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How Airbnb Is Helping Me Figure Out What I Really Want in a House

August 11, 2020

Pennsylvania

Jillian Pretzel

When the coronavirus hit New York City, my husband and I panicked.

We were living in Brooklyn, and I was in my second trimester of pregnancy. Terrified of getting sick—and possibly passing the virus on to my baby—we decided to play it safe. We left the city, and booked an Airbnb listing in a small town in Pennsylvania.

We’ve been staying in this temporary home for months. It’s a nice house, but very different from any of the suburban homes or city apartments I’ve lived in. It’s older, larger, and much farther from the center of town than I’m used to.

But I sort of like it.

This move has given me a new perspective on homes and, as I’m searching for a place to live after the virus clears up, I’m starting to reevaluate my housing must-haves. After going from a big city to a small town, I’m figuring out what I really want in a home, learning which things I need—and what I can do without.

Here are some surprising lessons I learned about what I want once I’m ready to buy a house.

Having room helped me realize I don’t need that much room

living room
This is one of the rooms we barely use, ever.

Airbnb

I chose our Pennsylvania rental in part because it had many rooms and a lot space. After quarantining in a studio apartment in New York City, I thought a big house with lots of space would be a luxury for my growing family.

So I was shocked to find that, once we’d settled in, it was way too big.

In fact, this four-bedroom, 2.5-bathroom home (which included a finished basement) felt unmanageable after only a few weeks. Though I was happy to be out of our cramped Brooklyn apartment, I hated climbing two flights of stairs throughout the day. I hated trying to clean such a large space. And I hated needing to call out to my husband to find out which room he was in.

In the end, I realized that I probably could have saved some serious cash renting a smaller house. But at least I know this before I rent or buy my next house!

Outside space is gold

house
This house has big front and back yards.

Airbnb

I loved the extended outside space of our rental. In my family home growing up, we had a square yard big enough for just a table and chairs. In New York City, I had nothing but a window.

I was never bothered by this, though. If I ever wanted to spend time outside, I’d simply go to a park or drive to a hiking trail.

But when I got to Pennsylvania, I appreciated the patio, the large front and back yards, and the nearby nature trail. I went on walks nearly every day and loved being outside.

While I thought the appeal of being out in nature would wane after the weather started getting warmer (and the mosquitoes started biting), I found that, even in the middle of July, I still loved sitting on the porch and going on daily walks.

With a baby on the way, I started to realize how much I’d value that quiet nature trail when I wanted to walk with the stroller. I wouldn’t have to worry about crossing busy streets or loud noises, as I would in Brooklyn.

Now I know I’m ready to compromise on some home perks for a big yard.

More bathrooms are not necessarily better

bathroom
It turns out we don’t need as many bathrooms as I thought.

HGTV

Our Brooklyn apartment had just one bathroom, which seemed so inconvenient to me.

In our Airbnb rental, I expected having three bathrooms to be a serious luxury, but I soon learned that we basically had the same problem: We were always waiting to use the downstairs bathroom, because neither of us wanted to go upstairs. Plus, we preferred that same bathroom’s shower/tub combo, so I once again found myself rushing to get out of the bath so my husband could take a shower.

In the end, I decided that apartment living, with just one bathroom or an extra half-bath, was probably just fine for our family. It also means fewer bathrooms to clean.

A central location isn’t all that important

When we first leased our Brooklyn apartment, we loved being close to shops, restaurants, and subways. But I soon realized that being “close to the action” isn’t what it’s cracked up to be. With the coronavirus raging, those shops, restaurants, and subway stations became liabilities.

In Pennsylvania, far away from everything, I worried we’d be bored. But surprisingly, I loved it.

I was happy to be farther away from people, and felt safer in regard to the virus. But that wasn’t the only reason I liked living in the middle of nowhere.

I’ve learned that the most centrally located home isn’t necessarily the best one. There can be perks to living a little more out of the way, like cheaper real estate, more land, and more bang for your buck.

With so many people working from home and commuting being less of an issue, a more remote location may not be just acceptable, but also preferable.

Don’t buy a home before you rent something similar in the area

Brooklyn
I’m not sure if we’ll head back to Brooklyn, or find a home somewhere else.

Jillian Pretzel

Staying in a new place can give anyone valuable perspective.

Using a friend’s swimming pool might make you wish you had a pool. Or visiting the suburbs might have you thinking you should move there, too. But to really know if a place is right for you, you should ideally stay there for a while, because only then will the pros and cons truly sink in.

As such, before you purchase a house anywhere, you should first stay at an Airbnb, VRBO, or other short-term rental in the area that’s similar to what you want. It works as a road test to help you figure out what you want.

Personally, I’m feeling better prepared for the home-shopping process than ever before. I’m excited to see where we end up.

The post How Airbnb Is Helping Me Figure Out What I Really Want in a House appeared first on Real Estate News & Insights | realtor.com®.

6 Crucial Questions to Ask Before Renting Out Your Home on Airbnb

December 30, 2019

stockcam/iStock

If you regularly go away on vacation, renting out your home on Airbnb, HomeAway, or some other short-term rental site makes sense—at least financially. However, you’ll have to put in some work to rake in a profit, and there are risks.

To help you decide whether and how to rent out your place, here are some important questions to consider first. By answering them, you’ll gain a better sense of whether this is the right decision for you.

1. How many days do I plan to rent out my place?

Many areas limit the number of days a year homeowners may rent to short-term guests. In some areas, like Los Angeles, it’s up to 120 days per year; other cities, like San Francisco, set that limit at 90.

If you don’t comply with your city’s regulations, you could face hefty fines. In San Francisco, for instance, you’ll pay $484 for each day you rent out your place over the 90-day limit. Make sure to check your area’s rental laws lest they land you in financial hot water.

2. Are there other restrictions on short-term rentals where I live?

Lawsuits and pushback from locals have spurred some cities to crack down on home sharing. For example, anyone putting a listing on Airbnb in Santa Monica, CA, must live on the property during the renter’s stay, register for a business license, and collect a 14% occupancy tax from guests that’s payable to the city.

Knowing what the regulations are in your area is crucial. For an introduction to these rules, check out Airbnb’s hosting guidelines, which outline city regulations for many of its U.S. locations.

3. Does my HOA allow short-term rentals?

Like cities, homeowners associations, condo associations, and co-ops can take a different approach to regulating short-term rentals. Some have no rules at all, while others ban subleasing altogether.

The lesson: Contact your HOA to see if subleasing is permitted, and find out if there are any restrictions you have to follow. (Some HOAs require short-term renters to submit an application to the board for approval before they can occupy the property.)

4. How much effort am I willing to put in?

Depending on where you live, you may face heavy competition from other short-term rentals. If your house is located in a hot neighborhood, you might have to go to extra lengths to make your listing shine.

Most Airbnb hosts provide guests with basic toiletries (e.g., soap, shampoo, and conditioner) and free Wi-Fi. Offering extra provisions can make your listing stand out. For example, many Airbnb “superhosts”—the website’s top rated and most experienced hosts—distinguish themselves by setting out fresh flowers, stocking their fridge with local foods and wine and beer, or even offering guests “experiences” like surfing, spa treatments, adventure sports, or cooking classes for an additional fee.

Also, keep in mind that it takes time to clean up your place before guests arrive and after they leave. Alternatively, you could hire a cleaning service, which would cut into your profits.

5. Am I planning to refinance my mortgage?

Though renting out your house on Airbnb can be a great way to help pay your mortgage (or even help you qualify for a mortgage), it could hurt your ability to refinance. If your mortgage lender decides that you make enough money from your home for it to qualify as a commercial or investment property, it may charge you a higher interest rate or deny your refinance application altogether.

That being said, earning a supplemental income might be more advantageous than refinancing your mortgage to a lower interest rate, depending on how much you’re making and what rate you’d qualify for. In that situation, consider consulting a financial adviser before renting out your house.

6. What’s the best home-sharing service for me?

Airbnb may be your first thought when it comes to listing your short-term rental, and for good reason: It offers more than 6 million places to stay in nearly 100,000 cities and 191 countries. But it’s not the only home-sharing player in town. Choosing one of these alternatives may be a better option for you, depending on your needs.

Targeting high-end travelers? Onefinestay offers luxury home accommodations (think private villas and penthouse apartments) in destinations such as London, Paris, New York, Los Angeles, and Rome. Looking to host gay travelers? Misterb&b offers home sharing for the LGBTQ community in more than 135 countries. Meanwhile, home-sharing providers Outdoorsy and RVShare specialize in offering RV rentals in cities across the U.S.

The post 6 Crucial Questions to Ask Before Renting Out Your Home on Airbnb appeared first on Real Estate News & Insights | realtor.com®.

7 Crucial Steps to Take When Listing Your Vacation Home on Airbnb

December 23, 2019

6 Things to Know About Listing Your Vacation Home on Airbnb

iStock/kupicoo

Owning a vacation home isn’t only your own personal escape hatch from the real world. Thanks to the explosion of short-term rental sites like Airbnb, VRBO, and HomeAway, having your vacation home up on such sites can also net you some serious cash!

After all, the tide has turned: Short-term rentals are becoming ever-more-popular alternatives to hotels. In 2018, Airbnb made up about 20% of the total lodging spending among U.S. consumers, and HomeAway, owned by Expedia, made up 11%, according to data from Second Measure.

But here’s the thing: Renting out your vacation home isn’t quite as easy as posting a few photos and waiting for guests to arrive.

“Hosts often think that by listing the home on a particular channel that they can kick back and let the reservations come in,” says Caleb Donegan, vice president of digital at Vacasa, a vacation rental management company that uses platforms like Airbnb and VRBO to list homes.

“Major listing sites like Airbnb and VRBO have millions of properties, and it’s important to take the proper steps to become what they consider a good host.”

In this latest installment of our Guide to Buying a Vacation Home, we show you how to become the host(ess) with the most(est). Keep these insider insights in mind to maximize your profits with minimal headaches.

1. Get some protections

Not only are more guests using Airbnb and similar sites to make travel arrangements, but the sites also offer protections for homeowners renting out their homes, says Airbnb superhost Dana McMahan, who makes $30,000 per year running Airbnb properties in Louisville, KY. She also offers workshops on how others can follow in her footsteps.

But McMahan’s early experiences weren’t always so rosy. She remembers a time in 2007 when she and her husband rented out their properties by listing them on her travel blog, Body by Bourbon.

“The people came, we picked them up at the airport, we made them dinner, we were really supernice to them, and they wrote us a check and it bounced,” she says. “We never saw that money.”

Since guests are required to pay when they book on platforms like Airbnb, homeowners don’t have to worry about getting stiffed. Airbnb does charge a host fee of 3% on the booking subtotal for most listings, but most consider that money well-spent.

2. Describe the vacation home accurately

It may seem obvious, but Donegan emphasizes that homeowners be accurate in every aspect of the listing: the property description, photos, and calendar. An unhappy guest could leave a negative review, which could affect a host’s ability to attract future bookings.

“If you list your home as a ‘luxury beachfront property,’ only to have guests arrive to find the home is more of a ‘quaint bungalow many blocks away from the beach,’ they are bound to be disappointed and leave a bad review, even if they ended up enjoying their stay,” he says.

Include all details about the property (good and bad), amenities, location, and rules for the home. Also, list items the home is stocked with, like a hair dryer or dishwasher.

“One of the most important things about getting your listing right is making sure you’re very clear what you’re offering and what you’re not offering,” McMahan says, and avoiding “unpleasant surprises” for guests.

For example, one of McMahan’s guest suites is accessible by a set of steep stairs, so she mentions the stairs multiple times in the listing.

“I don’t want somebody to get here and say, ‘Oh my God, I didn’t know there were stairs like this.’ Even though you can run the risk of scaring people off, it’s better to let people self-select to stay at your place based on giving them really clear expectations.”

3. Showcase the home with professional photos

Professional photographs highlighting all aspects of the home are a must, McMahan says.

The photos should accurately show off the interior and exterior of the home, along with amenities like a pool or hot tub and elements, to portray the home accurately.

Hiring a photographer may be an extra expense, but it’s key to maximizing profits on your vacation rental, McMahan says.

“Chances are you’re going to have a lot of competition, and if you don’t have great photos of a beautiful space, then you may as well not exist,” she explains.

4. Keep your calendar up to date

A common mistake new Airbnb hosts make is not keeping their property’s calendar showing its availability up to date, McMahan says.

If the home is cross-listed on multiple sites, this could mean someone might book the home on Airbnb for the same days it’s just been reserved on, say, HomeAway. As such, you’d have to cancel one of the bookings.

Not only does this send a bad message to guests, but Donegan warns that Airbnb and other sites may penalize hosts (and potentially shut down their accounts) who decline bookings on nights listed as available.

5. Keep your rental clean and well-stocked

There’s a difference between staying in a place you own versus one you pay for while on vacation. Tiny details matter, so consider what’s most important to you when you travel and offer that same experience to anyone booking your home.

If you manage your rental from afar and have never stayed there (or haven’t recently), bunk down there for a night or two to see what the place might be missing.

“I can always tell when I stay in an Airbnb if the host or owner has never spent time there, because they just don’t get the details right,” McMahan says. “Until you stay there, you may not know, for instance, that you need a lamp by this couch because it gets dark here early in the winter and it makes it hard to read.”

Also, keep the home “immaculately clean,” McMahan says. “That’s the one area you cannot possibly skimp on. It doesn’t matter how nice the place is, how great your location is, how nice you are—if the place is dirty, that’s not going to fly.”

Guests also expect the home to be stocked with all of the supplies they’ll need for the stay (e.g., dish soap, paper towels, plates, and mugs). They also want detailed instructions for how to use the coffee maker, washing machine, the TV, and Wi-Fi.

Want to score some extra points with guests? Welcome them with a bottle of wine, snacks, coffee, or other gifts, Donegan says. Also provide them with details about places to eat and things to do nearby.

6. Be courteous with guests—even if they complain

Timely communication with guests, resolving issues that come up, and going above and beyond to welcome them also help hosts earn positive reviews, which are important for securing future reservations, Donegan says. Reviews play a role in the algorithms that Airbnb and other sites use to rank properties in search results.

Donegan urges hosts to thank guests for their feedback in all cases. If there’s a complaint, respond to let them know you’ll take action in the future, or use private messaging to address concerns.

7. Keep an eye on your listing

Listing your property on Airbnb or similar site can bring in extra income when you’re not using your vacation home. But McMahan emphasizes that it can be a lot of work.

“The main theme I like to get across to people is that this isn’t ‘landlording.’ This is hospitality,” she says. “There’s more to it than handing somebody your keys and saying, ‘Have a great stay.’ It’s really caring about your guests and making sure that you are doing everything you can to give them a really memorable experience and that your place becomes part of that experience. If you have a passion for it, you can really do well.”

The post 7 Crucial Steps to Take When Listing Your Vacation Home on Airbnb appeared first on Real Estate News & Insights | realtor.com®.

Are You Ready to Buy a Vacation Home? 6 Questions to Ask First

December 4, 2019

rmcguirk/iStock

Whether it’s a bungalow by the beach or a cabin in the woods, owning a vacation home is a dream for many. After all, you’d always have a place to stay in a favorite travel destination, and could rent out the place when you’re not using it. What’s not to love?

Yet all too often, people venture into a vacation home purchase with “rose-colored glasses on,” says Denise Supplee, real estate investment educator and co-founder of property management software SparkRental.

Vacation homes can be a worthy investment, but owners don’t always fully realize the time and financial commitment involved.

As Supplee describes it, “Here is a typical scenario: New to property investing. Looks at the romanticism of a home by the ocean or one tucked away in the mountains. Assumes they’ll make a fortune.”

In reality, “there is substantial risk,” she says. “That’s especially true when a vacation home is used as a short-term rental, which can bring extra costs.”

Dealing with vacancies and attracting bookings can be time-consuming, too.

All of this begs the question: Are you truly ready to buy a vacation home?

For answers, look no further than our Guide to Buying a Vacation Home, a new weekly series. For this first installment, we pinpointed the key questions you should ask yourself to gauge just how prepared you are to take the plunge. By talking with experts and people who own (and rent out) their vacation homes, you’ll learn what’s involved in this endeavor, and the risks. That way, you can enter this adventure with your eyes wide open and, yes, maybe even make a profit!

1. Why do you really want a vacation home?

So before looking for a vacation home to purchase, first consider your reasons and goals for wanting one. How much do you plan to use it personally, and what will you do with the home the rest of the time?

According to Steve Schwab, founder and CEO of Casago, a vacation rental and property management platform, common reasons people purchase vacation homes include the following:

  • They have a place to stay in a favorite travel spot.
  • They have an eventual retirement home.
  • They establish a way to make money by renting the home out.
  • They have the home as an investment that they can rent out now to cover the mortgage and property taxes, and later sell for a profit.

Just keep in mind that some of these goals might clash and be hard to juggle.

Avery Carl, a real estate agent and owner of five vacation rental properties in Tennessee, cautions against getting too emotionally attached when purchasing a vacation home as an investment.

“If there are any personal emotions tied to an investment property, the owner will never maximize its cash flow potential, and owners will end up getting upset over minor issues like makeup on towels,” says Carl, who works with investors to acquire their own vacation rentals.

“My advice is not to rent it out if it’s a personal vacation home that you have an attachment to, and if it’s an investment, keep your emotions separate—it’s a business.”

2. Do you have time to manage a vacation home?

Many homeowners underestimate the time and work involved in owning a vacation home, Supplee says. The time commitment includes marketing the home, setting up listings on travel booking sites, keeping up maintenance, dealing with guests checking in and out, and handling guest requests.

“Some people buy a vacation home and find that they didn’t buy a vacation, they bought a job,” Schwab says.

Schwab says VRBO estimates that homeowners spend about seven hours a week managing a vacation home. However, it could be less: Carl, who manages five properties, says she spends about an hour and a half per week on each.

Additionally, self-managing a property means being on call 24/7 in case renters have any questions or problems from broken air conditioning to nonworking Wi-Fi.

3. Will you self-manage the rental, or hire help?

Some vacation home owners may enjoy handling the management process themselves. For others, especially if they live some distance away, hiring a property manager can be well worth the expense.

Schwab suggests owners tally up how many hours a week they spend managing their vacation home and divide the hours by a property manager’s fee. That can help homeowners determine whether a management service is worth the cost.

Even if you don’t plan to rent out the home to vacationers, hiring a property manager to keep an eye on the home when you’re not there is a good idea, especially if you live far away. This will ensure that the home stays clean and in good repair.

4. Do you want short- or long-term renters?

While renting out your place on Airbnb or VRBO might be the most lucrative option, it does have its downsides, including higher cleaning fees, more wear and tear on the home, and more frequent vacancies as renters come and go and bail during the offseason.

If you don’t want to deal with short-term vacationers, you can also try to rent to a long-term tenant. But finding longer-term renters can also be tricky, especially if the home is located in a popular seasonal travel destination, Supplee says.

“Long-term renters in these areas are far and few between,” she explains. “My area, the Pocono mountains, does not fetch high rents in the long term.”

For example, in Pocono Summit, PA, long-term rents would be in the $900 range for a three-bedroom chalet. But Supplee says the same home may rent for more than that per night during a high-season weekend.

Long-term renters also take away some of the flexibility that vacation home owners often enjoy, Schwab says. It would limit how often you could enjoy the home yourself if a tenant signs a six-month or one-year lease.

So how do you decide? If you want your rental to remain profitable, as a general rule it should earn at least 1% of its purchase price per month, Carl says. For instance, a $100,000 home should rent for $1,000 a month for a good return.

For short-term rentals, Carl suggests that your net operating income should be around 20% higher than your carrying costs (more on what those are next).

5. How much will this vacation home cost to maintain?

Vacation homes come with mortgages, taxes, and insurance, just like any other home. But, there will likely be additional costs such as maintenance, repairs, utilities, and other locality-specific charges. Turning the vacation home into a short-term rental brings even more expenses, including the following:

  • Cleaning fees could be $90 to $150 per session, according to Home Advisor.
  • Home maintenance is typically 1% to 4% of a home’s price.
  • Insurance premiums could be as much as 15% to 20% higher.
  • Property management typically costs 10% to 40% of the gross annual income.
  • Homeowners association fees vary drastically, ranging from $150 to $700 per month.

“It is important to understand that vacation rentals have a higher operating cost than traditional rentals,” Schwab says. “The normal wear and tear to vacation rentals is disproportionately higher than long-term rentals due to the high turnover of people constantly moving in and out.”

Supplee urges vacation home owners to factor additional costs into what they plan to charge to rent out the home.

6. What are the tax implications of renting out a vacation home?

The taxes associated with vacation homes can be complex, and vary based on how the property is used and how much time it is used personally versus being rented out. It’s always best to talk to a tax professional about your unique financial situation, but here’s an overview of what to expect.

In general, the amount of personal use dictates whether the home is truly classified as a rental property.

“If you have a vacation home that is rented [out] for more than 14 days during the year and your personal use does not exceed the greater of 14 days or 10% of the rental days, the home is then classified as a rental property—or, a business for tax purposes,” Supplee says.

When the home is considered rental property, rents received are reported as income. But you can deduct many of the expenses of renting out the property, including maintenance, insurance, taxes, and interest, according to the IRS. New tax rules also offer some benefits for rental property owners. Here are some of the tax benefits of owning a rental.

The post Are You Ready to Buy a Vacation Home? 6 Questions to Ask First appeared first on Real Estate News & Insights | realtor.com®.

Airbn-Bling: How Renting Out Your Property Can Help You Get a Mortgage

June 19, 2019

FG Trade/iStock

Short-term rental sites such as Airbnb have changed the game for homeowners. Renting out your entire home—or part of it—is an attractive way to make extra cash. In fact, some developers are even building homes aimed at first-time home buyers with separate bed-and-bath areas designed to be rented out—a twist on the classic in-law suite.

But how does your plan to host short-term renters play out when you’re applying for a mortgage? Rent money will increase your yearly earnings, but do lenders count future revenue as income? Can plans to maintain a short-term rental help you get a mortgage?

For the most part, no. Stephen Rybak, senior managing director at GuardHill Financial Corp., says a lender will never consider potential income from renting out part of a single-family home. And it doesn’t matter if we’re talking about a space that’s detached from the house (e.g., a garage apartment, studio, or casita)—it’s all technically part of a one-family home.

“If it’s not zoned for a two-family, you’re never going to get credit for that from a lender,” he says.

Two-family properties

You will, however, be able to include part of your potential rental income if you are buying a building zoned for two or more families. Whether it’s a townhouse, brownstone, or free-standing home with multiple units, the building needs to be a legal two-family dwelling.

Zoning laws vary by city and state, so if you’re considering this kind of building, talk to your real estate agent or lawyer to ensure that the building is a “true” or “legal” multifamily property. The type of building will also be indicated on the listing.

How a lender decides what your rental is worth

In a two-family or multifamily home, the market-rate rent for each unit is determined during the appraisal process.

“The appraiser will give you the market value,” says Rybak, “and the bank will consider 75% of that amount to help you qualify for the loan.”

So if you’re buying a two-family home and the appraiser puts the fair market rent for your unit at $1,000 a month, you’ll get $750 a month, or $9,000 a year, added to your income. That will allow you to qualify for a bigger loan than you otherwise would have been able to get—regardless of what you actually end up making on the rental.

Could short-term rentals hurt your ability to refinance?

Just because the bank won’t consider income from a short-term rental in a one-family home doesn’t mean you shouldn’t do it. Renting out your place is still a great way to help pay your mortgage.

However, keep in mind that, in rare situations, having an active short-term rental could hurt your ability to refinance. If your lender decides that you make enough money from your home to qualify as a commercial or investment property, it could deny your refinance application or charge you a higher interest rate. That means the $30,000 you make a year renting out theº cottage behind your home could disqualify you from refinancing the whole property. In this situation, a bank could consider you to be operating a business out of your home.

That kind of issue is rare, though. So if short-term rentals are legal in your city, and you don’t mind taking on the responsibilities of being a property manager, a supplemental income—potentially thousands of dollars a year—is nothing to sneeze at.

The post Airbn-Bling: How Renting Out Your Property Can Help You Get a Mortgage appeared first on Real Estate News & Insights | realtor.com®.

7 Things You’ll Want to Know Before Buying a Home With a Guesthouse

March 21, 2019

realtor.com

A guesthouse is, to many of us, the ultimate dream-home wish list item: Instead of being jammed into a tiny bedroom, visitors get a whole house. That’s good for everyone—having a separate space can actually make your in-laws’ lengthy visits enjoyable (or at least tolerable). Plus, there’s the potential cash flow from renting it out.

But guesthouses (also known as “accessory dwelling units,” or ADUs) aren’t all money and in-law magic. Purchasing a property with an ADU can be a legal and financial nightmare if you’re not prepared.

“A guesthouse can be a great investment, but it can also be a foolish one if the homeowner does not understand all the pros and cons upfront,” says Ron Humes, a contractor, real estate agent, and brokerage owner.

Before falling in love with a home—and its cute guesthouse in the backyard—make sure you understand all the potential pitfalls. Here’s what to review.

1. Understand your tenancy options

A guesthouse probably seems like a built-in cash cow: You rent it out, you get money. Simple, right? But should you rent to short- or long-term tenants? And what about Airbnb? Each of these options has different financial implications—get yourself familiar before listing your house for rent.

“While renting [out] the guesthouse on a short-term basis, like Airbnb, may yield more money, it’s smart to compare the rates to the more traditional long-term tenants,” says real estate agent Beatrice de Jong.

The vacation rental game has complicated rules. (Here are more details about renting out your space on Airbnb.) You’ll need cleaners, furniture, photographers, and more—and that money adds up.

“Long-term tenants typically want to take care of their home,” de Jong says. “Ultimately, it is a more passive income.”

So while long-term rentals have their own onerous requirements, it might be simpler than dealing with a vacation rental.

2. Ensure the guesthouse is properly permitted

What a nice guesthouse you’ve got there! It would be a shame if you had to tear it down.

Before buying, make sure the builder pulled permits; an unpermitted structure could even prevent the sale from going through. Your insurance company might consider it a risk, or the appraiser won’t use the square footage to calculate value, and suddenly you’re back house hunting.

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Watch: Clean These 5 Things Before They Gross Out Your Guests

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3. Understand your mortgage financing

Found the guesthouse of your dreams? Make sure your mortgage program permits purchasing a property with multiple residences.

“Conventional, FHA, VA, and private financing platforms often have different requirements, and may or may not allow the loan recipient to use their property for the desired purpose,” Humes says.

For instance, FHA loans will allow you to rent out your guesthouse—but you have to live in the other unit. And your lender might take potential rental income into account when determining how much you can borrow. Or, it might run its mortgage approval calculations assuming you won’t have any renters, leaving you with a higher payment.

4. Brush up on the rental market

Don’t do a quick search on Craigslist, find a similar space renting for $2,000, and assume that’s what you’ll earn each month. If you’re determined to be a landlord, make sure you fully understand the market.

Yes, you should start by looking at rental websites to see what other similar units are renting for in the area. But you’ll also want to get an idea of demand, says Oklahoma real estate agent Crys Keith. Are rentals sitting on the market for weeks or months? Or are they snapped up in seconds?

And don’t make the mistake of relying on rental income. Your guesthouse might sit empty for months on end, so ensure your savings can cushion the blow.

5. Get comfortable with communal living

When’s the last time you shared space? If you haven’t lived with a roommate since college, spend time considering your comfort zone. Will you be all right with renters lounging in the backyard when you want to stretch out in the hammock? What if they want to throw a party?

“Will you share a driveway?” Keith asks. “Will they be walking through your backyard to get to their door?”

If the thought makes your skin shiver, “there are many creative ways to build privacy to help everyone feel more comfortable,” she says.

Consider tall bushes, privacy fences, or gorgeous greenery to delineate your space from their space.

6. Examine the legal issues

OK, so the construction was properly permitted. But is the ADU allowed?

“Many counties and cities across the country are relaxing their regulations,” says Jeremy Browne, vice president of TTR Sotheby’s, located in the Washington, DC, area. But your jurisdiction might be a step behind the game. Check your county or city for restrictions.

“The last situation you want to be in is inheriting something that you can’t use, and it ends up being a problem,” Browne says.

7. Split your utilities (or don’t)

Depending on which company handles your utilities, you might be able to set up your guesthouse separately. That way, tenants can handle their own gas, electricity, internet, and trash.

If your utility company won’t subdivide bills for a single address, determine how much your bills will run to before you buy—and whether you’ll charge renters for utilities or shoulder the full financial burden.

Remember: You can’t assume the current homeowner’s usage accurately reflects your potential costs, since you don’t know if the homeowner is renting out the guesthouse or it’s sitting vacant.

The post 7 Things You’ll Want to Know Before Buying a Home With a Guesthouse appeared first on Real Estate News & Insights | realtor.com®.