Housing special event-goers short term? Beware!

Property owners should be aware and beware that when they rent their primary residences on a short-term basis -- expecting a windfall of thousands of dollars a week -- they enter a largely unregulated gray area of housing that's not without its risks for both guests and property owners.

by Broderick Perkins
© 2008 DeadlineNews.Com


Unauthorized use of this story is a copyright violation -- a federal crime.

Deadline Newsroom - Not long ago, property managers were pitching Pebble Beach, CA home owners the idea of renting their homes when the U.S. Open next visits the Monterey County area -- two years from now -- because the rental income could be as much as $100,000 a week near the golf course.

When Tampa Bay, FL hosts the Super Bowl in February, 2009, some homeowners hope to rake in from $5,000 to $15,000 a week from gotta-be-there guests who can't otherwise find accommodations.

The inauguration of President Barack Obama, the United States' first African American president, is destined to draw more than the record 1.2 million audience President Lyndon B. Johnson attracted during his swearing in.

That's led Washington, D.C. Mayor Adrian M. Fenty to temporarily suspend the district's housing rental regulations so homeowners can enjoy a windfall helping to house the huddled masses descending on the town to witness history on January 20.

Fortune Marban Real Estate Services at Georgetown Long & Foster Real Estate in the District, recently launched InaugurationAddress.com, a rental portal for tourists and property owners. The site proclaims "week-long stays are available from with rental rates ranging from $4,000 to $25,000."

These and similar attempts to cash in on major events all sound like what-a-deal moves. Homeowners and the community alike can cash in on the influx of visitors who come and camp out and then stick around to dine, shop, tour the area and otherwise drop dollars wherever they go.

However, property owners should be aware and beware that when they rent their primary residences on a short-term basis they enter a largely unregulated gray area of housing that's not without its risks for both guests and property owners.

Disputes that arise out of cancellations by property owners or visitors could require legal intervention. Property damage may not be covered by homeowner insurance policies. And resolving disputes about how visitors use your home may be tough once your door keys are in the hands of strangers.

That's just for starters.



Before you start counting chickens that haven't hatched, consider these issues before turning your home into short-term rental property.

• You'll need time to screen renters. If you are lucky enough to have an independently wealthy relative, friend or other person you trust rent out your home for a mint, well, more power to you. But when it comes to renting to a stranger, you can't rely upon gut feelings. There are few if any consumer and property owner protections in place that specifically cover renting out your home short-term for a local event. You'll either have to hire a property manger or learn the screening process, which could mean many pointed questions, a full application for short term rentals, a credit check, income check, proof of residence check, past rental record check and more checks before you get that fat short-term rental check.

• Freedom isn't tax free. Generally if you rent out your home for 14 days or less you don't have to report the income.

"You get tax free income," said Leonard Williams a CPA in Sunnyvale, CA.

However, you may need to consult with a tax professional if you plan to rent your home for 15 days or more because, while you can deduct rental expenses and depreciation for the part of the year the property was used or held for rental purposes, you also have to report the rental income. A major income boost could thrust you into a higher tax bracket, trigger the Alternative Minimum Tax and pile on other tax issues, says San Diego, CA CPA Leonard Wright.

Williams said renting out your home for 15 days or more will also cut into your capital gains tax exclusion, if only slightly, depending upon how long you rent your home.

Under current law, married homeowners can exclude from taxation, up to $500,000 in gains from a home sale, provided the property was the primary residence for two out of the previous five years. The maximum exclusion for a single person is $250,000.

Vacation and rental property owners, right now, can legally double dip the exclusion by first selling their primary residence and capturing the tax-free gain. Then, after moving into the second residence for two years to qualify it as their primary residence, they are able to cash in again on the tax-free gain after selling the second home.

However, to help foot the bill for the "Housing and Economic Recovery Act of 2008", the act eliminates the capital gains exclusion for the portion of gain that comes while a home serves as a vacation or rental property. The provision is effective Jan. 1, 2009.

Renting out your home for even a month or two could mean a relative insignificant cut into the exclusion, but there are other concerns. Unless your property becomes a long term rental, or your make a mint on a short-term rental, the tax issue is probably the least of your worries.

• Your homeowners insurance policy is underwritten with a risk analysis based on the owner, you, occupying the home, not tenants. Effectively turning your home into a business property will likely require some adjustment to your insurance policy which may not otherwise provide benefits for claims arising from certain liabilities or losses. If a short-term tenant damages your property, steals belongings or is injured and you don't have the proper coverage you'll have to foot the bill or, worse, face the possibility of a negligence lawsuit. Always contact your insurance agent before renting your home.

• Zoning could pose a problem. A growing number of communities have an outright ban on short-term rentals, others require that you obtain a license and pay a tax for the privilege. Violate the provisions of local law and you could be fined.

• Likewise, homeowner associations that permit long term rentals may forbid short term tenants and enforce the prohibition with hefty fines, even evictions. Check with your homeowner association's board of directors or management company.

• Local occupancy ordinances may also permit only a limited number of people in a given structure. They also typically forbid setting up beds in garages, sheds or other facilities not legally designated for human habitation. Check the laws in your community.

• Check federal and local fair housing laws. Fair housing laws forbid you from discriminating based on sex, race, religion and other factors. You are generally exempt from the law if you own the home you rent, but not if you have several other homes. You are also exempt from federal fair housing laws if you rent a room in your home. And you are exempt from federal law if you rent to a minor, but that could open another can of worms. Fair housing laws are sticky. In Palm Beach County, FL for instance, if you use a "broker" (property manager) to rent your personal residence, you must comply with their fair housing law.

• Add real estate attorney to your list of consultants. The American Bar Association says if you open your home to short-term rentals you should do so with a legal contract that defines the terms of your accommodations. An attorney can help you sort through your legal rights and responsibilities and make sure your rental agreement complies with local law.

Also see: DeadlineNews.Com's Second Home Center.

© 2008 DeadlineNews.Com


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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also the Silicon Valley Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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