Author Topic: Renting primary residence as a vacation rental?  (Read 6134 times)

Mustache Fatty

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Renting primary residence as a vacation rental?
« on: September 09, 2013, 08:28:43 PM »
My family lives in a house that is way more than we could possibly need.  We bought it years ago and it is very clear to us now that we do not want it any more.  We definitely do not hate it; it is just way beyond what we need to live a happy life.  When you factor in all of the expenses, it is robbing us of our ability to FIRE.  Beyond that, we actually want to move to a new area and basically start a new life without all of the burdens that this house has brought us.  I should note that we also have a second home on the beach.  We are renting this second home out on a short term basis and for now rental revenues are keeping up with its bills.  This second home is underwater, but for now rent revenue is paying for all its expenses.  About $1500 per month of those expenses is reduction in principle.  None of the above would we do now, but that is the current situation; so, with this in mind, lets go back to out primary residence:

We live in a 4000 sqft home on a lake that is 3/4 surrounded by water.  Currently, there is no real "vacation rental" market on this lake.  If you look on VRBO there are only 2 listings; however, they do seem to be booked somewhat regularly for around $185 per night in the summer (weekends, mostly,but some weekly rentals). Given my almost 10 years of experience renting our beach house short term, I am aware of most of the pitfalls associated with renting a home to short-timers.  I am not worried about that aspect.  The plan would be this: my wife and I are college professors and we have always taught in the Summers.  What we are thinking of doing is not teaching in the Summer any more and traveling to visit family instead.  While gone, we would rent our home as a vacation rental.  Once the Summer ended, we would move back in.  Summer is the "peak season" as far as lake rentals around here are concerned.

I guess my questions would be:
1) What are the tax implications of renting our primary residence in this way?
2) What about insurance?  Would rates rise a lot if we turned this into a rental?  I should note that we have a swimming pool.  Is this a can of worms?
3) Would 1 & 2 still occur even if we failed to generate much rental revenue?  In other words, there is no guarantee that this would actually rent because, like I said, this lake does not have an established history of short term rentals.
4) What other things am I missing?  I am not at all worried about making a big profit on this place if we sell.  We have tried to sell this place over the last few months but nobody has made an offer, so the tax implications of selling as a primary residence vs. as a rental are probably not much of a factor.

Of note:

I talked to a few people who rent lake properties in the summer and was told that our house would rent for $400 per night.  Both told us that they usually rent on another lake but that our place would be better than anything available on this more established lake (very vibrant short term market).  Each told me that should we decide to put it up for rent that they wold want to reserve a week at that price.  I do not believe that they were just trying to make me feel good--each was pretty emphatic about it and honestly, our house does have lots of amenities that you wouldn't find in a typical rental.  This is what has me thinking strongly of the idea. 

I ask Mustachians to help me out here.  What are some of the things that I need to think carefully about before jumping in and placing an ad?  By the way, I do have a guy that I know and can trust that would get the place cleaned and "manage" the place while I am gone.  I would plan to pay him 10% of the rental revenue.  His wife would do the cleaning for the cleaning fee.  I definitely can trust them both 100%.  I am not at all married to this idea, but it seems to be a possible way to get this beast of house making something for us instead of continuing to drain us dry.  If it worked out, I could see it freeing us from this place and allowing us to go forward with our plan to move to a new location, rent a cheap place and just live the life that we want to live.  Thoughts?

kkbmustang

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Re: Renting primary residence as a vacation rental?
« Reply #1 on: September 09, 2013, 08:41:14 PM »
Would it be possible to rent your house out to another professor who is perhaps a visiting professor or something similar and who needs a house for the summer? Probably a shot in the dark, but if you could rent the house for the entire summer to one tenant, I'd think that would be less administratively burdensome.

Mustache Fatty

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Re: Renting primary residence as a vacation rental?
« Reply #2 on: September 09, 2013, 09:14:40 PM »
It seems that my options in that regard are to rent it long term or to grad assistants.  Not going to solve our problem, unfortunately.

honobob

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Re: Renting primary residence as a vacation rental?
« Reply #3 on: September 09, 2013, 10:03:12 PM »
Have you  considered home swapping?

Mustache Fatty

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Re: Renting primary residence as a vacation rental?
« Reply #4 on: September 09, 2013, 10:05:06 PM »
No--where can I look into home swapping?  Have you done it before?

SnackDog

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Re: Renting primary residence as a vacation rental?
« Reply #5 on: September 10, 2013, 03:23:50 AM »
You will know as an experienced owner of a rental that insurance needs are completely different. Get a quote from your insurer and also look at umbrella insurance to cover your full net worth. Taxes depend on your situation so use google to find out about what will happen to your sale cap gains and mortgage deduction status.  Otherwise, go for it!

honobob

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Re: Renting primary residence as a vacation rental?
« Reply #6 on: September 10, 2013, 05:04:04 AM »
No--where can I look into home swapping?  Have you done it before?
HomeExchange.com is a big one.  I have a beachfront condo that allows monthly rentals. I have talked to owners that have had very positive experiences doing this. 

Mustache Fatty

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Re: Renting primary residence as a vacation rental?
« Reply #7 on: September 10, 2013, 06:44:44 AM »
Thanks, all for helping me think through this.  I will look at homexchange--that may or may not work for us this summer, but it sounds like something to look at going forward.  Currently, we are planning on visiting relatives (lots and lots of them for short periods of time each).

I am going to call our insurance agent today about this plan and see what he suggests and how much extra it would cost.  I hate calling the guy because he is always pushing life insurance on me!  Upon further reflection, I suppose what I was really wondering was if I needed to change my insurance at all (and likely pay more) unless and until I got more than 2 weeks of rentals.  For some reason, I am under the impression that anyone can rent their primary residence for 2 weeks per year and not have to go through all of the hoops (and costs)  both insurance-wise and tax-wise of changing the home from a primary residence to a rental.  If we did this plan, I would hope to be more successful that just getting 2 weeks, but if it flopped I would hate to be sitting there paying more just to watch my failure.  Anyway, I am just thinking out loud here.  I'll call the agent today and find out.

I guess the final question is about my mortgage company.  Do we need to call them or write them and inform them of our new plans?  We have had the mortgage for 1 year and it is a portfolio loan from a middle of the road bank.  We pay on time; I am not sure they would care, but at the same time I don't know what our responsibilities are in this regard.

Mustache Fatty

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Re: Renting primary residence as a vacation rental?
« Reply #8 on: September 10, 2013, 02:23:26 PM »
Just to follow up:

The insurance would have to be completely changed from what we have now and a new policy issued.  There was no "rider" of any sort that would allow me keep my current policy in place.  In short, I was told that we would cancel our current policy and issue another policy covering rentals.  Then, after 3 months, we would cancel the rental policy and get reissued our original policy.  I was not told of costs of all this, but I am not expecting any dramatic shock when the agent calls me back with that information.

In terms of would the mortgage company care---  The short version I got was, "not if you pay on time and not if at the time of our refinance we intended to live in the house as our primary residence."  The answer to both of those questions is, "yes," so I am not seeing any need to go any further with that issue.  I was told that I might get a call from the mortgage company, but that there would be no concern over this situation other than the increased administrative burden of keeping up with making sure we remain adequately insured.

 

Argyle

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Re: Renting primary residence as a vacation rental?
« Reply #9 on: October 01, 2013, 02:15:32 AM »
If you are going to rent out your primary residence, the question is: what would you do with all your valuables?  Are the things in your house all things you could stand to lose?  The pictures, the furniture, etc.?

I rented out my house for the summers for a number of years.  I did background and reference checks on all the tenants, and all of them were respectable academics.  There were only two crazies in the bunch.  One of these crazies -- a well-recommended professional -- caused thousands of dollars' worth of damage.  The money turned out to be irrecoverable (the person left the country right afterwards).  This experience alone convinced me never to rent out a place that mattered to me.

So my question would be: are there things that you would have to leave in place, but that it would trouble you to lose? 

One person who rented my place -- and took good care of it -- rented out his place back in another state while he was renting my place.  He went back for a weekend, visited his house -- the renter happened to be not at home -- and found the doors had had locks put on them.  I can't remember how he got through the locked doors, but when he did, he found the renter had set up a marijuana-growing operation.  This meant that his house was vulnerable to the police bursting down doors and, shockingly, actually confiscating the house.

I could tell a few more stories like this.  Maybe you'll get lucky.  But the bottom line is that I would never do it with my primary residence or with anything I cared about losing.

tryan

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Re: Renting primary residence as a vacation rental?
« Reply #10 on: October 01, 2013, 06:28:06 AM »
As you know (from the beach vacation rental) this business is all about REPEATS.  The first year - or three - are growing pains.  So if you think this a "one n'done" I wouldn't bother.  But if you plan to repeat every summer, it can be profitable.

FWIW we have a lake front vacation rental that grosses over 40k but the first year was 7k then 20k the 25k ..... you get the picture.  July and August are 2/3s of the annual gross.  After the summer it's hit-or-miss.