The 10, 11, or 12 month rental method.
My landlord experience is limited to one Myrtle Beach property that we purchased in May of 2013. It is by no means a fabulous expensive house with ocean views. It is a 3 bedroom townhouse, less than half a mile from the sand, that we bought for about 75k$. As teachers, we are unemployed through the summer, and were thrilled to be able to afford a place, to spend our summers at the beach. The payments were within our means, and we treated the townhouse as a vacation home, but it was often empty, and was a wasted opportunity. I tested the waters by trying to rent it for weeks and long weekends to friends and family, but had limited success. I think the problem was that the townhouse is really more of a residence than a vacation house.
At the end of the following summer in 2014, we decided to rent longer term and look for someone interested in a 10 month lease, on a furnished townhouse. Myrtle Beach is a summer destination, but it still has plenty of year round residents and a nearby university. Our first tenant was a lucky find, and the perfect dream tenant. She had a one school year gig as a professor at Coastal Carolina University. We signed an Aug 1 through May 31, 10 month lease.
People hand out all kinds of advice, and one tidbit I kept hearing is that in order to treat a property as a rental on your taxes, you can only use the property 14 days. After some research, I discovered that this statement is incomplete. You get 14 days or 10% of the rented days. If we rent for 10 months, that is 300 days, and we get 10%, which is 30 days of personal use in the townhouse. Not 14. I am not a tax expert, so verify for yourself. The link is to the IRS web site and the pic shows the relevant rule.
There are some sketchy ways to approach this issue of personal use days. The idea of “maintenance days,” was not my idea, but I’ll let you use your own deduction, or search google. My sketch idea deals with accountability and enforcement. The only people I have noticed peaking in my beach house windows were either perverts or thieves. None of the peepers I have caught, looked like undercover IRS agents hell-bent on busting teachers, relaxing in their beach house too many days. However, my judgment on the difference between perverts, thieves, and IRS agents has never been accurately measured. I wanted to incorporate a sketch of the pervert, thief, and undercover IRS agent into my featured picture, but google image search wasn’t any help.
Anyway, as teachers a 10 month lease is ideal for our schedule. The townhouse is rented Aug 1 to May 31. It is available 60 days in the summer and we can use it 30 of those days. So, what about the 11 and 12 month option? With a little bit of rotation on the rental dates, 11 and 12 month leases can be substituted into the schedule.
For example, our townhouse lease ends May 31. If instead of a 2 month lapse, we rent the townhouse on July 1, which still allows us the entire month of June 2017 to enjoy the beach. We even have the option of entering a 12 month lease. That lease would end June 30, 2018, and we could enjoy July 2018 in the townhouse. The next lease could be 10 or 11 months and would decide our 2019 summer plans. The timeline below shows a possible utilization of this method. Blue months are personal use time.
Sometimes you get the perfect tenant that is quiet, handy, clean, and pays early. A major drawback to this plan is that you will lose that tenant next summer. There is always an option for an agreement to extend the lease for a year and skip a summer.
In my case, switching in some 11 or 12 month rentals can increase my income by a couple thousand per year. Another advantage is that a month each summer gives us time and opportunity for maintenance and upgrades. Summer of 2016, we installed an outside shower. However, the extra time for improvement projects could also be a downside, if you go overboard on spending. If you are interested in reading more about how a couple of teachers, ended up with a beach property, check out this post.
I am a decent physics teacher, below average blogger, and definitely not a tax/real estate expert. The information is accurate to the best of my knowledge, but I have been wrong a few times in the past. I haven’t considered nor mentioned insurance and mortgage implications, in the scenario. If considering this technique, do your own research and/or consult professionals first.