Written by: Geoff Curran, CPA/ABV, CFA, CFP® and Alex Golubev, CFA
The last few years have seen tremendous growth in the short-term rental housing economy. Services like Airbnb and VRBO connect homeowners and travelers around the world. While vacation rentals aren’t anything new, home-sharing platforms make it more convenient than ever for homeowners to earn extra money on their personal residence or vacation home. Airbnb fosters accountability and transparency by inviting hosts and guests to review and rate each other on criteria like cleanliness, following house rules, and ease of communication. A whole ecosystem of services has also sprung up to streamline and improve host operations (Smartbnb, AirDNA, NoiseAware, Vacasa, Evolve and many more). However, vacation rental remains a highly competitive and regulated industry.
Hosts in the Airbnb space face many challenges for success. Setting up homes for vacation rental, optimizing rental rates and cleaning properties between guests eats into time and money. Once rentals are rolling, even successful properties can hit speed bumps. Tourist demand is often seasonal or focused on appealing properties in central locations. Low barriers to entry can also reduce profits as more hosts enter the market and/or authorities create regulations to raise the bar. Short-term rental earnings have curbed in highly-regulated tourist hubs like New York, LA, San Fran, Barcelona, Berlin, and Amsterdam.
Given the popularity and potential of Airbnb, clients have started asking whether it makes sense to rent out their homes. We always encourage our clients to consider how renting their property will affect their life. If renting out your home helps you support your lifestyle and travel more, then exploring AirBnB could be an exciting opportunity.
AirDNA is a great starting point for researching vacation rentals in your area. AirDNA can help you assess the earnings potential of your home, whether you’d like to rent out your entire place or just share a room. Dipping a toe in the water of home-sharing during your next trip out of town is a great way to start!
The checklist below provides helpful points to consider before renting out your property:
Home Insurance: Check with your home insurance provider to ensure that your insurance coverage is still adequate and will remain in force if your home is rented out. The strategy of doing nothing and asking for forgiveness later just won’t work with insurance companies if you have a claim. We reached out to Sue Greer from Propel Insurance for her perspective on managing liability. She emphasized watching out for “contract language that can limit, or void, coverage entirely when the property’s occupancy is other than what was noted on the signed application.” It’s also important to ensure that your other liability coverage like umbrella insurance will still cover any accidents that may happen on your property if it’s rented out.
Security: It’s important to make sure that your home is secure and that any irreplaceable valuables are properly locked up when others are in your home.
Locks: Digital locks are a great tool for avoiding sharing keys with guests, and they provide a simple way to setup new codes for each guest.
Alarm: You still need to actively use your alarm with guests coming and going. The good news is that alarm companies permit you to change codes digitally so that each guest has their own unique code.
Safe deposit box: Valuables that you won’t be taking with you, like jewelry and essential documents, should be stored in a safe deposit box at the bank.
Internet Network: It’s also important to maintain internet security. Remember to create a guest network, and change the wireless password when guests leave.
Co-host: Since most people rent out their home when they are out of town, it can be very helpful to find someone local that can help if there’s a problem in your absence. This could be someone to clean the property between guests—or even to break up an unruly party! Airbnb can help you find a co-host for 7-20% of the revenues depending on the services provided. There are also many new short-term rental operators that offer co-hosting services.
Maintenance: With guests coming and going, wear and tear can accelerate, and accidents can happen. Having a high security deposit helps mitigate costs in case of accidents. Given that home maintenance costs anywhere from 2% to 5% of your home’s value each year, setting aside a portion of your rental income to cover maintenance is a good idea.
Tax reporting: If your home is rented out for greater than 14 days a year, you’ll need to include the income and expenses on your tax return. Make sure to keep track of all your expenses incurred throughout the year related to the rental activities. This includes repairs, supplies, cleaning costs, new appliances and lawn care, just to name a few. Importantly, you can also claim some of your utility costs as an expense, including cable TV and internet, in proportion to how much of the year the home was rented.
If you have questions about this checklist or any other parts of your financial life, we recommend reaching out to a Merriman advisor. We can help with the decision to rent your home and with managing all the moving parts. You’ll have to share all the adventures you’ll be able to take once you explore Airbnb!
While we hope it never happens, break-ins to our homes do occur. I returned home this summer to find my home was burglarized. This article shares what we learned from this unfortunate experience and ways to improve your home security and insurance coverage.
If you return home and see evidence of a break-in:
1. Contact the police! They’ll ask if the burglar is still in your home. If you’re not sure whether the thieves have left your property, wait until the police arrive to enter your home. Our first instinct is to rush into the home to check on things, but remember that it’s much more difficult to recover from physical harm than from the loss of belongings and property damage. Note: If you do walk through your home to see what’s been stolen or damaged before the police arrive, don’t move anything because the police need to see all the evidence. (more…)
While much of the current emphasis about scams and fraud is focused on the cyber worlds of the internet, email and social media, the telephone is still a very prominent entry point for scammers into your world. (more…)
This post was co-authored by Wealth Advisor Lowell Parker, CFP® and Information Systems Manager Rodney Gonzales.
As banks become increasingly difficult for cybercriminals to hack, high net-worth families are the next logical targets. These criminals are organized, patient, and in some cases, well-funded. Cybercrime is also underreported, and while the court system is catching up with the expansion of laws and penalties for cyber-related crimes, cases remain hard to solve or even prove.
Having your personal information compromised isn’t a matter of “if,” but “when.” It’s less expensive to take preventative measures than it is to investigate and eliminate threats. It’s imperative that you take the right precautions both externally, with your vendors and service providers, as well as internally with your home computers and networked systems. (more…)
The days of printing and mailing hard copy contracts are quickly moving into the past as more and more companies are using electronic signatures. Having to address and stamp an envelope in order to mail a signed contract will eventually become a distant memory. Merriman is excited to partner with DocuSign to allow our clients to submit paperwork online. DocuSign was founded in Seattle in 2006, and now has nearly 1000 employees spread world-wide. Merriman is using DocuSign for client contracts and our custodians, Charles Schwab, TD Ameritrade and Fidelity, are using DocuSign for most account applications (excluding forms that need to be notarized).
Signing a document electronically is safe, secure and legally binding. We know account paperwork contains personal information so protecting your data is top priority. DocuSign utilizes encryption standards, retention and storage practices, and data security to ensure documents can only be accessed, read and executed by designated users. This means only you and those you authorize have access to your documents. Your content stays confidential, including from DocuSign—employees never have access to your content.
Here are some more great benefits:
Whether you’re in an office, at home, on the go, or even on vacation across the globe – as long as you have internet access, you can sign documents electronically.
Joint account holders or trustees can each sign documents without having to be in the same location or mail copies back and forth.
Increased accuracy – it’s impossible to miss a required field so you’ll never have a document returned to you to redo.
Open accounts and transfer funds faster since there is no time spent waiting for mail delivery.
It’s easy to maintain electronic copies of all your signed documents, and you can always print a hard copy if you wish.