Technology is changing the world in ways that may have been unimaginable just decades ago. One of those changes is the way in which many people can now connect with others, even on the other side of the planet, to complete relatively complicated business transactions. This new form of connectivity has opened up a previously nonexistent stream of potential income sources for retirees.
One such stream is the opportunity to rent out property to strangers over the internet. Using sites such as Airbnb, VRBO, and others, you can now become a mini-landlord. You can rent out your lake house or beach condo when you’re not there. You can rent out your home while you’re on vacation. You can even rent out the unused bedroom in your house on an ongoing basis.
The whole idea is part of the larger “sharing economy,” which is the rising movement to share one’s property to earn extra income. For many seniors, the sharing economy is appealing. A recent report from PricewaterhouseCoopers found that 25 percent of people over the age of 55 participate in the sharing economy as service providers.1
Before you list your property online, though, it’s important to consider all the potential benefits and costs. The benefits are obvious. You can earn supplemental income for property that you aren’t using. Who wouldn’t like to go on vacation for two weeks and actually get paid while they’re away? That’s what can happen if you rent out your home.
Of course, it’s often more complicated than that. Below are a few important things to consider before you jump into property rental. Think about these items and more, and then determine whether the extra income is really worth the complication.
This is a key consideration anytime you rent out property, whether it’s for a year or for a week. The renter has a certain expectation for service. He or she likely expects the property to be clean and well-maintained. If there is an issue, such as an air-conditioning malfunction or a leak, he or she will likely expect you to take care of it.
Property management can be time-consuming, costly and complex. If you’re renting out your property while you’re away, you may have to rely on a third party to do the job for you. You’ll also need to clean the property, wash sheets and linens, and take care of other items before and after each renter.
Think about whether you want to deal with these tasks during retirement. If you need the income, it may be worth the effort. However, if income isn’t a pressing concern, property management could present a complication that you don’t need.
Another important issue is liability. What happens if your renter damages the property or destroys something inside? What if he or she commits a crime on your property? What if they violate your HOA rules or antagonize your neighbors in some way?
The legal system’s approach to the sharing economy is evolving. You may find that it’s not exactly clear what you are and are not responsible for. Also, your insurance may not cover renters, so you might need to purchase additional insurance to cover any possible liability.
When you add up the costs for renting out your home, car or any other asset, you may find that your net income isn’t quite what you’d expected. Many sharing-economy sites charge service fees to list your property. That will cut into your cash flow.
As mentioned earlier, you may have to pay a third party to manage the property. You could face taxes for your income. There may be maintenance and cleaning costs. And in an extreme case, you could face legal costs to resolve any disputes between you and the renter.
In retirement, it can often be tempting to look for additional income anywhere you can find it. However, think carefully before you dip your toe into the sharing economy. Contact us at Gallagher Financial Group for more information. We can help you analyze all the costs, the possible income and your alternatives to help you make an informed decision.
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