Thinking of converting your second home into a vacation rental? Heress what you need to know…
Manzanita is relatively permissive toward this use of our homes because our property tax base is comparatively quite low and cannot increase beyond a certain amount each year. The vast majority of Manzanita’s operating revenue comes from taxes on hotels and vacation home rentals.
The City is currently undertaking a review of the rules and regulations controlling vacation rental use of private homes, including the cap on the percentage of homes within the city limits that can hold a rental permit. Expect to see drafts of ordinance changes by March or April. There is currently a waiting list for rental permits, the first time there has been a wait for a couple of years now. If you have strong feelings one way or another on this subject, this is a good time to participate in City Council meetings and pay attention to your water bill flyer the City sends out with updates on upcoming meetings and proposed ordinances.
Management options
There are two main methods for managing your vacation rental property: Either through a professional management company that is locally or regionally based, or on your own. My experience has been that owners that self manage net much more income on a yearly basis. This is not just because of the obvious costs of hiring a manager (30-35 percent of rents) but also because of an important and often overlooked detail. … When you have a company manage your home, it will have competition within its own inventory of homes. They may have strong, long-running relationships with other owners, and it may take some real time to build a relationship with your manager that creates equal treatment and priority.
Certainly, for many, self management is not option. But by using services like Vacation Rental By Owner and developing a good relationship with a local housekeeper and watchman service, it’s not an unreasonable drain on your time once set up. I am happy to refer my clients to local management companies, housekeepers and maintenance resources necessary to make this use of your property as smooth and profitable as possible.
Insurance considerations
Dwellings used primarily for the purpose of renting out as short term vacation rentals are not typically covered by standard homeowners insurance companies and policies. The risk exposure to an owner of such property is different than that of your typical homeowner. There are many commercial insurance companies that specifically write coverage for vacation rental/income rental properties. The companies can provide coverage for the structure itself as well as your contents (furniture, linens, kitchen supplies, etc.). This coverage would normally be written on a replacement cost basis with the limit set by the property owner based on their own inventory of the property.
Further, as the property is primarily used for income purposes, the liability coverage would be based on estimated gross annual receipts. The key here is to make sure that you have coverage that will not be withheld if there is a loss and it is determined that your use of the property was not covered within the guidelines of your policy.
Financing considerations – What is a second home?
A second home is a residence that you intend to occupy in addition to a primary residence for part of the year. Typically, a second home is used as a vacation home, though it could also be a property that you visit on a regular basis, such as a condo in a city where you frequently conduct business.
Often, to qualify for a second home loan, the property must be located in a resort or vacation area (such as the mountains or near the ocean) or a certain distance from the borrower’s primary residence.
Second home loans regularly have a lower interest rate than investment property loans, and will usually include a second home rider along with the mortgage. This rider usually states that:
- The borrower will occupy and only use the property as the borrower’s second home.
- That the property will be kept available for the borrower’s exclusive use and enjoyment at all times.
- The property cannot be subject to any timesharing arrangement or rental pool, and,
- The property cannot be subject to any agreements that require the borrower to rent the property or give a management firm (or any other person) control over the occupancy and use of the property.
Second home loan or investment property loan?
Many lenders will not offer a second home loan if the borrower intends to rent the property out for any period of time. For example, you may qualify for a second-home loan if you plan to live there during the summer, but do not intend to rent it out at other times. On the other hand, an investment property loan is probably appropriate if you want to reside in the home during the summer, but plan to rent it out the remainder of the year.
If you are considering taking out a loan to purchase either an investment property or second home, make sure you understand the differences between these terms and make your intentions clear to the lender when you start the start the process of applying for the mortgage. This will ensure that you obtain the correct type of loan for the type of property you intend to purchase.
Source: tillamookcountypioneer.net
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