Wednesday, December 21, 2011

Risks and Rewards of Renting Short Term

Short-term rentals are on the rise as an investment trend for property managers and owners. They are also attractive to vacationers and business travelers as an alternative to conventional accommodations.

Because of the growing popularity of these rentals, there's been heightened controversy surrounding the legalities, tax implications and city oppositions to them. At the same time there are obvious revenue rewards. So, property owners should weigh both the pros and cons when considering purchasing an investment property or converting an existing property. Additional risks and rewards to be aware of include: 

  • Hidden Costs - There are many hidden costs that long-term rentals may not have. Some rentals may be subject to Hotel Occupancy Tax and additional licensure fees for operating a "hotel." Other costs include heftier insurance policies that protect the property owner from damages resulting from short-term renters. 
  • Restrictions - Some cities are implementing bans and restrictions on short-term rentals. Keeping this in mind is important if a zoning restriction comes into play. 
  • Tax Breaks - Some possible deductions include property taxes and claiming large-ticket purchases as improvements to the properties. If your property is rented for less than 15 days per year, the rental income is not considered taxable.  
  • Community Rewards - Some believe that short-term rentals promote tourism by offering additional capacity in cities. Short-term rental operators also believe their properties may help increase neighboring property values because of their regular upkeep.  
Ashley Halligan, an Analyst at Software Advice, created a guide for property managers and owners considering making the switch. Using market analysis of geographical trends from HomeAway and interviews with industry professionals, her comprehensive guide highlights four risks and four rewards that all managers and investors should consider before delving into the market. 

1 comment:

  1. In Response to Jackson Hole, Wyoming's Recent Ban on Short-Term Vacation Rentals: Banning short-term vacation rentals is just another sad example of too much government. These vacation rental owners usually put a LOT more care into their properties than their full-time (and often jealous) neighbors do. They depend on Internet reviews, so make every effort to keep their places looking great. They regularly buy furniture, household items, and hire local people to make constant improvements, which stimulates the economy and increases EVERYONE'S property value. This, of course, generates more revenue for the Town of Jackson. Additionally, short-term renters are at the properties a lot less than long-term renters. (The "transient" argument is baseless). They're out most of the time sightseeing and spending money (usually substantially more than motel guests) on activities, events, shopping, dining, etc. It's the younger, irresponsible LONG-TERM and seasonal renters that throw loud parties after inviting their friends over, while creating parking nightmares. Our elected officials need to amend antiquated and inconsistent laws (i.e., selective enforcement where some communities are zoned to rent short-term and others are unfairly not - lawyers???) and educate themselves, instead of blindly voting against this because it's "politically correct". If they were economically astute, they'd do what states such as Montana does that actually promotes short-term rentals in their resort towns. Instead of doing business "in the shadows", everyone happily gets licensed/regulated and PAYS TAXES (which they easily collect from their guests who expect it) because, as a result, they get free advertising on the state's on-line vacation directory. This results in more business for the vacation rental owners, that they put right back into the local economy, plus more TAX REVENUE for the state (7%) and resort town (3%). Creating a "lack of employee housing" is another poor argument and shouldn't be the homeowner's problem. This is a TOURISM-BASED town. Therefore, we should cater to what a huge number of tourists want so they continue to come here with their families - vacation rentals. Besides, capitalism is what made this country exceptional. It should be encouraged, not outlawed, particularly in the great State of Wyoming.

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Thoughtful comments are welcome, whether you are in favor of vacation rentals or concerned about the impacts of VRs on your community. Comments that contain advertising, including ads for properties, will be deleted.