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Can I Rent Out My Guest House? What You Need to Know

Renting out your guest house might seem like a great source of income, especially if it’s unused for most of the year. But what you don’t know can land you in legal and financial trouble. Here’s what you need to consider before renting out your guest house.
Renting out your guest house might seem like a great source of income, especially if it’s unused for most of the year. But what you don’t know can land you in legal and financial trouble. Here’s what you need to consider before renting out your guest house.

Having a guest house is convenient when you have friends or family staying over. But for most of the year, it sits unoccupied.

If you’ve ever looked at your empty guest house and wondered what kind of income you could earn if it was a rental property, you’re not alone. But renting out a guest house is a lot more complicated than you might think. In some cases, it’s illegal.

The best thing to do when considering renting out your guest house is to consult with an experienced, local real estate agent.

In the meantime, here’s what you need to know if you want to rent out your space.

It Might Not Be Legal

Renting out your guest house could be illegal in many cases. Even if you live in a state or county where renting out your guest house is allowed, your HOA may have rules against it.

Even if your HOA allows you to rent your guest house, they likely have a long list of qualifications you’ll have to meet in order to put your space on the market. These regulations can include everything from the size of your lot, how many parking spaces you have, how far the guest house is from the main house, how the guest house is constructed, and other similar factors.

Before you list your guest house for rent, make sure you check with your HOA as well as with city, state, and local ordinances.

It Can Cost More Than It’s Worth

A guest house that’s sufficient for the occasional friend or family member might not be up to par if you’re putting it on the rental market. As soon as you have strangers paying to occupy the space, you’re subjecting yourself to a completely different set of standards as far as what constitutes a livable space.

Because of this, people who go to rent out their guest houses often find that a substantial amount of work needs to be done before they can put up the listing. If all you have to do is put on a fresh coat of paint and upgrade some of the fixtures, that’s not a problem. But if you’re required to make energy-efficient upgrades, improve plumbing and electricity, and fix the roof, you could be looking at tens of thousands of dollars overall.

Before you put your guest house on the market, be sure to run the numbers and make sure you’re not going to lose money in the long run.

Airbnb Changes Everything

The news isn’t all bad for guest house owners who want to rent out their space. That’s because Airbnb and other similar services have changed the game when it comes to short-term rentals.

Sites like Airbnb aren’t held to the same standards as a proper rental because your property is seen as a hotel. This means while you still have to keep your guests’ best interests at heart and be transparent, you can often get around the illegality of traditionally renting out your space.

Again, be sure to consult with your HOA and real estate agent before listing your space, but it’s a great option for those who want to make some side income without having to jump through the legal hoops of the traditional rental market.

Don’t Overlook Insurance

Any time you’re offering a space you own to strangers, you run the risk that they’ll damage your property, steal from you, or otherwise cause you strife. While this isn’t common, it is something you have to consider and prepare for.

Properly insuring your rental space, whether it’s an Airbnb or a traditional rental, is imperative. Beyond the required homeowners insurance, you’ll want to make sure you consult with an insurance agent who’s familiar with the rental setup you’ve opted for and can make sure you’re fully covered.

Work with a Local Real Estate Agent

Finally, it’s critical to work with a local, experienced real estate agent who’s worked with rental situations like yours. Their knowledge and expertise can help you avoid costly mistakes and ensure your rental experience is the best it can be.

Clever Partner Agents are full-service agents who work for a low commission and a flat fee. They’ll help guide you through your transaction, whether you’re buying a home, selling a property, or investing in a rental property.

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Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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