How Renting Your Home Could Cost You Money

Renting out your home may seem like a great idea, but it costs a lot of money, time, and effort. In fact, many tax and property experts report renting out a room or your entire home could actually end up costing you a lot of money if you don't consider these five things.

You need to Pay Attention to Local Zoning, Permitting and Tax Procedures

Don't live under the presumption that you can start collecting rent by listing your house online. In fact, most cities require you to follow set rules where you have to apply for permits and have to pay occupancy tax. However, since these rules are constantly changing among communities, you should consider listing your rental on Airbnb, where there are fewer listing rules.

The problem is these things are changing often. In some cases, they might even pay occupancy taxes for you. However, as a homeowner, it's crucial that you check their regulations, so you don't end up paying large fines. For example, homeowners in Portland are subject to fines up to $5,000 if they don't have the correct permits.

Your Regular Homeowners Insurance Coverage May Not be Enough

If you don't have the right insurance coverage for renting out your property, you may have to pay more than you'd like. For example, some homeowners policies don't offer coverage if a renter steals or gets injured on your property. We suggest consulting with a property management company if you plan on renting out your property, to see what kind of coverage you should get. Without the right coverage, you could end up looking at both medical and legal bills you have to pay out-of-pocket.

You May Have to Pay Additional Income Tax on Your Proceeds

Often, money earned through rentals, such as Airbnb, are taxable. However, some people are required to pay income tax based on their proceeds. But, you only have to worry about it if you rent out a room or home more than 15 days through the year. Once you go past that 15 days, you'll need to start declaring these proceeds as taxable income. This even applies to landlords that are renting out a single room in their house. However, the good news is that any expenses you spend on your rental can be deducted from your annual taxes.

You Can Lose Out on Property Tax Exemption

Believe it or not, income taxes aren't the only kind of taxes you need to worry about when renting our your property. Most states allow property tax reductions, but that can change if you rent out your home. Once you start accruing income from your rental, your state can consider it a business, and you could start losing out on property tax exemptions. If you're worried about losing out this exemption, you should contact your local or state tax department before renting out your property. This way, you can avoid losing your property tax exemption.

You Might Need to Spend Money to Start Making Money

Although the point of renting out your property is to increase your income, you may need to spend a little money to actually start making money. Most of this money is used to attract lenders via a paid listing. However, you should make sure you have up-to-date pictures and properly update your home with new, modern amenities to attract new renters on the market. Sure, this can cost you a bit up front, but it will all pay off once you get a tenant in your rental.

The purpose of this article isn't to stray you away from renting our your property. Instead, it's to remind you that becoming a landlord comes with a cost. Whether it be getting the right legal documents in place, losing out on tax exemptions, or paying money to get your listing online, there is plenty of money you're going to need to spend or lose out on when renting out your home. However, don't forget that renting out your property comes with many privileges, which as making a lot of money on your home. So, while you're deciding whether or not to rent out your home, consider this guide, and determine how renting out your home could cost you big time.

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