Think twice about renting out your vacation home
By Harry Styron, Styron & Shilling, Branson, Missouri, copyright 2009
Income from the rental of your 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 your payments. VRBO.com, Craigslist and other web marketing outlets make vacation rentals seem like a wonderful possibility.
Unfortunately, there are several factors that suggest that rental of your vacation home can result in increased costs and risks.
Here’s a list of the negatives:
1. Recorded covenants customarily 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 your homeowner association’s attorney fees as well as your own attorney’s fees.
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. This disqualification will usually apply to the entire development, not just the house or condo unit being rented.
3. The Missouri Department of Health and Senior Services imposes health standards for short-term accommodations in “lodging establishments,” which 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.
4. If your vacation home is a public accommodation under federal and local regulations, you 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. Your neighbors will not appreciate the attention from regulatory agencies for what they thought were private facilities.
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 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 others to use your boat, who may be inexperienced or foolhardy, creates risks to you and others.
10. Your 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 and late night traffic, unfamiliar pets and noise.
11. Your guests may not be who you think they are. You will have to arrange for keys to be delivered (which may be copied by guests). You can expect damage and stolen items. You will have to arrange for housekeeping and laundry services. One guest can destroy your vacation home, even if ten guests are considerate. The sweet person who makes the reservation may be fronting for a rowdy group.