You only use your California Wine Country cabin for two weeks out of the year. Or you have an entire floor of your main residence you rarely step into. Or you’re in an economic crunch and need help paying your rent. Whatever the situation, you’re considering turning your vacation property or residence into a short-term rental home to pick up some extra cash. What are the ramifications, including the possible effect on your homeowners insurance? How do you go about making money this way?
Let’s get some straight answers, starting with a basic definition.
What is a Short-Term Rental Home?
Think Airbnb or lesser-known competitors such as HomeAway or Vrbo. All might have different rules and regulations, but basically, these are all online platforms through which you can rent out your home to screened strangers for a day, a week, or even several days a month. You can do it on an occasional basis, or regularly.
This might be possible whether you own a house, a cabin in the woods, a condo on the beach, an apartment, a houseboat, or virtually any other form of living space.
Of course, you must first see if your homeowners association, or condo board approves of using the property in this way. Then check whether city zoning regulations or other local ordinances allow it. This could mean a bit of research, a trip to city hall, and paperwork to fill out.
Assuming you have no bureaucratic hurdles in your way, it’s a matter of preparing your residence for short-term rentals, promoting the property, checking to see whether your guests will be covered by your home insurance, and setting a rate, among other responsibilities.
How Much Can You Make Turning Your Property into a Short-Term Rental Home?
There are multiple factors that determine a rental rate that will get you guests and turn a profit. These include the size and condition of your space, the desirability of the location, and what the local market bears for similar rentals.
Depending on the rate you can charge per night, Airbnb can be a lucrative way to expand your income stream. On its website, Airbnb currently says that “hosts” in the Los Angeles area earn an average of $240 a night. Hosting an average of 24 nights a month might theoretically gross a whopping $5,760 a month.
Of course, you’ll make much more with a lovely home in a prime neighborhood in Los Angeles, San Francisco, or San Diego than you might with a congested fixer-upper in a small town outside of the Golden State’s main travel and tourist destinations. Or if you only want to rent out your residence while on your annual two-week vacation. Or you wish to only rent a room rather than the entire property.
In other words, there are multiple factors involved in figuring the rate you can charge and the sort of monthly or annual income you’ll derive from your short-term rental home.
You might start by finding properties on rental websites similar to yours in location, size, and condition to set your rates accordingly. Or use the Airbnb rate calculator as a starting point.
So Turning Your Property into a Short-Term Rental is a Financial No-Brainer, Right?
Just because you can get a certain rate doesn’t always mean that you should. In some circumstances, you might consider whatever you make to be bonus money that you otherwise wouldn’t have seen.
But on the other hand, there are costs you can’t avoid. You might need to hire a cleaning service, buy extra linens and towels, put your valuables under lock and key, hire a photographer to shoot your property for promotional purposes, design and print a household information brochure, and make other investments in time and capital before your first rental, and on an ongoing basis.
Then There’s Your Home Insurance Policy to Consider
If you take a quick look at your insurance policy, you’ll probably see that it covers damages to the home by visitors or injuries to them. But that’s usually not the case if you’re regularly renting your living spaces to strangers for profit.
You’re likely to need to add an endorsement to your policy, at an additional cost.
You might hear about California homeowners making thousands of dollars a month as short-term landlords, but there are also cautionary tales about renters throwing illegitimate parties and virtually tearing the property down.
What that means is that you don’t dare neglect to first discuss your coverage needs with your insurance agent. Explain what you intend to do, and find out the additional cost of adding liability insurance and other benefits to your policy. Do this before making any commitment.
If it increases your financial exposure to put and keep your property on the short-term rental market, it might not make much sense. On the other hand, if you have a desirable home and location, and you can earn a high rate at minimal risk and labor, Airbnb might represent a handsome second income or a way to save for an expensive vacation or big-ticket item.
Find Affordable Home Insurance Quotes Online Today
Your first step should always be to contact your independent insurance agent at Freeway Insurance. Find out what effect your short-term rental home plans will have on your home insurance policy. Find a fast and free home insurance quote online, call us at (800) 777-5620 or check out our California locations page to find an agent near you for an in-person meeting.