The Sharing Economy, part 2: What Homeowners Should Know About Renting Their Home

Tips for Renting out a House

There is required homework to be a careful, smart host and rate five-star reviews from guests so they will come back and rave to friends. But these days as states, cities and towns tighten rules, especially about short-term rentals, you need to know what your area, too, requires.


  1. Learn your area’s basic short-term rules. Does your building, town or city permit short-term rentals? If so, what are the rules about the length of stay? Many permit them only for 30 days or longer as a way to cut traffic in and out of a building or neighborhood. But that’s just the beginning of your information gathering. An ordinance passed in Denver in July 2016 that hosts must set up a business tax account with the city, obtain a short-term rental business license to post online, pay the city’s lodger’s tax, and verify they have liability insurance or that the platform covers them. Most key is that hosts can only rent out a room or home if it’s their primary residence rather than an investment property, according to Dan Rowland with the city’s Excise and Licenses Department. “We’re trying to find a way to legalize the short-term rental practice and regulate, enforce and tax it. But at the same time we want to preserve our neighborhoods’ residential character. We think we’ve established a good framework for the first year, and we’ll see where it goes,” he says.
  1. Tips for Renting out a HouseSafety Check/ Safety Regulations. Some cities and towns are beginning—if they haven’t already—to require inspections by a member of a planning or building department. In Cape Elizabeth, Maine, all sorts of rules are spelled out on the town’s website under zoning regulations such as the need for smoke and carbon monoxide alarms, portable fire extinguishers, and emergency lighting to exit safely in case of a power outage. These and other ordinances were adopted four years ago, far ahead of the curve. “What caused the change were a few extreme rentals for loud gatherings such as bachelor parties,” says Ben McDougal, code enforcement officer. “We also have a rule that you can only rent to one person a week, which eliminates a motel feeling with different people coming and going,” he says. Since the changes were passed, there have been few complaints, he adds. For any host it’s also key to be sure a homeowner’s insurance policy is adequate to cover visitors on the premises, says Adam Annen of HomeAway. If not, there are companies like CBIZ that offer good policies and even handle “income disruption” if something happens to your house so you won’t lose anticipated rental income, he says.


  1. Ask your accountant or financial planner about the cost-benefit. Does the extra income you generate and the possible extra time your adviser spends to determine depreciation and deductions on your tax return make renting out your home still worthwhile financially? There’s also a time factor for you to save receipts to support any improvements made as well as keep track of days rented to satisfy I.R.S. rules. One example: If you rent your property for no more than 14 days during the year, you don’t have to pay tax on the income and are entitled to deduct all ordinary and necessary expenses to operate your rental business.


  1. Vet your guests. You can take a refundable deposit and find out what the hosting site will do regarding any problem with guests, but it’s important to vet them as much as you can. Consider asking via email, a call or even Skype what they do professionally, their ages, and why they’re renting—perhaps, attending a wedding in the area. Require a verified I.D., suggests Amanda Mills, director of partner management at, which makes Party Squasher, a device that can alert you if too many people are in your home. Be sure you make clear that drugs and parties are not allowed, she says. It’s best to vet guests after they book but before they stay so you can cancel them without a penalty in many cases. All this won’t guarantee perfect results, but it offers some peace of mind. And always trust your gut as well, says Mills. You may still want to remove valuables or lock them up.


  1. Be sure this experience is for you in other ways. Most guests, in turn, expect hosts to provide fresh linens, towels, and clean rooms. You may also want to greet them in person, hand over a key, provide a Wi-Fi code and instruct them about your house rules such as the no-party or drug rule but also no pets, kids under a certain age or even red wine drinking in living spaces. If all sounds like too much work, you can hire a property manager, which half of all VRBO hosts do, Annen says. “Many will respond to inquiries, handle cleaning, even hand off the key,” he says. This, too, has become a burgeoning business in the residential real estate market with managers typically earning 20 percent of funds generated.

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