Anthony and Shamari are considering buying a home in Florida. They want to spend their winters there. The amount they have to spend on the new home in large part is determined by the feasibility of renting their current home out for the three to four months they will be gone. Their current home is within one hour of a ski resort and 30 minutes from a major city. Factors that should make their home more desirable to renters. It would seem like a winning proposition for non-skiers such as Anthony and Shamari to rent out their current home and spend the cold winters in sunny Florida. The benefits as they see them are a rental income, less potential damage due to pipe freezing, no wasted heating expenses, and a less attractive location for burglars. There may be risks and costs associated with this plan they have not considered.
The Hidden Costs of Renting out Your home
- Property Manager: If Shamari and Anthony are in sunny Florida, they cannot respond to a call about a plugged toilet or a leaking faucet. They will need to hire a property manager to handle these “emergencies.” They will also need to consider whether hiring a property manager will relieve them of the stress associated with unhappy renters or rental problems.
- Snow Removal and Trash Collection: The property manager or housekeeping service may bring out the weekly trash. Will they also remove snow from the property?
- Housekeeping: A housekeeper is required to do a thorough cleaning of the property between each guest. The more frequent the guest changeover, the higher the cleaning costs.
- Insurance: Does your homeowner’s insurance policy cover renters. If not, you may need to add a policy or a rider to your current policy. You do not want to be caught off guard if a renter falls on your property and spills a liquid that ruins your carpet, and neither the hospital bills nor carpet replacement costs are covered.
- Tax Implications: Rental income from renting a second home for fifteen days or more in a year must be reported to the Internal Revenue Service. Anthony and Shamari will be able to deduct the rental expenses for the four months they are not using the home. Paying these taxes correctly can get complicated, as they will need to separate personal expenses from rental income and expenses and file this information on the correct IRS forms.
- Breakage Costs and Home Preparation Time: Before leaving for Florida, Anthony and Shamari will need to go through their home and remove any personal items. They will also need to have the home professionally cleaned and take pictures of every room as proof of the condition in which the property was left.
Other Potential Stumbling Blocks
- Local Zoning Ordinances and Deed Restrictions: If your home is located in a neighborhood with a homeowner‘s association, there may be restrictions on whether the property can be rented. You will also need to check your property deed to ensure that it has no restrictions on renting.
Anthony and Shamari are much more aware of the potential hidden costs of renting out their home. They understand they are targets for lawsuits by having a rental home and are considering transferring the property ownership to an LLC. They understand that this might limit their liability, but it also has drawbacks such as potentially triggering a requirement to repay their mortgage now. Meeting with their attorney will help them better determine whether this is a good option for their unique circumstances.
Owning a second home in a location that allows the family to gather and have experiences that will provide a lifetime of memories can be priceless. Meeting with your estate attorney can help ensure that the costs versus benefits ratio makes sense for you and develop a plan to protect your investment for the future.
You can schedule a call with us or reach us directly at 855.528.9637 to learn more about how best to plan today to protect those most important to you.