I have a townhouse condo that I renovated, it’s now been sitting on the market for 6 months and the only 2 potential buyers I had both lost their financing in the recent market dust-up.
Rather than sit on it or dropping my shorts on the price I’m contemplating furnishing it and going the short term/extended stay rental route: weekend, weekly, monthly. I’m in a touristy area near 2 colleges (can walk to one of them from the condo) and a regional hospital. I think there’s a market that will support doing this. The condo is in a duplex – I did the conversion of the building to condos and the association docs will allow this use so no worries there.
Are there any caveats to this type of rental? I know all markets are different but is there % premium which I can charge above a typical rental situation? What about utilities for longer term (multi-month) rentals – should utilities be paid by the renter?
Thanks for any insight. – Norm
Replies
I have a furnished, two-bedroom house that's 1.9 miles from Duke. I advertise on Craigslist and on the university housing site. I don't advertise in the newspaper and I don't put a sign in front of the house. There is a market for this kind of rental. My house is "provisioned", meaning that it has linens, dishes, utensils, etc. The object is to allow people that want to move in without moving furniture. Post-graduate students and business people are who I'm after.
That's exactly the set-up I'm thinking of. This is spitting distance to Bennington College, not much of a grad student population but they always have visiting profs in the area for 2-3 month stints. The hospital has docs that rotate thru on a similar schedule. The B&B, motel, hotel route for these folks get old pretty quick.
How do you handle utilities? That's my fuzzy area right now...it's an older building and I can see someone setting the thermostat on 80 and leaving it there for the winter.
-Norm
Install a digital programmable t-stat with a locking cover. Figure what the high average utility bill should be, and write in the contract that they will pay any use above that."Put your creed in your deed." Emerson
"When asked if you can do something, tell'em "Why certainly I can", then get busy and find a way to do it." T. Roosevelt
Keeping the utilities on is very convenient to the tenants. The only problem is that it makes the rent seem very high and some people skip over your listing. What I've done is list the rent not including the utilities. Then when I show the house, I offer to leave them on at $125 more per month--which has proven to be slightly more the average cost of the gas and electric. I provide a furnished and provisioned house and I maintain the yard. My rent is about $200 more than comparable houses that are unfurnished. For short-term leases (less than 3 months) I charge $150 more per month. If you're using Craigslist, move your listing to the top of the list frequently, every few days.
When we moved back home to help care for aging parents we added 1700+ sqft to the house effectively turning it into a duplex. One elec meter, well, oil fired heat in old part, heat pump in new. After Mom passed I had considered setting up the other side for mid term rental.
Was thinking about exec relocation, people having a house built, etc. Was going to price point it somewhere between motel and regular rental prices. Did not do it as have not and probably never will get it cleaned out and remodeled. Sister just retired from teaching overseas and will be moving her stuff in when we purge 50 yrs of accumulation.
doing so you become an "innkeeper" of sorts... you might check with the schools they often have visiting teachers the other good source is insurance companies that have to house people that were displaced by fire ect... they usually stay 3-6mo... I know a realestate lady who has several condo units like that just for the insurance people and for people who have sold homes but can't get into their new homes yet... she contracts out maid service for some renters
good luck
p
I don't have any answers about this.
But just want to suggest that you pass this by a tax pro.
Running a motel is a business activety and not a investment like a rental.
I don't know how much period work, such as chaning the lines, would making into a business.
If it is a business active then you need to pay self-employement taxes on the "profit".
Don't know what other differences it might make.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
Bill - My first phone call was to my accountant. The major renovations I did will be become capitol improvements and depreciated over 27 1/2 yrs. Ongoing repairs, maintenance and utilities are operating expenses and deductible in full for the tax year the $ was spent.
The duration of the rentals will determine if it's active or passive income. If I sign a 12 month lease with the local college for one of their profs I could argue that it's passive...on the other hand if I have a string of 2-3 month rentals then the state could rule it an active businss. And yes, in that case any operating profit will be taxed income with quarterly filings, etc. I could run it through my existing biz but still need to get input from my acccountant and lawyer on that.
Also, any rental (in VT) under 30 days is subject to the state lodging tax. This means another form with a monthly filing to the state whether I collected tax that month or not.
-Norm
I don't know much about the subject. But a good place to list your rental would be http://www.vrbo.com think it cost about $150 per year & they get alot of traffic.
If you want to offer to the "displaced by disaster" group you might also contact the disaster services unit of the local American Red Cross. They also have a need when people are displaced by fire but don't have insurance or other means. Of course, you want to deal with the Red Cross, not the tenants in that case.
Why go after short term rental? You may get a pemium for a shorter term, but it's also a pain because turnovers between tenants (cleaning, adversising, showing, etc...) are real costs to you.
If I was trying to sell a house, I'd rent it out but only on a month-to-month basis. Thats VERY enticing to renters (no long term commitments) and chances are they'll stay much longer than 3 months anyway.
YOU get the benefit of them paying utilities under their name, and can boot them out with 30 days notice if you get a buyer.
PS: If you do go after short term contracts....The HR department at the hospital has someone who helps direct incoming folks to housing options. Meet them and provide photos of the place. Same with teh colleges, they'll have an office that help visiting profs/researchers get settled. Be their best friend and make their job easy....
Like most states, tenant laws in VT are heavily tilted in favor of the tenant. When I bought the building at foreclosure there were tenants in both units that I had to deal with - it was part of the deal. There were no signed leases in effect and neither tenant was paying any rent. I served them notice via the sheriff and the state assigned the tenants a lawyer (for free) - I had to pay for mine. 6 months and a few grand later and the tenants were finally gone. I'm not dealing with that situation again.
I'd much rather deal with short term profesionals; docs, professors and people relocating to the area rather than long term squatters. The 'resident agreement' for the short term rental reads more like a vacation rental or extended stay hotel agreement...if the people don't leave on the agreed upon day (or on demand for just cause) I simply call the PD and they will be removed the same day. No tenants rights to deal with.
-Norm
"6 months and a few grand later and the tenants were finally gone."
I obviously know nothing of the specifics in the situation, but 6 months is a long time for an eviction. Get a different lawyer if your in that spot again.
Here, 30-45 days eviction for nonpayment is doable. Eviction for other reasons (ie you tell them they have 30 days to vacate but they don't) may be more like 60-90 days.
A lot depends on the people. Eviction preceedings are the exception, NOT the norm. If you rent month to month, and let them know it'll be on the market for sale, the average person will understand and get out of dodge when the time comes. There is the possibility that the buyer may either want it as a rental anyway, or may want the rent from the tenant until they are ready to move in 6 months down the line...
I've signed thousands of leases. Only a handful ever ended up in eviction proceedings. Your milage might vary.
"I obviously know nothing of the specifics in the situation, but 6 months is a long time for an eviction. Get a different lawyer if your in that spot again."
depends where U are located.
been a coupla years ... but I remember my FIL talking about taking forever to evict some tennants.
small town in W. Pa ... he was a city cop ... best friends with the Mayor ...
knew everyone ...
and still took forever.
professional "bad tennants" know how to work the law.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
"professional "bad tennants" know how to work the law."
You got that right. Upon being served the eviction notice one tenant filed a complaint with the state fire safety office reporting all sorts of building violations - which were all true. I needed the building to be vacant in order to re-wire & re-plumb the building and make all the necessary repairs - hence the eviction proceedings. Once they file a complaint they're not obligated to pay rent until the repairs are made and eviction becomes very dificult because it can be perceived as a 'retaliatory measure' because the tenant filed a complaint.
So this 'professional bad tenant' had a state paid lawyer fighting the eviction proceedings on one side and the state fire safety office threatening all sorts of fines and legal action because I wasn't making repairs (because I coudn't gut the building with people living there) on the other side. Ever try to get two states agencies to talk to each other?
I offered to pay the tenant's first 3 months rent at a new apartment if they would just leave. Their response; "it works out better for me if I stay here". They knew the system and they milked it for everything for next 5 months.
So, after all the time & $$ I spent renovating the building, taking on a pure tenant is really not something I want to consider.
-Norm
Back in my renting days, I hated living in a place for sale. Just what I want, a bunch of strangers poking thru my house and guess what, if they like it I'm kicked out.
If I was a renter in a place for sale the rent better be a very good deal.
"If I was a renter in a place for sale the rent better be a very good deal."
OR, the lease would be month to month, which is a hard deal to get elsewhere.... for that, someone might be OK with a little uncertainty.
Don't forget, the new buyer may WANT IT AS A RENTAL, and your month to month lease would be sitting pretty.
Anyhoo, even if the OP had to reduce the rent by $100/month, he'd be ahead of the game by not having to turn over, advertise, and show the place every couple months...
Have you investigated a lease/purchase agreement?
I go into my first house that way. The sellers needed to have the place sold, or on a long term lease to qualify on their new home, and I had just graduated from college, had no credit, and a sizeable student loan debt. The market was a little slow, and they had it on the market for about 4-months. They had dropped their asking price from $118,000 to $110,000 with no success. I knew them from work / school. He worked at the same Engineering company I did, and she went to school with me. He asked if I would be interested in leasing it, and her parents who were both realtors, and her brother who was a lawyer came up with the idea of a lease / purchase contract.
We did a ten year lease to purchase agreement, with a portion of the lease payment stayin in an escrow account. If I backed out they got to keep up to $5000 of it, (similar to an earnest money deposit on a purchase), and if I bought the house it was to be applied towards the down payment / closing costs. I was responsible for defined routine maintenance, and they were responsible for major repairs to HVAC, hot water heater, etc., should they fail. I was required to carry renters insurance, with a rider for damage I might cause to the property. They had right of approval for any structural changes, paint color changes, and landscaping changes. I had to try once a year to finance the house, which I satisfied by applying for a mortgage with the bank the escrow was with.
I made my payment to the escrow account which was at the bank that held their mortgage, and the mortgage, HOA, and insurance payments were taken out of the escrow account. If I was five days late with a payment, I was in default, and they got to keep the money in the escrow account, and got the house back.
To them it was basically trouble free. I'd have them over for dinner or a barbecue once every couple of months so they new things were still in good shape.
For me, it gave me a record of payments easily verified by a lender, that showed on my credit history.
Three years later I had paid off my student loans, had a stable work history and qualified for a mortgage. We had locked the price at $113,000 in the agreement, there was $8000 in the escrow account, the market had recovered by then so the house appraised at $155,000. The bank that held the escrow account, and their mortgage, was more than willing to finance me by then. I didn't even have to get / pay for PMI.
I did try to work through this same scenario with a buyer but we couldn't come to an agreement on the numbers. We had talked about a 3 year window, she needed/wanted to pay a rental amount that was below market value but also didn't want to lose any $$ that was escrowed if she backed-out or failed to buy the condo within the time frame.
Not enough protection/incentive for me to go that route. Sounds like your situation worked-out great!
-Norm
Jigs, That is a very nice summation of how/why a lease purchase or lease option works. There are a lot of people who can't wrap their arms about why a seller would do something like this but I've got two out on a lease option right now myself.
jimfka (formerly known as) blue
DH's company often uses extended stay housing to put up employees, as they are building in many different cities now. Usually they are 2-bedroom units that are shared between two and four different employees, who are never on the jobsite at the same time. (Never more than two there at one time, btw). They just kind of rotate in and out as the project needs each individual on the job. Sometimes it is used solid for 2 weeks then left vacant for another 2 weeks...company pays the entire time to retain it.
Also, the company rents apartments for the supers. Framing super goes down first...finish super later (overlaping)...framing super heads on to the next job, and so on...They have a gal purchase all the furniture, dishes, bedding, TV's, etcetera and handle the logistics for the next move.
short term rentals can be very profitable, and in this market certainly worth considering. charge a premium... professionals need a place for a short period of time before their plans pan out.
Norm,
I have a house in Middlebury with an apt off the rear. When we first owned it (13 yrs. ago) we rented full time. Then we sort of bounced into a summer rental to students in Graduate programs, seems they can't stay on campus if their married or have pets......money was good. Then came foliage season, then homecoming, parents weekends, occassional winter weekends, graduation. And it always seemed there was someone moving to the area that needed a place for a month or so , or the visiting medical professionals at the hospital. We never rented for more then 6 weeks and did a lot of 3-4 day things. Yes, cleaning is an issue, but costs are deductible. Also, we would leave coffee, juice, cereal and fruit, maybe some cheese and crackers for the returning people, it is deductible as well. Anyway, we'd make 7-8 thousand a year and the place was empty for the most part, so family and friends could visit. We took out a Chamber membership for referrals and were listed with the college. We'd have taken in more had we rented full time but there are downfalls to that as well, including more utilities. Charge hotel rates as these people are thankful to have a place to cook, have a living area seperate from bedroom and in our case a private porch. You will find that visiting professionals often have their lodging paid for and for those longer stays (6 weeks or so) will pay close to hotel rates for a place with a kitchen. They will need internet service and cable tv; charge for it. Vermont considers it a " Guest Apt" and yes, there was a 10% Rooms and Meals tax added to the bill and tax was submitted monthly to the state. Really not an obtrusive form to fill out, more like a stub asking what you made. Really, if we worked harder at it we could have done better. And....we have met some really great people from away. Not enough to get rich, but good supplemental income. Don't know if this helps your situation as you likely have a certain amount needed each month for the condo...
good luck
Thanks Frost, that helps validate my line of thought. Local B&B's & motels do a 10% discount for stays over 30 days, any less time is full rate. Average nightly rate is $110-140 for extended stay. Of course foliage season, holidays, school vacation weeks, Benn College events (parent weekend, graduation, etc) - no discounts those times of year regardless. Actually, rates are bumped up by 20-25% for those events...
My carrying costs are minimal, I can cover the mortgage plus all overhead with just one weekly rental a month so I'm not really worried...
Thanks, -Norm
i think your kidding yourself about evictions,you rent this place to someone that wants to stay for 3 months,they pay the 1st and stay free from then on. it's easy to think that professional types won't screw you ,most won't but when they do you will no the've been there.versus people that just don't have the money.
i like your idea,just know that things will still go wrong once in awhile. do credit checks,references,etc.
i have a long story of a friend that rented to a female law student,she knew every trick there was and spanked him for about 9 months,then on the way out pulled all the recepticales out and reached in and cut the wires short.had to rewire the place.ouch! if a man speaks in the forest,and there's not a woman to hear him,is he still wrong?
And what happend to the law student.That would be both criminal and civil penalties.And if she was going to be come an attorny tracking her down and getting filing the judgement in her state would get the attention of the state bar..
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
i don't think he ever pursued going after her,first thing you would have to prove is,did she do it,her boyfriend,who? i always felt someone else came up with the idea. no 24 yo girl studing law would think of this and be able to excute it without getting buzzed,unless dad was a electriction and she had helped pull wire as a kid. he fixed it and sold the place vowing to never be a landlord again! larryif a man speaks in the forest,and there's not a woman to hear him,is he still wrong?
As I mentioned in an earlier post, there's two very different agreements for a typical renter (per your example) and a 'guest' at a hotel/motel/B&B/extended stay facility. A 'guest' can be asked to leave at any time, or, if they choose to ignore their 'length-of-stay' agreement a call to the local PD will have them physically removed - immediately - if need be. A 'tenant' has all the rights, usually backed-up by local and state laws. In a 'guest' situation the rights are usually on the side of the business owner.
-Norm