The Real Estate Encyclopedia
Think Twice about Renting Out Your Vacation Home
Category - Specialized Real Estate - Vacation Properties
Think twice about renting out your vacation home
By Harry Styron, Styron & Shilling, Branson, Missouri, copyright 2009

Income from the rental of a lake house or condo unit would certainly help to defray the costs of ownership. So it seems. Possibly the real estate agent who assisted with the purchase even mentioned that rental income could help make mortgage payments or offset taxes, maintenance fees and association assessements.

Unfortunately, there are several factors that suggest that rental of a vacation home to third parties can result in increased costs and risks.

Here’s a list of the negatives:

1. Often recorded covenants prohibit short-term rentals, require homeowner association approval of rental terms or reserve the right to manage rentals to the developer or the developer’s agent. Violating the covenants can trigger fines, litigation and payment of  the homeowner association’s attorney fees as well as the owner’s attorney’s fees for defending the violation.

2. Weekly and nightly rentals will disqualify a subdivision or condominium from many types of mortgage financing, such as Fannie Mae programs. What is allowed to exist in one house or unit affects the whole development. Vacation rentals are not neighborly.

3. Most states and many local governments impose health standards for short-term accommodations in “lodging establishments,” which typically are those places having five or more “guest rooms.” A guest room is a room in which one or more guests sleep. These regulations cover structural, electrical, plumbing, life-safety (fire alarms, fire retardant materials, emergency lighting and exits, etc.), and sanitation issues. Inspections and permits are required. Many vacation homes were not built to comply with these codes.

4. If a vacation home is a public accommodation under federal or local regulations, the owner may be required to make it comply with regulations relating to accessibility for handicapped and disabled persons. If use of outside amenities is included in the rental arrangement, those rules can apply to parking areas, sidewalks, swimming pools, clubhouses, etc. Fines can be stiff. Neighbors will not appreciate the attention from regulatory agencies for what they thought were private facilities, especially if costly accommodations to disabled persons are required.

5. A typical homeowner’s insurance policy cannot be expected to protect the owner against injuries resulting from the owner’s commercial use of the home. Appropriate insurance is required.

6. Income from rentals is subject to state and local sales taxes, room taxes and income taxes. Failure to report and pay can result in fines, penalties and liens.

7. Availability of property for rental lodging can result in its property tax classification to be changed from residential to commercial. This can result in property taxes increasing as much as 200%.

8. Use of residential property for rental short-term lodging may result in zoning violations, resulting in fines and possible injunction suits.

9. Corps of Engineers regulations prohibit use of community boat docks on Corps-managed lakes without the physical presence of the boat slip owner. Boat dock association rules require compliance with Corps regulations and respect for the property of the other boat dock owners. Commercial uses of community boat docks is a serious violation. Allowing strangers, who may be inexperienced or foolhardy, to use a boat or personal watercraft, creates physical and financial risks to others.

10. Neighbors will not appreciate unsupervised guests using the pool and other common property of the community. They will not appreciate numerous vehicles carelessly driven and parked, late night traffic, unfamiliar pets and noise.

11. Guests may not be who they represent themselves to be. The owner will have to arrange for keys to be delivered (which may be copied by guests). The owner will have to arrange for housekeeping and laundry services. Damaged and stolen items are to be expected. One guest can destroy a vacation home, even if ten guests are considerate.

12. The sweet person who makes the reservation may be fronting for a rowdy group.

External Links
Harry’s contact info:
See Harry’s law firm's  website and  blog,: Ozarks Law & Economy.
Specialized Real Estate - Vacation Properties
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