I’m Renting Out My House This Summer: What Do I Need to Consider?
What you should know about the short term rental business.
I own a second house in a popular coastal town. I’ve decided that this year I want to rent it out using Airbnb. What are the costs associated with this? What should I expect in terms of taxes? What about risk? Should I have an extra layer of insurance to cover any potential mishaps? Should I make all my guests sign a damage waiver?
There’s no doubt that the short-term and vacation rental business has exploded in recent years, thanks to easy-to-use sites like Airbnb, HomeAway, and VRBO.
Though it can be a great way to earn extra money and generate a passive income, renting out your home isn’t without its drawbacks. There are insurance costs to consider, the potential for a massive tax bill come April, even the cost of damage to your property, not to mention the fact that many cities are trying to more tightly regulate the industry.
We spoke to experts about some of the major issues to consider when renting out a second home: insurance, taxes, and protecting yourself from damage.
Make Sure You’re Covered
When renting out a second home, it’s important to note that a homeowners policy typically does not cover vacation or rental activities. So, you probably need to get a separate policy.“From an insurance perspective there are risks, and purchasing the right type and amount of coverage is important, and it changes dependent on whether you’re keeping your vacation home for you or renting it out to others,” says Loretta Worters, vice president of media relations at the Insurance Information Institute (III).
If you plan to rent your home out to others, the cost of your homeowners insurance will probably increase, she notes, also suggesting that you may need to purchase additional coverage.
“Your insurance needs will depend on how often you rent out the property and for how long. For a one-time, short-term rental, you may be able to add a simple extension (an ‘endorsement’) to your existing homeowner’s policy,” Worters says.
“On the other hand, if you plan to regularly rent out your second home, you may need separate business coverage or a landlord policy. While some rental services, such as Airbnb and VRBO, offer coverage for homeowners, it’s important to read the fine print to determine limits and exclusions,” she explains.
Airbnb offers a Host Protection Policy, which protects hosts from liability claims, property damage, and bodily harm of up to $1 million. VRBO and HomeAway both offer their own affiliated policy, HomeAway Assure™, designed to replace your homeowner’s insurance and also to cover you if you choose to rent out your home for vacation rentals.
Renting out a second home can include more complex risks that you may not have considered, so it’s a good idea to talk with your insurance professional to make sure you’re covered, Worters notes.
Requiring guests to sign a damage waiver is also a good idea, experts note.
If you plan to rent your home out to others, the cost of your homeowners insurance will probably increase, she notes, also suggesting that you may need to purchase additional coverage.
“Your insurance needs will depend on how often you rent out the property and for how long. For a one-time, short-term rental, you may be able to add a simple extension (an ‘endorsement’) to your existing homeowner’s policy,” Worters says.
“On the other hand, if you plan to regularly rent out your second home, you may need separate business coverage or a landlord policy. While some rental services, such as Airbnb and VRBO, offer coverage for homeowners, it’s important to read the fine print to determine limits and exclusions,” she explains.
Airbnb offers a Host Protection Policy, which protects hosts from liability claims, property damage, and bodily harm of up to $1 million. VRBO and HomeAway both offer their own affiliated policy, HomeAway Assure™, designed to replace your homeowner’s insurance and also to cover you if you choose to rent out your home for vacation rentals.
Renting out a second home can include more complex risks that you may not have considered, so it’s a good idea to talk with your insurance professional to make sure you’re covered, Worters notes.
Requiring guests to sign a damage waiver is also a good idea, experts note.
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