Vacation Rental Property Managers Beware
Mortgage Challenges – A Second Opinion for Rental Property Owners
When it comes to short term property management issues for those renting their homes through companies like Airbnb and others, one of the last potential problems most owners worry about is with their mortgage. Unfortunately, banks have started asking more questions which are creating frequent problems for those utilizing their vacation rentals for income. Vacation property management concerns are becoming more public for individual owners who enter the “pay for stay” market and banks seem to be the latest to add scrutiny to capitalize on a situation for which they can control most of the rules. For those owners who are concerned about possible repercussions with their lender, there are some ways to try and minimize any future conflicts.
Minimize Waving Red Flags:
If renting out space in a home is considered a direct violation of a mortgage many need to realize that unless their home is occupied by others for more than 14 days per year, the income is considered tax-free in most instances. In other words why wave down the mortgage bus with a huge red flag and invite it to rollover homeowners who legally have no obligation to report the income in the first place? Filing income on taxes when it is not necessary and potential lenders noticing the potential conflicts due to “over-reporting” is a situation that can be easily remedied.
For those who will not gain from showing rental income of 14 days or less, why bother poking the bears of mortgage lenders? Remember in many cases “less truly is more” so keeping that giant scarlet banner out of sight when applying for a refi makes sense. For those who do not need to show the income on their taxes to support additional revenue why go above and beyond the tax requirements and create other questions from a tax return if it is not necessary? If tax laws provide a break by not requiring any taxes to be paid on income, it makes no sense to turn it into a liability for future mortgage needs.
When in Rome:
Keeping up with the local requirements for renting is the most important aspect of short term vacation property management. Sometimes the breaks that the national tax code gives might require more registration or separate consideration for local regulations. Some cities have unique rules which govern property rentals and knowing the ins and outs of those guidelines are critical to success. Cities like San Francisco, for example, require the host to register the property. Knowing the “lay of the land” for local government rules and understanding the micro environment is equally as important as utilizing the breaks coming from the national tax code.
It Never Hurts to get a Second Opinion:
If one lender has issues with using the property as a source of rental income, another might welcome the loan. Lenders can be considered just like medical specialists it is usually an excellent idea to get a second opinion, especially when the news is not favorable. A “no” from one mortgage source may be met with a resounding “thank you for your business” from another potential lender. As with any job that requires a bid earning business for specific circumstances due to the usage of reported rental income may become an extra piece needed to complete the short term property management puzzle. It is most often a matter of finding a mortgage expert with the knowledge to make the loan fit the needs of the customer as opposed to trying to disqualify quality borrowers.
Changing Horses in Midstream Can be a Good Idea:
Sometimes it is the type of loan which causes the concern from banks when it comes to short term property rentals. In some instances, an investment property loan will satisfy the needs of the bankers and provide a workable solution for the owners at the same time. One consideration for the switch in loan types comes from insurance policy changes necessary to fulfill coverage requirements. Coordinating the potential costs of both types of insurance coverage on mortgage options can help property owners find the best fit for their individual needs. If insurance is soaring as a result of switching loan types, then it makes sense to exhaust options for the other loan type before committing to changes.
The Right Answer:
No solution will be perfect but finding the right source for mortgage and insurance requirements and coordinating them together to create the highest and best option will make short term vacation property management much easier. The right answer is always the one that best fits the particular situation of the property owner and is not a one size fits all application. One of the things you might consider to do your own research. below is a list of various short term rental alliances for local areas. A quick search of google can find you even more.
http://www.vrma.com/ – Vacation Rental Managers Association
http://www.la-stra.org/ – Los Angeles Short term Rental Alliance
http://stradvocacy.org/ – Short term Rental Advocacy Center
http://www.1fineflat.com/ – Vacation Home Property Management Company
Google List Of Short Term Rental Alliances