Owners are realizing that, in a soft economy, their vacation homes can be a welcome source of extra income. Here’s what you need to know to become a successful landlord.
Writer: Lesley Alderman
1 of 8Photo: Harlan Hamright and Richard Leo Johnson
Invest in Amenities
“People expect a high-end vacation home to be as good or better than their primary residence,” says Stiles Bennet, president/head of marketing for rental company Wimco. Homes should have Wi-Fi and all the latest gadgets, plus plenty of linens and dishware. Tenants are attracted to pools, as well. Installing one won’t be cheap, but the cost can typically be recouped in two or three seasons.
Consider who will be drawn to your home and what they will expect. Bill Williams, a broker with Sotheby’s International Realty in East Hampton, New York, had a client with a lovely four-bedroom home in Amagansett, but it lacked a grassy yard. “Most people renting that size house have kids, and they want a place for them to play,” he explains. The owner recently planted a lush green lawn (cost: $5,000). It was a wise investment. “Last year she asked $35,000 for the summer season,” Bill says. “This year she is asking $55,000—and she will get it.”
“If you want to maximize your revenue,” says Stiles, “make the home available during peak season.” In the Caribbean, that means Christmas, New Year’s, and spring break. In U.S. coastal areas, that means Memorial Day through Labor Day. Owners who rent during the high season are often able to make enough to cover their carrying costs for the year, and some even make a profit.
To ease your worries, stow away personal items—photos, clothes, and valuables. Anything you’d like to keep pristine, from family silver to your child’s favorite toys, should be secured. If you have a large home, designate basement bins for every family member or a locked closet on each floor for private storage.
Some owners choose one agency to keep an eye on the property, make small repairs, and ensure the place is clean; others prefer to get maximum exposure by listing with multiple brokers. “They take the hassle out of renting,” says Jane Arginteanu, who rents her three-bedroom East Hampton home. “You have recourse if something goes wrong. Plus the commission [10 to 50 percent] is tax-deductible.” If you choose not to use a broker, you can reach a wide audience of potential tenants by listing on a Web site, such as homeaway.com. The cost is typically a few hundred dollars.
In addition to deducting your broker’s commission, there are other tax incentives that work to your benefit. If you use your home fewer than 15 days a year (or 10 percent of total rental days, whichever is greater), it is considered a rental-only income property and is eligible for a raft of tax deductions, including utilities, condo fees, housecleaning, and repairs, according to Mark Luscombe, an analyst with CCH, a tax information service.
Call your insurer and explain that you will be renting your vacation home. “If you don’t, your claims may be deemed uninsurable,” warns Christine Karpinski, author of How to Rent Vacation Properties By Owner (Kinney Pollack Press). Ask about adding a renter’s liability rider to your homeowner’s policy. If a tenant becomes injured on your property and sues you, the rider should protect your financial assets. Rider policies are generally inexpensive.
With more homes being added to the rental market, it’s important to make yours stand out. “Give people something they have never seen before,” suggests John Shanholt, who owns two villas on St. Barts. (One of his homes has a Champagne bubble maker, which turns the water frothy, in the pool.) Jane leaves tenants a bottle of wine, and she even created a guide to her home, detailing its quirks (odd noises and what they mean) and perks (which flowers in the garden bloom when). It pays off; one tenant has booked the house three summers in a row.