I have never heard so much noise about an impending stock market crash.
First you have people with recency bias. The “lost decade” of the 2000’s had not one but two nasty corrections. One was about 56% from peak to bottom and the other was 49%. But corrections of 50% or more are rare. Since 1926 there have only been three! Yet I guess it’s young investors who think that 2008 is the norm, and stocks are supposed to keep going sideways forever.
And then we have the sharks who keep feeding people’s fears in order to sell whatever they have to sell… books, gold, non-traded REIT’s, annuities, market timing services, etc. And in late August 2015 it all came to a tee. This was it! This was the great crash everyone was waiting for!
Lost in all of the panic is the fact that stocks don’t crash until bullishness reaches a frenzy. When EVERYBODY is talking about the stock market crashing and the Fed raising interest rates, that’s when you know that it’s not gonna happen.
As of today stocks have already recovered 8% of that 12% loss. Everyone is scratching their heads, but did anyone tell them that stocks crash 10% or more about once every 11 months? This is business as usual.
And did anyone tell them that historically, after 10% declines in the stock market, only 1 out of 4 times has it dropped 20% or more. We’re still not out of the woods but it looks like the house is gonna win again this time. The bull ride is continuing…
Before you take the leap here’s a few things to consider.
- How much demand is there in your area? You can figure this out by surveying other properties on VRBO. How many reviews do your competitors have? One or two? Or do they have 10, 20 or 50 or more?
- What are your start up costs? Do you just have to buy 2 sets of white sheets for each bed and 2 sets of white towels for the maximum allowable number of guests, or do you have to buy a ton of other things like beds, furniture, kitchen items, etc?
- If you’re still interested then it’s time to really determine what is the going rate for your home. You will need to identify the exact address of your competitors. To do this you will likely need to use Google maps, then check the value of these homes on Zillow.com. Some homes will be over priced, some under priced, but most will be just about right. You will probably want to go with the median price for your home. If you’re more desperate for income then charge less, or if you’re less thrilled with the idea of renting your home then charge more. It’s up to you.
- Once you get your house all ready to rent (that’s a whole ordeal for another blog post) then it’s time to think about determining your rental policies and getting a legal contract together. Policies include things like deciding how far in advance payments must be made and in what form (credit card payment via HomeAway, PayPal, personal check, etc) what your refund policy is, etc. Again you will probably want to see what others in the area are doing. Having an air tight legal contract is critical. That means you will have to shell out money for a lawyer to draft up one, which should be an inside-the-box job. Avoid lawyers who want to draft one from scratch or before you know it you’ll be billed for $1,000 or more.
- Another must is to change your homeowner’s insurance policy so that it covers your house while being rented. This will no doubt raise your rates. You may even lose the discount that you get while bundling your house and car insurance. Yet another thing to consider before taking the leap to renting your home on VRBO.
- Another consideration is income taxes. Uncle Sam is not friendly when it comes to start up costs to rent your home. Expenses can only be deducted on a prorated bases. For example if you rent for 1 month out of the year you can only deduct 1/12th of your expenses against your income.
For details on renting your home in Pacific Palisades read this article