1. Flexibility - We get to choose the days, weeks or months to rent. Michael and I tend to travel quite a bit, both for our business and leisure, so being able to rent our personal residence at the drop of a hat is a major plus.
2. More Space - Our guests get more space than traditional hotels. Short-term rentals are perfect for families and people who want to travel together and make it an affordable vacation, by splitting the costs. In a hotel environment, it is a bit difficult to do that.
3. More Money - If we were to rent our first home (pictured above) on a long-term rental basis, we would only be able to get about $1,200 per month. Through the short-term rental
program, we are able to get $1,200 to $1,500 per week during the peak season. During the off season we get the $1,000- $1,200 per month, making cash flow positive for the entire year.
4. Deductions - Cleaning and maintenance, repairs, insurance, management fees, cable TV, and utilities are just a few of the expenses we get to write off during the year. Along with depreciation, we could even record a loss (even though we had positive cash flow during the year) and avoid taxes altogether. Please keep in mind that depreciation will need to be recaptured once we sell the property.
5. Constant Upkeep - With renters going in and out frequently, we are able to keep up on small repairs before they turn into big problems!
6. Meeting People - From people attending a wedding, to girls' weekends and bachelorette parties, to people coming for their summer vacation, we have met some of the most interesting people from all over the world.
7. Ratings - Ratings are a key deterrent from tenants breaking things and trashing our place. Since we are rating them, as well as they rating us, we tend to get great people coming through our doors.
Some disadvantages include:
1. Payment Consistency - The fact is that during the winter months, we might have vacancies that last for two to three months. Sure we still might get the occasional renter during the winter, but most people want to go somewhere warm during that time. So you definitely need to have some cash management skills.
2. Utilities & Cable - Since we are competing with hotels, we definitely need to provide utilities and cable television for our guests. During the winter months with no money coming in, these expenses can add up.
3. Tenant Risk - Although the ratings system deters bad tenants, there still is a higher chance of theft and breakage of items, due to the sheer number of people coming through our doors.
4. More Interaction with Tenants - On our long-term rentals, we hardly ever talk to our tenants, unless a lease renewal is coming up, or they called about a repair. Since we are now the general managers of our own small hotel, we need to keep the communication at a much higher standard with our guests, making sure everything is going well with their stays. We do not want a bad review, and we want them to enjoy our home as much as possible!!!
5. More Maintenance - We must make sure our housekeepers and landscapers are doing their job. The homes need to be maintained the same as a hotel. That gets very expensive, very fast, as you need to hire more professional housekeepers with hotel experience, rather than your regular cleaning person.
6. Bureaucracy - Some cities do not allow short-term rentals; or they have stringent rules about how to manage them. Please check with your local government for rules and regulations.
7. Taxes - You must keep a record of all your expenses, rehab costs, etc. You might need to hire an accountant to figure out what should be capitalized and what should be expensed. Depending on the way you operate your short-term rental, you might need to form an entity, which requires more annual filings, and making sure you are complying with State and Federal tax requirements.
After having a successful 2018 in New Buffalo, Michigan, we need to gear up for 2019. The first few months of 2019 are always difficult on our wallet, as there is very little revenue from our rentals. But it also provides us the opportunity to fix things in order to create an unforgettable experience for our guests.
So I consider the following to be our New Year's Rentals Resolutions:
1. We will fix everything that is broken.
Travelers expect our places to be in tip top shape. Considering the winter is the slowest time of year, we have blocked off days to have our contractors and repairmen fix a whole bunch of stuff that broke during the summer. We will go into each house and inspect everything with our repairmen, so that we can provide the most wonderful experience for our guests. We do not want our guests to focus on a broken gutter or a chipped chair, as that will take away from their experience of our town.
2. We will spend a night in each of our rentals.
Harbor Country in Michigan has experienced a 12% increase in short term rentals, which means there is more competition for the travelers coming into town. By staying the night in each of our rentals, we get to have the guest perspective, and are able to tweak our living spaces into a more comfortable experience.
3. We will show off our new additions and features on our listing.
How will the guest ever know about the extra features we provide if we do not tell them? Since we have become a desired place for families, we will include some baby items like a playpen and crib. That should give us a bit of an edge over the competition.
4. We will go the extra mile to wow our guests.
Why not have some local wine on the kitchen table when a guest arrives? Our area in Michigan has some great wineries. The produce is unbelievable as well. We are looking into partnering with local businesses to create more experiences for our guests.
5. We will reflect on our reviews.
We love the reviews, as they give us the opportunity to make things right for the next guest, and also fix things. Our goal is to create a memorable vacation, full of fun, laughter, and togetherness. Reviews makes us better general managers of our business.
6. We will tweak our rates.
By looking at the rates the competition is charging, we are able to gauge whether we are priced right so that we can increase our bookings, and thus revenue.
7. We will keep records for all our expenses.
We do not want to be in a position where we did not take a deduction that we could have taken, because we forgot to log a receipt.
As we are considering growing our vacation rentals business internationally, by converting an apartment in an Athens suburb in Greece, we have a lot of considerations to go through.
Greece follows the taxation model of Germany, by imposing a cash tax on vacation rentals. The Finance and Tourism Ministry recently passed a bill to tax peer-to-peer property rentals as unlicensed accommodation. Fines will be imposed to owners found to be renting out their property without a registration on Greece's tax platform and if they don’t fulfill certain criteria.
The rules are somewhat similar as the United States, where a property is either considered a rental and goes on Form Schedule E, or a business, and goes on Form Schedule C.
Once we identify the property as a short-term rental, we will then have to register it on taxisnet.gr, Greece's online tax platform. If we fail to do this, fines of up to 5,000 euros are due. We definitely do not want to pay 5,000 euros, so we will contact a local tax attorney to make sure we do everything right, before we even start the process.
Once registered, we would have to get a tax ID number specifically for that property, for us to operate the rental as a business.
Then we would have to file a tax return and pay any taxes due, for the revenue received on the rental.
The great news is that as rental real estate owners, we can expand all over the world, where online platforms such as Airbnb, and VRBO, TripAdvisor, are allowed. We just have to do research. Heck even in the US, there are municipalities that have restrictions on short-term rental owners (Asbury Park, NJ, and Austin, TX, for example).
Another consideration is that we must file the appropriate tax forms here in the USA for any income received from Greece, and pay the tax on it. The good news is that there is a treaty between our two countries, and we will not need to pay taxes twice, as the amount paid in Greece gets credited in the USA.
The main lesson here is, as a short-term rental owner in a foreign country, you must do your due diligence. Find a good team in the foreign country who can help you with tax matters; ask an attorney about the different entity structures you might want to pursue; take compliance seriously.
Also, ask your team in the United States if there are any complications, either legal or tax-related, that may arise by making an real estate investment in a foreign country. You do not want to be stuck in a situation where you did not file the appropriate tax foreign tax for with the IRS.
Of course, please be cautious. There are so many investment scams out there. You don't know if the person on the other side of the website is a crook. Everyone seems nice when they want your money. That's why I always suggest traveling to the country before investing in it.
We look forward to the day where we can help people internationally, create even more success in the short-term rentals business.