I am familiar with the requirement if I use the VA home loan that I have to occupy at least 25% of the property. However, is anyone familiar with if I wanted to convert a basement into a living area and rent it out how this can be accomplished as a "business" versus me just trying to make side money? I am looking to purchase a house or townhouse in the Denver area (probably Lakewood or Arvada region). There is a good demand in the area for rentals and I have been doing as much research as possible to find reasonable rental price. Obviously, the perk of using the VA home loan is the initial 0% down but I wanted to get some advice on how to accomplish turning it into a legit business and not get hammered when it comes to taxes or legalities. Any advice would be appreciated!
Hey @Account Closed . I love the idea. Great way to get a living space and have someone else pay for it. Not sure what you mean by renting it as a business versus side money. You should be able to rent it long-term with a standard lease agreement. If you're open to a little more work but a potentially much higher return, you should consider furnishing it up nicely and renting it short-term on Airbnb. I've been looking for a house with a basement or attic to do just that. I'm happy to talk more about that. (It's my favorite topic, and my wife could use a break from hearing about it.)
Airbnb was my first thought but opens the door for more seasonal renters and unpredictability. Personally, I like the mid to long-term rentals more because you can plan much more accordingly, and possibly do the Airbnb between tenants. I already have the furniture and beds to have it furnished. The only side thing I have been debating is to whether or not make it blocked off from main level (i.e. put small kitchen in the basement) since I will be living with my girlfriend and she doesn't feel 100% safe with someone else having access to main living quarters.
@Account Closed If you've got the space for it, I'd build the kitchen down there. It would make your girlfriend feel more safe and the place would be more attractive to renters. (I assume the way you're talking that there's a separate entrance for such a space?) Doing a mix of medium-term and short-term rental periods is smart. My wife and I have traveling nurses in our Capitol Hill studio, and we're getting about 50% more than we could if we rented it long-term. (We also Airbnb it for a few days to fill gaps between nurses.
You might consider trying to get a 3-6 month renter for the winter and then Airbnb-ing it from Spring through Fall. Those months are HUGE in Denver for Airbnb. Where's your place located?
The VA loan has some rules on what is allowed prior to purchase, not sure iwhat they are after. I have a phone number. When I get home I'll post it here. But VA loan does state a house cannot be more than 4 units. It may contain a common area, however the VA loan won't allow the house to have an area where if you have to pass through a unit's living area to access another unit. As long as you consider the basement a room of your unit you can rent it out.
christopher wedde. I am aware of the 4 units ( I just chose to say 25%) and think that James is probably right where short to mid-term rentals are an attractive choice during off season with Airbnb being an option for peak seasons with higher income percentage. Thanks for the advice!
@Account Closed , be sure to update us when you get things up and running. I'd love to know how it goes. Good luck!
Go to veteransunited about VA loans. Can't post the phone number here.
I think most people see high seasonality in Airbnb when they really shouldn't. I'm in Chicago and usually there is seasonality to the rental market (Oct-May prices drop). We've found that we can keep occupancy high by using pricing services like Beyond Pricing. Check them out, I'm not affiliated in any way, but after using them our seasonal fluctuations diminished.
Hey @Stu Waters . Can you tell us a little more about your experience with Beyond Pricing? When I was running a few different Airbnb rentals, I dabbled with that platform's smart pricing tool. I found that it recommended prices well below what I was actually able to get. Instead, I just watched the demand for my places and tweaked my prices accordingly. But I would have been interested in an automated pricing tool if it worked well.
The flaw in those systems, as I see it, is that they must largely rely on the prices of similar units around them. But there can be wild fluctuations from between places that are similar on paper. Maybe they've grown in sophistication since I last looked at it.
@James Carlson Of course! I found that I had to adjust the base price for a couple months in the beginning to find my sweet spot, and then every 3-6 months I make a small adjustment. If your comfortable adjusting often, and you only are managing a few units, doing itmanually will save you a lot.
Airbnb's smart system is designed for Airbnb to make money, not you. Don't use it.
I still tweak my pricing for big events and if I see that I'm booking too much (I don't go for 100% because that means I didn't charge enough) I'll manually increase, but most of the time I just let it run and collect a higher revenue.
@Account Closed so I think you may be a bit confused about a rental and a business. Perhaps you listened to someone selling a product about LLCs and they said you needed to hire them so you could write off a bunch of expenses by forming a "business" for your rental. While that whole game is possible it's not really practical for one unit. You can use the search feature and read the 1,000s of posts on the topic. More people get hung up in the paralysis of the complexity making it a formal "business" when buying the property, fixing it and renting it is a much better plan. That is hard enough to pull off without trying to jump through all the hoops for form LLCs etc. Better to do it all in your name than not do it at all. Not doing it has a much greater costs than any savings or security offered by some "business" setup. Certainly operate the rental with a business mindset. Get permits, use leases and follow the formalities required to do it right. You then have a business, it's just in your name. That's just my 2 cents.
Thanks, @Stu Waters . Good information to have for the future.
Hi @Account Closed whose name reminds me of Zywiec,
At the closing table, you are going to promise to move in and occupy as your primary residence within six months.
At no point are you going to be required to promise NOT to rent out some parts of your primary residence.
No sneakiness is required here. Move into the tiny attic studio with a hot plate, occupy it as your primary residence, and rent out the 4 entire bedrooms plus kitchen. This is completely OK.
Don't overthink things or get stuck in a paralysis by analysis feedback loop.
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