Wednesday, May 25, 2011

VRBO - Vacation Rental By Owner

The Riparian Day 3 moored at Grand View Arms Condominium, Pompano Beach, Florida, 2006

We have had good luck using VRBO to rent our Florida Condos, and also to find places for us to rent while on vacation.  By dealing directly with the owner, you spend less and the owner makes more.  Renting a vacation home can have positive tax consequences as well as generate income.

We recently sold our vacation home in the Finger Lakes, and the one mistake we made was in not renting it out when we weren't there.  There are a number of advantages to renting out your vacation home, the primary one being that you generate some income from the rental.

From a tax perspective, renting the vacation home can be advantageous, as many expenses associated with the home can be deducted, and the home may qualify for depreciation deductions.  The rules are complex, so I highly advise you talk to your tax adviser for specific details.  Needless to say, a vacation home for personal use only has absolutely no tax deductions, other than for mortgage interest (a sop to the middle class if ever there was one).  But a rental property has many, many more.

And in terms of Capital Gains, as I discovered to my dismay, losses on a Vacation home that is for personal use ONLY are not deductible, but any gains ARE taxable!  Heads, the IRS wins, Tails, you lose!  It is a Catch-22 if ever there was one.  But a rental property - well you might be able to deduct you losses, at least in part, there.  So consult your tax adviser for more details.

And even a rental property that is depreciated (through the depreciation deduction) can be converted to a primary residence, which may qualify you for the Capital Gains exemption.

So, all in all, renting out that vacation home is a good idea.  But how?

Local Real Estate Agents are often a poor choice.  They charge fees as high as 30% or more (sometimes as high as 50%).  And if the local agent has rental properties of his own - then forgetaboutit!  He will push his properties (and price them attractively) over yours.  His properties will be fully rented, while potential clients will be discouraged from renting yours.

Vacation Rentals By Owner to the rescue!  If you are smart, you can take some flattering pictures of your rental, put them on the site, and also set up your own website for your rental.  Make the rental unit less personal, of course, and remove items that are keepsakes or you would worry about if they were broken (irreplaceable items).  Price your unit attractively and look for good tenants.

See my article about Landlording, however.  You have to be firm with people.  We were approached by local Florida trash who saw our ad on VRBO and wanted a place to live "full time".  Uh, no, this is a vacation rental.  And uh, yes, they were being evicted from their previous haunts and thought that we, as amateur landlords would be fools.

We did well, finding Canadians to rent for a month at a time, if not more.  And through a local Real Estate Agent friend (who sold us the units) we even found summer tenants (insurance adjustors working the last hurricane) for the "off months".

We have also use VRBO as renters, and it has worked out well for us.  Dealing directly with the owner is sometimes more interesting and a better bargain.

But if you are going to rent your property on VRBO, be professional.  Take a look at other rentals in your area and get a feel what your property should look like.  It should look like a vacation home, not your personal residence.  Your wall of baby pictures is not a good move - a generic beach picture from the local discount store is better.  Make the home as impersonal as a hotel room - or almost.  You can leave a little charm in the place.  We did over one Condo using a Hemingway theme - with paintings, books, posters, and the like.  People loved it, and it was unique.

Some folks, however, just don't "get it" - and try to rent places with broken furniture, dirty sheets, and cracked glassware in the kitchen.  Yes, tenants are rough on your things, but that is no reason to furnish a rental like a pig sty.

If your expectations are realistic and you are dealing with realistic people (as opposed to the irrational kind), VRBO can be a good deal for both homeowner and renter.

And now that we have sold our vacation home, we're using VRBO as renters a lot more!

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