Liability exposure is something that needs to be taken seriously when you are in the business of renting your property to others. In many ways this is an extension of the Property Condition concerns that were discussed in a previous article. Once you have taken care of all the aspects of the property that could pose a possible chance of injury to your guests you need to protect your business and yourself. Even with the utmost care to detail and a very well written liability waiver the exposure still exists.
Lets talk about waivers first. They are a great idea and accomplish a number of things that you may not first consider. A waiver attempts to set out a boundary of responsibility between you and your guests. It also makes your guests aware that there are some risks involved and brings those acitivities and details to their attention which may in itself prevent damage or injury. There is nothing like signing a waiver to make you think about what you are about to do. When incorporated with a rental agreement it also imparts a duty of responsibility that hopefully your guests accept and use to guide them while staying on your property. At the end of the day there is no such thing as a iron clad waiver that is going to protect you from all liability or the legal costs associated with defending yourself.
Your property insurance will cover you for the liability associated with friends and family both visiting either with or without you but the moment you enter the cottage rental business the rules change. Many insurance companies offer an endorsement to accomodate individuals who either frequently or infrequently rent their cottage to others. Other insurance carriers will set up a new policy for you based on your cottage rental business. In either case the liability protection will be incorporated with your property protection.
There are few ways to consider how your liability insurance benefits both you and your guests. The primary benefit of course is that you will now have financial protection should you be liable for damage or injury. You will also have protection regarding the legal costs associated with defending yourself which is also part of the liability coverage. There is also the added value in knowing that your guests should they suffer damage or injury that they have a path of recovery. You can be confident that you are truly looking after the well fare of your guests.
Making sure your property is ready to rent matters, and can make the difference between a happy repeat customer and a frustrated unhappy one. The condition of your property can be very easily overlooked in favour of decorating and esthetics, which are of course very important but can’t take a front seat to necessary repairs and functionality. Paying guests have much higher standards than family and friends, and in a lot of ways the requirements for the condition of your property is what defines a managed property.
This can be tricky as it will often require some investment on your part –the amount of which will depend on your expertise and ability to perform the repairs or upgrades yourself. Start by making a tour of the property and listing items that aren’t working properly or need replacement. Keep an objective eye remembering that your guests will be seeing your property for the first time and may have little or no experience with cottage life.
There is absolutely nothing wrong with a rustic cabin, and in cases like these upgrades may not be whats needed. Property condition is more about the state of repair than the need to make expensive upgrades. Here is an extreme example. If your property doesn’t have running water there is no need to go through the major expensive of installing it, but rather you need to ensure that the water source is clearly identified, accessible and functional. You can go the additional step of providing bottled water for drinking. The same holds true if you have an out house rather than indoor facilities. You don’t need to build a washroom but you can make the old fashioned experience more palatable by clearly marking the path and by adding solar powered ground lights for evening visitors.
Lastly never discount the need for instructions. Small laminated notes near heating and cooling controls can make a big difference. This is especially important if you have any aspects of your property that may be unique to a cottage property such as water pumps, propane stoves or fire places. A note next to the kindling to ensure the flu is open can save you a lot of smoke being pumped into your cottage!
Your guests have come to your property to relax and enjoy themselves, and the better you can facilitate that by reducing frustration, the more likely they will be to come back and refer you to others.
Being mentally prepared to rent your cottage can mean a lot of different things depending on your situation. Is yours a family cottage full of history and memories, or is it strictly a management property? The important thing is that you are mentally prepared to move ahead with renting your cottage, to who will for the most part, be strangers.
Often the biggest stumbling block when moving into the world of property rental is realizing that renters won’t treat your property and contents with the same respect and care that you would. Granted you will very likely have a process in place to screen and select guests to minimize the potential for problems, but at the of the day there will always be different level of care between an owner and a renter.
Your personal connection to the property will make all the difference in how you approach dealing with being prepared to rent your property. It is a good idea to remove any particularly personal or special items from your property prior to guests arriving. You can’t expect someone who doesn’t know you or your family to realize the difference between your favourite quilt and one that they could use for a beach picnic. Make sure nothing is left behind that can’t be broken or lost, and you will save yourself a lot of frustration.
Think about whether you need to include any special rules for your guests. Allowing or not allowing smoking or pets is an obvious issue, but what about limiting the number of guests allowed. We will talk more about rules for your guests in future posts but it can form an important part of creating a situation for your property that you can live with.
Don’t be surprised if a certain level of discomfort and anxiety arises despite your best efforts to mentally prepare yourself. You may even decide that ultimately the stress does not justify the additional income. More likely however, as you continue with your property management business you will adapt and adjust your outlook to find an approach that works perfectly for you and your situation.
Whether for additional income or as the start of a fledgling business allowing others to use your property is a big step. It may sound simple but when you decide you want to rent your cottage there are a number of considerations to keep in mind. To help you decide if you are ready to enter the cottage rental business I have put together a list of some of the more common considerations. This is by no means a complete list, but it will at least give you a start to the process of preparing to rent your cottage. In future articles I will expand on each of these areas to give you more detailed information.
1. Mentally Prepared
Being mentally prepared can’t be discounted when considering renting out your cottage. This may be more clear when dealing with a family cottage with history and numerous personal memories attached to various aspects of the building and even the furniture. It may surprise you though to find that you may have some concerns about virtual strangers using even a newly acquired cottage and furniture. These are your things after all, and you can never be sure that others will treat them with the same respect that you would. For some it is even a matter of allowing others to invade a corner of your life even if it may be small. Consider this aspect carefully as you don’t want to be surprised by unexpected discomfort and anxiety.
2. Property Condition
This is an often over looked consideration. There may be a number of less than perfect or functional aspects of your cottage. You and your family may have grown accustom to them but a paying customer may be very upset and disappointed. You will need to inspect your cottage with the objective eye. Look for not only areas of repair but also functionality for someone who may not be used to cottage life. Using a pair of pliars to turn on a faucet or dumping a bucket of water in the back of a toilet tank to make it flush really won’t do for a paying tenant.
3. Liability Exposure
The moment you begin renting your cottage you have gone into business –like it or not. You aren’t simply having friends or family over to use your cottage. On some level you are responsible for the safety of your paying guests. A lot of people may think that a well crafted waiver will protect them from any and all exposure. While a liability waiver may be a good idea, you will need to consult with your insurance provider to ensure that you have the liability coverage necessary to protect you from a potential lawsuit.
How much to charge has a number of separate components that need to be considered. Not only do you need to determine that you are charging a fair price but also whether the amount you are charging is sufficient to earn a profit and cover your costs. Will your pricing change dependent on the time of year? This is also a time to think about what kind of cottage rental you are providing. Simple more rustic locations tend to be lower priced but you also need to off set this by unique locations and superior features like sand beaches and privacy. All of these separate components should come together to determine a suitable price for your cottage.
5. Payment Process
Now that you know how much you are going to charge you need to determine how your tenants will pay you. Your payment process will also be affected by other considerations like the type of business structure you choose, and your tenant change-over process. Your options can run from being paid in person in cash, or by personal cheque made out to you when you meet your tenants when they arrive, to online credit card payment systems payable to your corporate name. Keep in mind that this process can evolve over time, and it may make sense to keep things simple and grow them as the business grows.
Its always nice to think that common sense will prevail and that people know right from wrong. The reality is that everyone may have their own definition and you need to clearly spell out your intentions with a set of rules. Your rules need to include some basics like allowing pets or smoking but also some more complex issues such as the number of people staying at, or even visiting your cottage. Remember you may have neighbours who would not appreciate their peace and quite being invaded by a large noisy group. Also the number of occupants and visitors can cause excess wear and tear on your cottage.
7. Marketing Plan
You may be fortunate enough to be able to rely on friends, family and neighbours spreading the word about your cottage availability, but the reality is that you will likely need to find a way to market your cottage. There are some great free approaches, such as putting up flyers at the local general store or restaurant, but you will likely also need to pay for a listing either online or in a publication. Regardless of the methods you choose make sure you are marketing the best features and think carefully about the wording of your ad and the images you use. Remember you are describing something that your future guests will have to take a leap of faith in hoping it will meet their needs and make for a great vacation.
8. Budget and Forecast
Having decided what your pricing will be and what your marketing cost will be it is very important to now consider all of your relevant costs and offset these against how much revenue you plan to generate. How many weeks a year will your cottage be available for rent? Will there be additional costs with each weekly rental such as cleaning or booking agent commissions? What will your occupancy rate be? By looking at this information in a objective way you should be able to develop a realistic projection of your potential profit.
9. Tenant Process
The tenant process can be as simple as you welcoming each guest personally and doing your own cleaning when they have departed. With all of us living busy lives it may simply not always be feasible for you to take such a hands on approach. What is most important is that the process you choose is consistent and makes renting your cottage simple and hassel free for your guests. In most areas the local general store, gas station or restaurant can be recruited (usually for a small fee) to allow your guests to pick up and drop off the cottage keys. Similarly there is likely someone in the area who would be willing to earn some extra money cleaning your cottage between guests. This makes it possible to ensure that if you have back to back guests, the cottage will be fully cleaned. Depending on where you live it may not be feasible for you to drive up to your cottage every week to complete the cleaning.
10. Business Structure
The growth of your business can and should be a work-in-progress, and it is advisable not to jump the gun and find yourself owner of an incorporated business with only one week of rental income a year. You do however, need to think about to structure your business as it pertains to how you will be paid for your rental. Will cheques be made out to you directly, or will you establish a business name. How will you report the income? There are advantages and disadvantages to all business structures and some research in this area is a must –before you accept your first rental payment.
The order of these considerations will vary for each of your depending on your own circumstance experience and expectations. I hope this is a good place to start and will help make your cottage rental a success.
Spring fever has hit me hard! And like most of you, I’m dreaming of a cottage getaway. The smell of pine needles, a quiet sunset on a dock and the contentment that comes with a cottage by the lake.
Cottage-buying check list
- Add up all the costs of ownership
- Try to estimate how much costs will increase
- Put money aside for the unexpected
- Include the cost of mortgage insurance
- Ask whether it’s a financial or lifestyle choice
If you are seriously considering buying a place by the lake you will have to take a hard look at what it will really cost to have a place like that of your own.
Cottages themselves come with a pretty high price tag, and that’s just the beginning. There’s taxes, maintenance, fees to dock and store your boat at a marina, maybe winter ploughing of your road, internet and TV — and the list goes on so you have to do your homework before jumping in. Do you actually have financial room right now to add the type of expenses that come with a cottage?
Many people buy a smaller cottage and renovate it into what they want, in order to save on the initial price tag. But that can be an expensive project for a place that you only spend summer weekends at. General maintenance is top of the list of cottage costs. There’s always something that needs attention.
A cottage is a luxury.
One owner estimates that someone spending 50 days a year at their cottage, costs them $250 per night fo the privilege. You can’t always justify it economically, because it gives a new dimension to your life. Many feel that it’s the greatest purchase you can make from a spiritual perspective.
That may be true, but even a dose of spirituality has its price — and buyers need to beware. Preparation is everything and the owner shouldn’t be surprised by the carrying costs. You should try to get a feel for the projected increases using historical rates of growth, to make sure you can afford to carry the costs going forward. The same goes for municipal tax increases, utilities and insurance.
The cottage seems to have more unpredictable costs associated with it than a primary home as well, such as damage from a heavy winter snowfall or repairs to the road leading into your property. Also, depending on how much of a down payment you have, you may be faced with mortgage insurance. Mortgage insurance on your primary home will not cover a second one as it is specific to each property. Canada Mortgage and Housing Corporation (CMHC) no longer offers second property mortgage insurance, but others insurers do.
So where does that leave you? Should you invest in a cottage? It depends what you are looking for. If the decision is based on lifestyle you might be willing to make some bigger trade-offs than if your goal is to use the cottage as an investment. As an investment, a cottage is probably not a wise one, but the non-financial considerations are what you need to think about after you’ve quantified everything else. So if you’ve established you can afford it then you have to ask yourself if it is really worth it to you.
For some owning a cottage is just not worth it, and they will rent for the cottage experience instead. But others find value in the family time and tranquility the cottage allows.