Things to Know Before Renting Out Your Arizona Home to Vacationers
If you are a car collector, golf fanatic, art enthusiast or baseball bleacher bum, Arizona is the place to be. The first three months of every year visitors flock to Arizona for all kinds of reasons, including our mild winter temperatures. As the list of reasons grows for why Arizona is the perfect winter escape, so does the need for places to stay. We have beautiful hotels and resorts in the Valley and love recommending them to our out-of-town family and friends. But now, more than ever, the popularity of renting out your home to vacationers is on the rise. Peer-to-peer rental sites such as Airbnb, HomeAway and VRBO, and other by-owner booking companies have become as commonplace for vacationers looking for a place to stay as hotel websites. According to travel industry research company Phocuswright, one in three U.S. travelers in 2015 stayed in a privately owned short-term rental. That is an increase of 24% from 2010.
Arizona Rental Property Laws
Our clients continue to ask us about the pros and cons of renting out a residence for short-term and vacation renters so we are going to share some things you need to consider before jumping into the rental property pool. In Arizona, prior to May 2016, municipalities could prohibit their residents from using their home for short-term and vacation rentals, but with the passage of SB 1350 that is no longer the case. The Governor signed into law SB 1350 so Arizonans could remain competitive with other tourist destinations that allowed homeowners to rent our their homes for short-term lodging and at the same time allowed cities and towns to levy and collect fees and taxes on rentals.
While SB 1350 does prohibit cities and towns from banning short-term vacation rentals, is does not block HOA’s from banning short-term and vacation rentals within their communities. If you live in a community with an HOA you need to know what they do and do not allow. In addition to their policies on short-term rentals, be aware of regulations they have for parking, noise, and use.
Rental Home Taxes, Licenses & Fees
There are different federal, state and local rules, regulations, licenses, taxes and fees depending on the type of residence you are using, primary or non-primary, and the numbers of days or overall percentage of time you rent the space each year. It is critical that you know and understand and comply with all the laws before you list and rent any space. If you are using your primary residence for short-term and vacation rentals, you do not have to pay federal taxes on rental income if you rent for less than 15 days a year.
However, there are still state and local fees and taxes that may apply. For primary residences rented for 15 or more days per year you will pay federal taxes on any Scottsdale rental income.
For rental income earned on a non-primary (second or vacation home) all rental income, no matter how many days you rent the property, must be reported as income on your taxes. There are guidelines for expense deductions that also correlate to percentage of personal use versus rental. It is recommended that you review IRS Publication 527 to understand all federal rules and regulations for Arizona rental income as expenses. Some rental companies, like Airbnb, send tax forms to the government to report any rental income you have earned through bookings on their sites, others do not, so it is critical that you keep very good records of all income and expenses incurred for renting your property.
Renters & Landlord Insurance in Arizona
It’s important to understand what your insurance company covers and doesn’t cover when renting out your home. Depending on the length of time you are renting to a single person or family, your insurer may require you to take out a landlord and dwelling policy. You can also consider insurance coverage offered by hosting companies to add to your existing policy. Always have the conversation with your insurer before welcoming any renters.
Preparing your Rental Home for Tenants
If you are thinking about renting your home there are some things you need to consider and lots of things you need to purchase in preparation for guests. A lot depends on whether you will be using your primary residence or a second home as your Phoenix rental. If you are going to use your primary home as a short-term and vacation rental, you need to depersonalize the space, no family photos, and consider removing family keepsake and antiques.
Most rental services suggest having one or more areas, a room or closet, which you can securely store and lock items while renters are in your home, whether you are renting a primary or vacation home. In addition, you will typically want renter-only sets of linens (sheets and towels). Some homeowners even have separate sets of dishes, glassware and utensils just for renters. But remember, your renters are also your best form of advertising and are more than likely going to review your property, so go out of your way to make your Scottsdale home inviting and special.
Having a binder with all of homes information, from WiFi passwords to instructions on how to use electronics. Include recommendations for restaurants, food delivery services, emergency contacts, suggestions for great places to visit and things to do. Think about simple things that make a big impact- having unopened toiletries in each of the bathrooms, well-stocked kitchens and maybe bikes for your guests to ride around the neighborhood. One of our favorite rental properties in Seattle had a fabulous coffee maker and bags of ground coffee from the owner’s favorite local coffeehouse so waking up the first morning was a real treat.
AZ Property Management Service Fees
Don’t forget, there are fees, percentage or annual, for using peer-to-peer rental sites or rental agencies. For Airbnb, the service fee is generally 3% of a booking subtotal, while HomeAway typically charges an annual fee, but also options a per booking percentage option for those who don’t rent their homes out on a regular basis.
In addition, if you decide you want a professional real estate management company to monitor and maintain your property, which is typical if you are renting out a second or vacation home, you will have monthly or per visit fees for their services. While each of these companies comes with a cost, experts recommend listing your property on multiple sites for maximum exposure. People usually look at more than one site so up your chances of being seen. And, remember that when you are putting your listing together be detailed, include the very best photos you can (consider professional photos) and make sure you show both interior and exterior spaces, including neighborhood and great nearby amenities.
Once you post your Scottsdale rental home you need to be diligent in keeping the listing and calendar up-to-date. Renters want to know that they are working with owners that are easy to reach and paying attention to their properties- remember most sites include your average response time.
Take the Time to Meet Your Renters
For some owners, meeting the renters upon their arrival is important. Even though hosting sites require deposits and try to vet users based on past experience, sometimes that in-person meeting provides you with additional peace-of-mind. It’s also something that some renters really appreciate, know that you can help answer questions or are available if they need to contact you with any questions or problems.