Renting Your Crested Butte Home
Are you considering renting your Crested Butte Home? Many clients consider the opportunity to generate income by renting their home when they are not using it. This can be a nice way to help offset the costs of owning the home, and perhaps there will be additional income left over. Be sure to check on local ordinances and zoning, as Crested Butte has some areas where short-term rentals are prohibited.
If you are looking for a property that will “cash flow,” meaning that all of your expenses including finance costs will be covered by your rental income profit, you may want to look for a rental property at the beach.
Mountain towns support rentals on a seasonal basis, and so there will be many weeks in the Spring and the Fall when nobody will want to rent your home. Also, when doing your analysis, ask yourself if you got 50 percent of your projected rental income how this would affect your finances.
Remember that the IRS considers income property a business that has tax ramifications. Be sure to check with your financial advisor or retirement planner before investing in property that you plan to lease or rent.
When Will You Use the Home?
There are many variables that go into the financial equation. On the income side How Much you will use the home personally. When will you use it? Christmas to New Years, Spring Break, 4th of July, ArtsFest Week…. examples of some of the peak times can be a really fun time to be in Crested Butte. But there will be high demand for your rental home. What is the desirability of the home? Location, quality, how many people can it sleep, is it within walking distance, proximity to the free mountain express bus… etc. are all considerations for the renter (and the rates your home will command).
Rental Broker or VRBO?
Will you be using a broker to rent your home, or doing it yourself via AirBnB or VRBO.com? Most brokers will charge 20-50 percent of the gross rental income for their services. And for that they will be managing all aspects of renting your vacation home. The list of tasks is not short, so if you plan to rent by owner, be prepared to spend quite a bit of time managing this effort.
Renting By Owner: Tasks for Consideration
Here is a shortlist of some of those tasks:
- Website: create, manage and maintain
- Lease, liability waivers, security deposit forms
- VRBO.com or Airbnb.com registration, update
- Inquiries, phone, email, VRBO.com
- Screen renters (pets, college students, how many people…?)
- Deposit/security deposit, collections
- Final payment collection
- Referral payments
- Sales tax and lodging tax payments (just like a hotel, you will likely be required to collect and remit state sales tax and local lodging taxes)
- Accept checks, credit cards, and/or PayPal?
- Cancellations, refunds
- Renter checkin, keys
- Problems/issues during stay, local property manager contact
- Maid service
- Checkout timing (e.g. check out Guest 1, check in Guest 2 same day)
- Multiple sets of linens/towels, laundry done offsite?
- Snow removal, drive, walkways, deck
- Put gravel/salt down on ice
- Hot tub service (daily?)
- Recommendations, complaints, ratings
- Security deposit refunds
- Wear and tear/upkeep/replacement of items
Insuring Your Crested Butte Home
Many homeowner’s policies specifically exclude properties that are used as rentals. Since this is not your primary residence, you will need to get a vacation home insurance policy. Since no one lives there full time, second homes tend to pose more risks than occupied homes and premiums may be a bit higher. Water damage (frozen pipes), fire, acts of vandalism and liability, for instance, are potentially serious issues with a second home that is not occupied full time. Most homeowner’s policies won’t cover these types of risks on a vacation property, but vacation or second-home insurance is an option for you through many of the national insurance carriers. You should consider insuring your home for its replacement cost; it is normal that the cost to rebuild your existing home will far exceed your purchase price.
Insuring Your Crested Butte Second Home That Is Also a Rental Home
What if the maid service or the property manager does not lock the upstairs exterior door after the renters leave, and the door blows open and a pipe freezes and breaks. What if 50,000 gallons of water flow through three levels of the house before the problem is detected a week later? If this happened as a result of renters and you did not have a policy covering that use, you may not be covered. Your insurance carrier will likely require you to install a security system that has water detection devices (“water bugs”) located under every sink, next to every toilet, and the water heater.
A water main shut-off valve can be tied into the system so that if water is detected, the water main line will be turned off. This will prevent significant damage and sending an alert to the home monitoring service. Fire alarms and CO2 detectors are also required, and will be a part of the home security system.
Talk with your insurance company and ensure you have a policy that covers your vacation home and your rental home scenarios.
A regular homeowner’s policy and a vacation home policy may cover personal liability, but personal liability coverage or a personal umbrella policy will not cover business activities. Renting your second home is a business activity. Personal liability is intended to cover you in the event that someone claims that you have caused them bodily injury, or damaged their property as a result of your personal actions.
When you rent your home, you are a business and you need commercial liability coverage (business liability). This is specifically designed for “business activities” like your second home rental business. Liability coverage protects you if someone slips on an icy sidewalk and you are sued for damages. If there is severe damage to your second home and it cannot be rented, you may also want to ensure that your lost rental income is also covered.
When You Are Not There, Your Home Is “Vacant”
There is a “vacant” status for a residential property, and many insurance carriers will not cover the home, or will require a separate policy or rider (a “vacancy endorsement”). Typically, the home needs to be vacant for thirty days before it is considered “vacant.”
Like everything with insurance coverage, the devil is in the details, and in the fine print of the policy. It is a good idea to ask your agent what their rules and definitions are and how this will affect your coverage. Using the burst pipe worst-case scenario, if you submit a $75,000 claim and the insurance company denies coverage because the home was “vacant” and you did not have the “vacancy endorsement,” you will be sad, and out $75,000.
Who Should “Own” Your Rental Home, You or an Entity?
What about the “renter slips on the ice” worst-case scenario, where you get personally sued for negligence and $1,000,000? Just like you need liability coverage to protect you, it is also recommended to separate your personal finances from your business liability.
It is wise to contact an attorney to set up an entity that will shield your personal assets from a potential lawsuit from a renter.
Anybody at any time can sue you; the lawsuit may be justified or frivolous, but you will likely need to hire an attorney to defend yourself. If you set up a Family Limited Partnership (FLP), Limited Liability Company (LLC) or a Corporation, you can separate your personal assets from being at risk. Talk with an attorney to ensure you are informed and protected.
Recommendation: Seek professional legal, tax and insurance advice prior to renting your Crested Butte home.
How Will Vail Affect Crested Butte Real Estate Market?
With Vail operating the Crested Butte ski resort I predict we will continue to see an influx of new visitors to CB and the numbers always translate into real estate buyers. This summer will be busier than the winter, and expectations are high that there will be more families. I still believe the Vail acquisition is good – but it may take a year or more to see tangible results in the real estate market.
See the big picture and all the details of the Crested Butte Real Estate Market –> Download Full CB Real Estate Market Report as a .pdf file (more data and charts)
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