Does the thought of creating another stream of income via an investment property appeal to you, but you feel hesitant about potential responsibilities as a full-time landlord? It might be worth taking a look at your own house before you go through the hassle of looking at a second property.
Rental income doesn’t have to come from a second, completely separate property from your main residence. Websites such as Airbnb and VRBO offer homeowners the opportunity to rent out part of their house on a short- or long-term basis. If you have a spare room, a basement, or an in-law suite, you can create an opportunity for rental income.
Many travelers and those looking for accommodations for less than traditional rental agreements allow for, check the listings on these websites for several reasons. Most availabilities are less expensive than traditional hotels or extended stay lodging. They also offer the chance to experience a vacation in a completely new way: staying with a host is much more personable than staying in a commercial hotel.
If you live near a business district or a tourist destination, you stand to make a nice profit simply by renting out part of your home. This is also a great option if you go away for vacation, but want to continue making money while you’re gone.
So yes, you can create rental income without buying a second property. All you need is a little extra space in your current residence. And although this may provide homeowners with a simpler (and cheaper) way to earn extra money from renting, there are pros and cons to this arrangement.
Pro: No Upfront Investment
This is easily the biggest plus to being able to rent out your own property or a room within your residence. Using what you have saves you a ton of money and time. You could get started right now if you wanted to! If you have the extra space in your house, why not put it to use now?
The process of purchasing an investment property can often be a long one, with plenty of paperwork involved. Once you own the unit, there’s an additional time and effort requirement to find tenants, maintain the property, and ensure anyone living there is safe. You need to take out the right kinds of insurance and you need to be prepared to uphold your responsibilities as a full-
time landlord in order to protect yourself from liabilities.
And of course, buying a second home is a huge financial investment. Even if you plan to have renters on the property to cover the mortgage and provide you with a bit of profit, there’s no guarantee you’ll always have renters — which presents a tricky situation if you’re left paying the bills for not one, but two homes.
Con: Service Fees and Taxes
Depending on your perspective, the expenses associated with creating rental income will be a total negative or a slight irritation. Expect to pay Airbnb a three percent service fee (for processing payments) from hosts. If you’d rather avoid fees, VRBO currently does not have any charges associated with its service.
You also have to be concerned about taxes and how they might be applicable to your area. Do your research before listing available spaces on either site, and understand your obligations to Uncle Sam. It’s always a smart idea to keep careful records of all earnings and expenses related to renting out areas of your property for income.
Pro: (Relatively) Short-Term Stays
With an investment property, you want to keep your turnover low to help you manage the expenses of a second home. You need to find tenants willing to sign leases for six months, a year, or even more.
With sites like Airbnb and VRBO, you’re renting out space you already have or own. You have a lot more flexibility when it comes to having tenants in your property. Most people are only looking to rent for short-term vacation stays, from a few days to a few weeks. Others, however, may want to stay for a month or two.
It is up to you as the homeowner to decide when you rent your space out. If it is more convenient to make your place available on the weekends, you could select just those times. This works around your schedule, so it’s a flexible way to earn extra money.
Either way, most of your renters will be relatively short-term stays — and that’s okay, since you don’t have a financial obligation to keep turnover low.
Con: Housing Laws
You might have come across a few news articles that have highlighted the fact that according to New York City housing law, tenants cannot rent out their apartments for less than 29 days. This can be problematic for you and your guests, so make sure that you know the housing laws in your area and that your listing complies with them.
Again, it’s all about doing your due diligence and understanding the laws of your area. Many will vary from state to state.
If you’re simply looking for a way to make some extra cash on the side, you can’t beat the level of convenience Airbnb and VRBO offer. You list your space with them, and you’re set. They make it very easy for homeowners to get a listing up and running, which means less worry and stress for you. The most you’ll have to do is take pictures and write up a detailed profile, so that people can know if they would be comfortable staying with you.
Pro: Make New Connections
One of the great things about the Internet is how it makes new connections possible. Homeowners have shared interesting stories about the people they’ve hosted. Sometimes, friendships result from the stay, and hosts have kept in touch with their guests long after they’ve left — which provides them with a safe and comfortable place to stay when it’s their turn to travel.
Con: Damage and Safety
As a homeowner, you might be concerned about the possibility of damage to your property. Some who are renting out space appreciate the extra peace of mind Airbnb offers with their $1,000,000 guarantee for hosts in the case of damages.
The site also offers an article on how you can prepare yourself to be a host. If this is your first time renting your property out, it’s a good idea to get a feel for what to expect.
But the reality is you are letting a stranger into your home. Some people simply aren’t comfortable with this fact. Anyone looking to create some rental income without buying a second property will have to determine whether or not any potential risks are worth taking on in order to earn extra money from spare spaces in their homes.
The Bottom Line: Be Diligent
Listing your property on these websites is still a great way to create a bit of rental income on the side without having to buy a second property. That said, you should still treat it as a business.
There are many skeptics out there who don’t believe in sharing their home with complete strangers. While that is certainly understandable, it’s important to realize that the issues that have the potential to arise can be prevented.
Lifehacker had a great piece on how to avoid the potential pitfalls of Airbnb. It boils down to advising homeowners to exercise their common sense.
Message prospective renters back and forth and get to know them a little better. Be sure that their identification has been verified. Flag any behavior that looks suspicious. Only conduct business on the website of the service you are using.
If you follow all of these guidelines, you’re likely to have no problems sharing your space with others, and you’ll get to enjoy all the great, positive benefits discussed above!
Renting out a spare space you already have to create rental income with is a lot better than letting it sit there unused. It’s also a great way to get your toes wet in the rental business without taking on the liability and responsibility associated with being a full-time landlord with a second property.
Are you looking to refinance your current mortgage or buy a new home (for even more rental income)? Rates are close to the lows of the year, and you may be able to lock in a low rate for many years to come. Call us today to get a free rate quote or to speak with one of our licensed mortgage professionals.