All Forum Posts by: Steve Dove

I've been operating two vacation rentals in Northern Michigan for about 7 years now. I am planning to close on a third in a few weeks. It's a seasonal business, with peak months between June and August. My weekly fees are well above the monthly mortgage payments, and they book solid for these three months. The remaining 9 months of the year, I offer buy-one-get-one deals. My guests rent a week at either of my lake houses between September and May, and can return to either of the properties for another week, for only $100. This $100 covers my cleaning fees, and has increased my occupancy income by another 30%. Most people are afraid to give a little to get a return, but this has worked for me. It also places people in the houses during times that would otherwise be vacant. Most of the people that take advantage of this deal are retirees and snowmobilers. I've had the same retired couple back at least six times since implementing this deal just over two years ago. They've also referred friends.

I've also used the lake houses as a bartering tool. I've traded services with contractors that have done work on my own home, for a week at either of the houses during the off season. We enjoy the vacation rental aspect, because we can use these homes when they are vacant. They also provide great tax benefits, if you earn a high income and are subject to passive loss limitations. Income from vacation rentals that are rented out for short periods, such as a week or weekend, is not treated as passive income. The IRS treats this type of real estate as a business. The catch - You have to manage them. The IRS states that you must have "active participation". (http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG-Chapter-2-Rental-Losses)

I would personally never use a property mgmt company, as the fees are ridiculous. The overall management of a vacation rental is not that difficult, as long as you establish a strong system. My properties are four hours away, but my cleaners and maintenance people are paid well. They are my eyes and ears, and help me keep the places in pristine condition.

Be sure to factor in utilities, cleaning, landscaping, repairs, internet access, marketing, etc into your operating expenses. VRBO premium membership will put you on vrbo.com, homeaway.com and vacationrentals.com. I've also built simple, clean-looking websites for free using iWeb and they can be hosted for about $100/year. I have them linked to all of the free advertising and tourism sites that I can find as well.

I'd highly recommend doing your homework, but hope that some of this helps you in your decision.

I haven't marketed to corporations or traveling nurses. However, I felt that it was necessary to update this post with a strategy that I've implemented during the off-season. Basically, I have 9 months of what is considered a slow-season (September - May). We have the occasional snowmobilers stay, if the weather cooperates. To maximize occupancy, I've created a 2 for 1 deal that allows anyone that stays for 1 week during this time period, to return again during the same 9 months for an additional week at the rate of $100.00. This covers my cleaning fee for the second week, and has increased my annual rental income by 25-30%. I typically see retired couples that take advantage of this deal, and they've even referred their friends. I have one couple that is scheduled to return for their 4th stay in less than 2 years as a result. Some would think that giving away a free week is a bad idea, but if it creates a booking, at the full rate where it would have otherwise sat vacant, I'd happily debate them on that one.

George P.

That's exactly where I'm at. I have multiple residential properties paid off and the vacation rentals do me well at tax time, because of this advantage.

Yes, I'm referring to that IRS link. Specifically, the snippet from within, that I've pasted below. As long as you're actively participating in the management, i.e. haven't turned it over to a property management company, you're good to go.

"Vacation Rentals In a Nutshell
Many condos, vacation cottages, time-shares, hotels, motels, and bed and breakfasts have an average rental period of seven days or less. As a result, these activities are not defined as rentals[12], but instead are treated as businesses. Net losses from these activities are passive unless the taxpayer materially participates. Because many of these activities have a management company and may not be near to the taxpayer’s residence, materially participating[13] may be difficult. See checksheet at end of chapter.
Sub-Issues
Activities with an average rental period of 7 days or less are defined as businesses, not rentals. Therefore, the active participation standard and the $25,000 rental real estate allowance do not apply to these types of activities. Losses, if passive, go on Form 8582 line 3b, not 1b.
The personal use rules IRC § 280A take precedence over IRC § 469. If the taxpayer or family members spent more than 14 days at the property, losses generally are not allowed under the rules in IRC § 280A. The losses do not enter into the passive activity computation and should not be entered on Form 8582.[14]"

One other thing - What also makes a vacation rental appealing is that it is not considered as a real estate investment by the IRS. So, if you're subject to passive loss limitations, you wouldn't have to carry losses from your vacation rental property forward each year.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Passive-Activity-Loss-ATG----Chapter-2,-Rental-Losses

Steven Johnson
I operate two vacation rentals in Northern Michigan. They are no doubt, seasonal rentals, but do very well between Memorial Day and Labor Day. I've owned / managed them for about 8 years and it has been up and down. There were a few years where it was tough, and I came up with an idea to boost my occupancy. I started offering a BOGO deals during the off-season. Rent one week, get another for $100, and my guests can choose to stay at either lake house for the return week. I've seen about a 30% increase in revenue from it. Whereas, it was vacant with the occasional snowmobile group coming through. I imagine that your location would be similar.

Sorry for the late response. I was out of town for the Labor Day weekend, actually staying that lake house mentioned in this topic. There was an association meeting that I had to attend in order to get my voice heard. It was actually pretty interesting, as I took the microphone and plead my case. I'm pretty certain that my point was made, and that a special assessment will not be occurring. Associations never cease to amaze me, as some people felt that they deserved the money, some stated that the property restrictions forbid the renting of homes (not the case), and others just hated life and needed a reason to complain. I remained calm, and after I made it clear that there is no way that 5 homes on the lake (number of vacation rental properties) could be responsible for all of the deteriorating roads. I also made it known that the president of the association had residential rental properties on the lake and that the VP was running a business out of his garage. It was interesting how that pretty much silenced everyone, except for those on my side.
I never made mention of legal action, as I wanted to keep things civil. This is something that I had looked into before the meeting, and was ready to strike if need be. Either way, the turnout at the meeting was good, and the educated members of the association pretty much made it clear that the board members were in over there heads if they tried to place liens on properties. The board didn't even understand the costs associated with this, or which position their lien would be in. @ Steve - It sounds like you're right by stating that the only chance that they might have is to go after those with no existing liens.

Thanks for your feedback guys. I'll update this post if anything changes.

I currently operate lake front vacation rentals, and am facing a potential "special assessment" from the property owners association. They're attempting to assess me and several other property owners that rent their lake houses for an additional $600 per year. This is on top of the dues already collected as required by the by-laws. I've always paid dues and have even made considerable donations past, because 70% of the association does not pay their dues. Our roads need work, and common areas need upkeep, which is why I donate. The board claims that renters cost the association money, but can't provide any specific examples. When challenged, the president was more so focused on the amount of money that we charge for weekly rentals. It's as if the board is trying to go after those that appear to be wealthy, such as myself and several others that rent. Can they do this? Can this actually go to a vote with no actual grounds for the assessment? What happens if I don't pay the special assessment? Can they actually foreclose on my property? It seems as though this is last ditch effort to try to obtain money for operating the association, when the real problem is that the greater majority is not paying. I'd hate for this to turn into some sort of legal battle, but it feels a bit like extortion. If this did go to court, neither party would benefit, as legal fees would just about wipe out the bank account of the association. Looking for some advice here.

Sounds like a good deal if you can swing it. 5% down doesn't seem like a lot, as most that I've encountered require at least 10%. Either way, they're not having much luck on their own and you stepping in would definitely help the family out. I'd check comps in the area to guarantee that you can demand as much rent as you are anticipating, and also confirm that their are no liens on the property. Most lending institutions won't permit a LCD to happen if they still have a vested interest in the property. Have a lawyer look the deal over just to be safe. Good luck.

Martin,
That's an excellent idea as well. I am actually going to offer that up as an option on my websites and see if I can find any takers. What area do you offer rentals in? We really love the aspect of vacation rentals, and plan to do more.
Steve