Most vacation homes are unoccupied for the better part of the year. If you own such a house, you can make extra money by renting it out whenever it is not in use. There are, however, several things that you need to be well versed with before making such a move. Here is a brief overview of what to know before renting out your vacation home.
The Risks Involved
By renting out your vacation home, you are taking several risks. You need to be aware of these risks and their consequences. First, there is always the risk of default by the renter. If the renter does not pay rent on time, you may make losses. There is also the risk of injuries to the renter while on the property. These risks may mean a lot to your estate.
The Opportunity Cost
When you rent out your vacation home, you cannot enjoy your time off the hurly-burly of life in it when the rental agreement is still in force. You also cannot sell the property unless the rental agreement is terminated by agreement. You lock yourself out of several things, and it is essential to take note of these things as well.
The Pros and Cons
Renting out your vacation home comes with both advantages and disadvantages. The first obvious benefit is rental income. You also stand to win big if the value of property in the market goes up when the rental agreement is in force. On the flip side, you will have to pay tax on the rental income. You will also have to maintain this home at your own cost. You should consider these advantages vis-à-vis the disadvantages and pick the choice that is economically feasible when you want to put your vacation home for Vermietung in Palma for instance.
The Legal Framework
The real estate sector in some areas is very complicated and renting out your vacation home may open a can of worms in your estate if you are not careful. Get the advice of a property lawyer on issues such as whether part-time property rentals are allowed in your area, and how to protect your property while the rental agreement is in force.
The Effect of the Transaction on Taxes
If you want to be a part-time landlord, the taxman will be looking for you for his fair share of the rental income. You, therefore, need to the advice of a financial expert, a lawyer and a mortgage broker on the effects of renting out your vacation home on your tax obligations. For instance, you may not be required to pay taxes on rental income if you rent out your home for less than 15 days in some countries.
The Records to Keep
Record keeping is essential when it comes to renting out your vacation home. You need to keep a proper record of the rental/lease agreement, rental payment receipts, and tax payments receipts. In some cases, it is also necessary to maintain a written record of the time spent at home for maintenance.
Homeowner’s Insurance Policy Coverage
You need to know what your homeowners’ insurance policy states with regards to damages done by renters. If such costs are not covered, you may need to buy a policy that includes these damages. The new policy should also specify the extent to which the homeowner is liable to injuries to the renter while on the property.
Indeed, you need to take note of the fine details of renting out your vacation home if you want to be on the safe side. Don’t ignore any pertinent information, however obvious you think it may be. If you ask the camel, it will tell you that it is the small things that broke its back.