This article is a set of notes that my colleague Sundar made when we discussed our past short term rental experiences. Thank you, Sundar, for making the notes this detailed! It reads like I’m much smarter with answers than I actually am, and the text reminds me of things I’ve forgotten by now. This text is all your work, and I am extremely grateful to you!
Information presented here is what we learned, not advice on what you should do. It is presented only for self-education. This is not expert advice. This is not legal advice. I am not a lawyer. I am not an accountant. I am a licensed real estate agent in California, but I am not your agent. Consult a professional that works for you.
I guess my main question is…. What do people do for vacation rentals? Such as Vicasa? Etc
We did something similar in Twain Harte, last fall, in case a data point helps you. It is IMHO a similar location to Arnold, CA with respect to skiing and watersports distance; though perhaps a bit better positioned with respect to visiting Yosemite and being close to a larger supply center (Sonora). I expect that as a result some concerns will translate. (Also, it turns out, the Internet offering in Twain Harte is excellent - better than at our home in San Francisco(!), which may matter to you for WFH. Dunno how it is in Arnold.)
To answer your main question, we advertise via AirBnB.
As for other things you didn’t ask about, we use airdna.co for local analytics. We find local people for maintenance and cleaning. It’s a bit of a challenge, given the small local population, but is doable. We self-manage while using the time the property is not rented out to live there ourselves. At some point we had to contract people from Modesto (or was it Oakdale, I forget) to come and do some electrical work, as all local licensed electricians were fully booked months ahead. We renovated the place and I estimate we should be able to get about $2 for every $1 invested in renovation.
The rental market is heavily seasonal - most of the year people will rent out long or short weekends. In the summer, they will rent for a week or more. We observed a similar pattern to what airdna.co predicts, so I think airdna.co may be a good place to figure out the financial potential of a property. This fits our needs very well, but I don’t see renting this property out as a particularly profitable venture. Also, I am not sure if the situation would change if we were to advertise on more platforms. All said and done, we are cost-neutral so far on this property which isn’t stellar in terms of business achievement; but it’s a free house, and the family derives a lot of pleasure from living there. I would even tolerate a slightly negative P&L since we would have spent some money each year on escapes into nature anyways.
As for annoyances, I’d single out a few things in no particular order: the extreme fire risk, which will affect your insurance premiums; PG&E having a habit of turning power off for hours or days on end, meaning you’ll need a generator and appropriate electrical installation to make things work; lots of yard work and wrangling mature trees (which my partner has been all too happy to handle; I don’t complain); nasty wintertime snowstorms which fell trees leading to potential damage or harm (which, again my partner resolves by judiciously applying her chainsaw skills); lack of public utilities (only septic tank available, which needs regular maintenance, but isn’t particularly horrible to work with); the general price of electricity and propane needed to maintain comfort; mosquitoes in the summer; planning batch purchases so that you get all you need in as few visits to Sonora as possible - in your case you may get away with coming down to Angels Camp only for groceries and healthcare, but for other things it’s probably going to be Sonora for you too.
All in all, it’s been a net positive for us, though the main benefits are non-monetary - a boost in quality of life and well being, all the while holding what is essentially a house for free. I’d do it again.
A pro of renting out is that you may be able to keep your 2nd home cost neutral, or even come out ahead a bit. With vacation rentals I think your baseline for comparison is actually a bit lower than zero in my opinion. This is because you’d have spent some money on vacation anyways. So, with a little bit of savvy, with short term renting you can get what is essentially a free house. Not a bad deal as far as deals go.
A con is that you may find it necessary to reserve your property to yourself when you plan to be there, lest someone reserves it when you’d like to have it. We did two things so far to discourage reservations – for dates we care about, we block out in advance. For dates we’re flexible about, we would raise the prices. We learned that the latter strategy works and even made a little bit extra, but if you hike the price too much and someone does make a reservation, you may run a risk of getting a “low value for money” review.
If we decided to do a short term rental we would most likely hire a company to take care of it for us just to not have to do any work in general.
An alternative could be to find people who do a specific thing (cleaning, maintenance), and manage them yourself. You may want to go that way since the management fees for short term rentals are on the high side, and the value for the service isn’t that much.
I am curious as to what are the main things people have had to do or topics to think about. Below are the ones that I have come up with, but curious as to others thoughts as I know every area is different.
We invested some money in smart home automation and monitoring. This helps us keep expenses down by being able to control the systems remotely – e.g. if the guests check out leaving ACs running, we can turn the ACs off. Smart locks allow us to let people in remotely, as well as manage keyed access (e.g. key codes can be valid in a fixed time window only, and can be managed remotely via the Internet.)
Our house is in a rural area that sometimes loses power, so we invested in a gas-powered generator and the electrical installation that allows the house to be powered by the generator.
Business License
This is area dependent. We didn’t need a business license.
Permit
Our area does not require one.
Insurance
Insurance is complicated. Let me know if you want to chat about this.
Tax implications
Our area has an occupancy tax. AirBnB pays for us.
Depending on how you run your property your business may be classified differently for tax purposes. Check with a CPA. phoebeh@ had a nice summary earlier on this list for example.
Separate Bank Account
If this is your second home, a separate bank account isn’t strictly needed. I think it is a good idea anyways for tracking the performance of your house. With a separate account, you could for example import house-related transactions into tracking software such as Stessa. (Stessa is a glorified spreadsheet with reporting that is tailored to rentals, and somewhat automated integrations.)
Area Regulations
Some of that can depend on zoning and local ordinance. For example, we’re near a neighborhood in San Francisco that disallows short term rentals completely.
Other stuff… Don’t forget - neighbor relations. We recently had a neighbor report us to AirBnB because of an ostensibly loud party by our guests. The neighbor who reported us was not on site at all when they reported. Nor did the guests party at all — I happen to have visited the house for maintenance that very day so I know it for a fact. The neighbor simply didn’t like the idea of AirBnB. That is to say, their reporting was a complete fabrication but we did spend some time talking to AirBnB about this.
Overall we found our AirBnB guests were respectful and low maintenance. We did have a few outliers, but it turns out most people are very willing to pay to cure issues.
Our house is in a rural area that sometimes loses power, so we invested in a gas-powered generator and the electrical installation that allows the house to be powered by the generator.
It matters, because while you personally may be OK waiting out a few hours or a day for the power to come back, your guests can’t be expected to share that patience. Guests typically want instant comfort. They are on the clock, and want everything to work perfectly.
So even if you personally wouldn’t spend money on a generator and a certified electrician, you may still want to do it.
Another “pro” tip: you can get all the furniture you need for free on Craigslist. We got excellent furniture worth many thousands of dollars (including two pianos!), for the cost of renting a truck and a day’s worth of collecting the stuff around the South Bay.
Other points provided:
- Reliability of AirDNA data now that you have some experience with actual renting.
- No of beds matter more
- Guest safety and comfort
- Septic tank 5. Not a big issue, just proactive maintenance.
- Fire insurance
7. $3K plus but bundling with other property might bring cost down
8. Lot of care needs to be taken to keep home anti-Fire ready.
9. Insurance will inspect. - Snow cleans up on non-main streets? 11. Double Yellow sure plough 12. Single and dotted second priority
- Backup generator 14. Power Quality THD needs to be less than 6%- Inverter generator 15. 7kw 16. Electrical panel to support - separate connector for generator 50A. Make sure the electrical panel is not obsolete or recalled. 17. $4K to change panel 18. Washer dryer connection needs to be upto code.
- Property Management- Is there a company that can just do maintenance, cleaning between stays rather than paying 20% for Twain Hart Rentals. 20. We self did it so did not explore.
- Anything else you’d like to add as a recommendation for someone closing there? 22. Trees to be looked at to be groomed properly (branches should be above 20 feet) 23. No branches within 20 ft of house 24. Do not neglect the property 25. Clean the deck from snow so that it does not sink 26. Termites prevention periodically. 27. Insulate exposed pipes
- Propane 29. Nest Thermostat connected to the existing (millivolt thermostat??) so that access remotely is possible. (This required a bit of EE know-how to make work) 30. Contract a local provider (switching would mean leased tank make a switch complicated) 31. Slabs are better for hot tub rather than on deck 32. If your house is on a steep driveway, make sure you provide clear instructions for the STR renters.
- For AC it is more cost effective to have mini-split systems (properly sized) instead of doing ductwork. But I’d say it is important for AirBNB.
- Cleaning and construction crews are very busy and hard to get so need to consider that in calculations since one has to pay more to get faster service.
- Wood floors are better and easier than carpets so changing would make it a good ROI.
- Everything like locks, AC, Heat should be smart wired and allow for remote access to keep utility costs low.