A Beginners Guide to Peer to Peer Renting
Updated: Jun 13, 2020
With student debt on the rise and a growing desire to free up more time, a new era of gig-economiers can look to places other than Uber for extra income.
The Fading Landlord Nightmare
The garish stories of long-term tenants destroying properties and overstaying their leases is no longer the price you have to pay to be a "landlord". True, any sort of renting comes with routine risks such as property damage, needy tenants demands and late payments. However, with the advent of short term rental platforms and BnBs, it's now not so scary to be "a landlord".
Do you have an early retirement in mind? Why not try building an investment that uses every days skills like simple customer service and mild carpentry- when done right, property management can be for anyone.
How to Get Started
Investing your money anywhere can be scary. If after considering your alternatives being a landlord is still enticing, this is how you get started. First, locate a property that meets your financial requirements. In general, the ROI must be greater than the I. Included in your factors of I should generally be things like money, time, life style, and personal vision. Second, design the business concept of your property. Cruise the community and local amenities to determine what you could offer potential guests. Then figure out what the best use of the property would be. Think short term vacation rental vs. venue for yoga classes. Could the property have a theme? Something that makes it stand out amongst the masses? Third, look at the cost of getting the property ready for business. This includes checking out the zoning (discussed below), assessing costs for renovations, business licenses and costs for accommodations. If you have a busy 9-5, then think about hiring a property management company. The property management company can handle bookings, cleaning and guest services and generally charge 20-30% of the rental fee.
There are plenty of other ratios and factors to consider before making a purchase but these are just the basics to get you thinking like a property investor. Next up, learn how to close your knowledge gap.
Leveling Up Your Knowledge
Having access to a lawyer is preferable when making a real estate purchase but it's not practical for everyone. So if you are a digital age self-doer, here are a few commonly overlooked threats to your bottom line which a lawyer might discuss with you.
Restrictions on leasing or subletting.
Many condominiums, town home communities and other planned communities (typically properties subject to an HOA) have restrictions on leasing property. So if you are purchasing property to use as a rental, then you have to first determine if any restrictions against leasing exist. These restrictions are usually in the form of a contract, sometimes referred to as a covenant or declaration, and can be found for free at the county real estate record office. Sometimes, these restrictions will be attached as an exhibit to the latest deed on the property. (For help on both these topics see my article Title 101.) Sometimes, the seller of the property may have them on hand. In any case, do your research and make sure there are no restrictions which will prevent you from leasing your property.
Another possible complication can arise if the property is not classified for residential use by the zoning department. This is generally not an issue in condominiums, neighborhoods and other obvious residential areas. However, this could be a problem if you are say looking at an abandoned warehouse to renovate into a posh pad. If zoning is uncertain, work with your local zoning department to (i) determine the zoning classification, and (ii) obtain a certification of zoning prior to making a purchase. This is not as difficult, time consuming or expensive as it sounds. Most often than not, a person can walk into their local office and walk out with a zoning certification the same day. Zoning ordinances are typically handled by the city so first check your city's website to learn more about the process.
Restrictions that might affect your guest's comfort level.
As a final tip, accommodations are an absolute must have for vacation and other types of rental arrangements. Some commonly overlooked items which could which could affect your guest's comfort level include (i) lack of parking spaces, (ii) occupancy restrictions, (iii) restrictions on deliveries or usage of common areas, and lastly (iv) lack of adequate access or disability access. Similar to restrictions on leasing and subletting, the provision or restrictions on these items will be contained in a contract. When conceptualizing your plan for the property (and yes, every property should have its own concept and plan) determine what your guests will need and then make sure you have the ability to carry out your plans.
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*We post new and informative articles every week!! Stay tuned for our upcoming podcast and tutorials that can help you with some of your legal questions.