Transitioning Vacation Rental to a Long-Term Lease

[CalGalTraveler]

We own a short-term vacation rental in a major mountain resort community. Would love your perspective on whether to pursue an opportunity: We received an offer from a colleague to rent our vacation home for 5 months this summer because he wants to be closer to his kids in the area and rents are cheaper than the SF Bay Area for SIP remote work.

Here are our considerations: (my apologies in advance for the long post.)

Pros:
- The rental fee is not as much as our VRBO July and August rentals however it is reliable income with an end date so no need to worry about eviction when we want to take over the home again. Usually July and August are our short-term rental money months to pay for maintenance and taxes. Insurance premiums have quadrupled because of the Camp Fire and property taxes have increased so it is expensive to maintain.
- Unclear whether SIP will ban vacation rentals this summer which could mean zero income if we don't lease.
- We are not obligated to pay TOT taxes for rentals longer than 30 days
- This doesn't fall under the ban on vacation rentals because lease is more than 30 days.
- Simple to administer. Would ask for first and last month's rent to pay bills now.
- I've had projects cancelled at work and this will cover our property taxes and maintenance fees for the year.
- One renter means limited Covid exposure risk for the home instead of multiple renters every weekend. (There is a local who now offers a professional cleaning service to disinfect a Covid exposed home.)

Cons:
- We won't be able to use the home this summer. With the cancellation of timeshares will be stuck at home = cabin fever. We considered using this if not rented (but usually results in about 3 long weekends). Although it would be nice to use the ability to offset bills is a higher priority for this inconvenience.
- If the SIP is lifted and regular tourism resumes we will earn less money than vacation rental.
- Could the county change the law and ban leases less than 6 months? What if this happens while our renter is already on a lease?
- The county has given warnings about not adding extra vacationing visitors to the area. We only have 2 full-time neighbors on the street. One of which we hire to maintain the property. Will this create negative tensions? This would only be one small family instead of streaming visitors every weekend. We are deeded owners and pay full boat county property taxes for infrastructure that we don't use and benefits locals.

Should we pursue this? We've never leased this home beyond vacation rental so would appreciate any perspectives. This seems to be a good path forward to cover our bills until the short-term rental market fully resumes. Any gotchas to consider?

Security Deposit: How much is reasonable for a long term lease especially since extra cleaning will be required for the length of time and potential Covid disinfecting?

Thanks for your perspective.

 

[Grammarhero]

We own a short-term vacation rental in Lake Tahoe. Would love your perspective on whether to pursue an opportunity: We received an offer from a colleague to rent our vacation home for 5 months this summer because he wants to be closer to his kids in the area and rents are cheaper than the SF Bay Area for SIP remote work.

Here are our considerations: (my apologies in advance for the long post.)

Pros:
- The rental fee is not as much as our VRBO July and August rentals however it is reliable income with an end date so no need to worry about eviction when we want to take over the home again. Usually July and August are our short-term rental money months to pay for maintenance and taxes. Insurance premiums have quadrupled because of the Camp Fire and property taxes have increased so it is expensive to maintain.
- Unclear whether SIP will ban vacation rentals this summer which could mean zero income if we don't lease.
- We are not obligated to pay TOT taxes for rentals longer than 30 days
- This doesn't fall under the ban on vacation rentals because lease is more than 30 days.
- Simple to administer. Would ask for first and last month's rent to pay bills now.
- I've had projects cancelled at work and this will cover our property taxes and maintenance fees for the year.
- One renter means limited Covid exposure risk for the home instead of multiple renters every weekend. (There is a local who now offers a professional cleaning service to disinfect a Covid exposed home.)

Cons:
- We won't be able to use the home this summer. With the cancellation of timeshares will be stuck at home = cabin fever. We considered using this if not rented (but usually results in about 3 long weekends). Although it would be nice to use the ability to offset bills seems to be a higher priority for this inconvenience.
- If the SIP is lifted and regular tourism resumes we will earn less money than vacation rental.
- Could the county change the law and ban leases less than 6 months? What if this happens while our renter is already on a lease?
- The county has given warnings about not adding extra visitors to the area. We only have 2 full-time neighbors on the street. One of which we hire to maintain the property. Will this create negative tensions? This would only be one small family instead of streaming visitors every weekend. We are deeded owners and pay county property taxes for infrastructure that we don't use and benefits locals.

Should we pursue this? We've never leased this home beyond vacation rental so would appreciate any perspectives. This seems to be a good path forward to cover our bills until the short-term rental market fully resumes. Any gotchas to consider?

Should I ask for a security deposit in case there is damage or the home becomes Covid infected and we need to professionally disinfect and to clean carpets/walls after the rental is complete? If so, how much is reasonable? Thanks for your perspective.

when would the lease start? May? June? That changes the analysis, as the SIP would confine to at least mid-June.

1) benefits of steady income seem great. Lots of tuggers dealing with nightmares of covid cancellations.
2) SIP would be lifted come mid-June at the earliest. China locked down for 77 days. I see California/Nevada locking down for at least three months starting mid-March.
3) to limit covid19 exposure, might be great to rent to only one family instead streaming visitor. You neighbors and the county should be happy, instead of worried, about one family instead of streaming visitors.
4) you can always rent a TS week if you want to avoid cabin fever.
5) I can’t see the county banning leases less than six months. Even if the county did, most new laws on leases are not retroactive but apply moving forward.
6) I think a $500 security deposit is high-ish reasonable. Kids do stupid stuff like holes or writing on the wall.

 

[CalGalTraveler]

Thanks @Grammarhero This may be a good way to make ends meet until the market recovers. Love your idea of renting if we get cabin fever (after SIP of course).

To answer your question: Renter wants to start May 1. He is moving to California for a job and needs a place to live within a few hours drive to the Bay Area for periodic meetings until his wife joins him in a few months. He needs to find a place to live temporarily no matter what.

However this also makes me wonder - what happens if he get's laid off and cannot pay rent. Aren't there some rent embargoes in California? A very different business model than vacation rentals in which you are paid up-front.

 

[am1]

Rent it. If they ban 6 months leases. Lease it for a year and then they break it. Is it possible they would want to stay longer?

 

[vacationtime1]

I would do the five month rental.

The income is secure. It won't depend on whether or not there is a short term rental ban nor will it depend on people's willingness to travel this summer.

And renting to one person should ingratiate you to your neighbors -- you will be sending fewer people to infect them.

 

[Chrispee]

I would absolutely do the 5-month rental at this point. Even when the SIP is lifted people will be reluctant to do short-term rentals I think. I don't believe that responsible people will be traveling this summer and putting smaller communities at risk.

 

[CalGalTraveler]

Rent it. If they ban 6 months leases. Lease it for a year and then they break it. Is it possible they would want to stay longer?

Interesting idea about breaking a year lease if needed. How would that work from a landlord's perspective?

Are there typically any permitting requirements for longer term leases? We've already gone through a draconian permitting process for our short-term rental license and we plan to keep the short-term rental license until the market resumes since we had rentals earlier this year and don't want to pay for inspections again.

 

[Grammarhero]

Thanks @Grammarhero This may be a good way to make ends meet until the market recovers. Love your idea of renting if we get cabin fever (after SIP of course).

To answer your question: Renter wants to start May 1. He is moving to California for a job and needs a place to live within a few hours drive to the Bay Area for periodic meetings until his wife joins him in a few months. He needs to find a place to live temporarily no matter what.

However this also makes me wonder - what happens if he get's laid off and cannot pay rent. Aren't there some rent embargoes in California? A very different business model than vacation rentals in which you are paid up-front.

As of right now, the CA governor's rent embargoes are aspirational, which some cities have adopted. I don't believe Lake Tahoe has adopted. https://www.gov.ca.gov/2020/03/16/g...ters-and-homeowners-during-covid-19-pandemic/

 

[bnoble]

I would take the long-term lease. There are two reasons.

First, it's not clear what things will look like at the end of April, let alone what July looks like, and there are a lot of variables that are hard to estimate. How much has to break right for the short-term rentals to outperform? At the very least, an earlyish end date to SIP, a willingness on the part of people to travel, and enough discretionary income to do so.

Second, this significantly minimizes your work. I don't know about you, but here in Week Four of work from home I am still finding it hard to be as focused as I normally am. I am aggressively moving to shed effort wherever I can.

 

[Grammarhero]

Interesting idea about breaking a year lease. How would that work from a landlord's perspective?

He was talking more about a loophole to the ban on leases less than six months. Write a lease for six months with the expectation from both sides that tenant will break the lease at the end of five months.

 

[vacationtime1]

He was talking more about a loophole to the ban on leases less than six months. Write a lease for six months with the expectation from both sides that tenant will break the lease at the end of five months.

I wouldn't sign that as a renter; it would make me responsible for the extra month of rent. But a six month lease at a lower rent starting a month before the tenant intends to take possession will get to the same place.

 

[Grammarhero]

I wouldn't sign that as a renter; it would make me responsible for the extra month of rent. But a six month lease at a lower rent starting a month before the tenant intends to take possession will get to the same place.

Understand. That's actually smarter. Again, we were talking about loopholes to counties banning a lease of fewer than six months.

 

[CalGalTraveler]

One more question. I see longer term rentals in the area requiring tenants to pay for utilities, gas, water and trash on top of the rental. We cover those costs as a vacation rental.

Would I need to put the utilities in their name? or could I simply present the bills and then ask them to reimburse every month?

 

[TravelTime]

I think the long term lease makes the most sense based on what we know today. It sounds like it minimizes your risk of possibly having no vacation rentals this summer. I would compare what you are getting for sure with a 5 month rental vs the uncertainty of not making any short term vacation income this summer even if the SIP is lifted. I would not compare it to what you would have made if Covid did not exist. I'd be grateful right now for any income I could make.

For the utilities, you could have him switch to his name since 5 months is long enough. Otherwise, I would charge him a utility fee and build it into the lease. Just figure out the average monthly rate for Summer utilities and charge him extra for that. Asking him to reimburse you after gets kind of tricky but it is another possibility. I would probably go with a fixed utility fee. The only risk is he could use more electricity/gas than you charge him for but you can look at utility bills from last year to get an idea of what it runs in the summer.