prove them wrong, but it doesn’t even make sense that a several hundred pound chair would be broken by wind.”

Set your rates competitively within your neighborhood’s range: Becca Marsh said it took her a while to get pricing right for her Medford, Oregon home. “We started off charging comparable rates to the rentals in our area. Our renters were amazing. They respected our property, cleaned up after themselves, were easy to communicate with, and left great reviews,” she said. But when the slow season came and she tried to undercut her competitors with rock bottom rates, she got schooled pretty quickly: “The people looking to rent a three-bedroom house with a hot tub for less than $100 per night are not the people you want in your house. When we dropped our prices too low, things were broken and stained, property would go missing, and the house was consistently left a mess.”

And in that same vein, “never negotiate,” said Kelly Hayes-Raitt, a professional house sitter who rents out her Los Angeles home. “Guests who start negotiating over the price, over fees, over arrival or departure times never stop.”

Be thorough, even if it takes more time: Holly Eggelston Hartling urges would-be homeowners to be upfront about what amenities are and aren’t included: “For instance, if you have a cabin that does not have air conditioning, be clear about it in the listing and perhaps re-warn people when they book if it is going to be particularly hot outside.

Stevens, who owns the rentals in Phoenix and Georgia, said she wished she’d been more diligent in filing out all the options possible—it took a while before she finally realized that she could have been charging $15 per extra guest per night. It doesn’t sound like much, but it added up to hundreds, if not thousands, of dollars in lost income.

Be realistic in your projections: Make a worst-case/best-case scenario for financial projections, including what happens during a slow season, natural disaster, maintenance issue, or other unforeseen circumstance that makes your home harder (or impossible to rent). Underwood, who eventually sold the Palm Springs house, thankfully was able to make a profit despite all the trouble she’d had. “When we were renting it out, we did make money. We didn’t make as much as we thought we were going to, but all things considered, we did make money.”

Owning a vacation rental can be incredibly rewarding, especially when you embark on the second home journey with these 6 pieces of wisdom in your back pocket.

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