The “sharing economy.” It’s one of many ways that the internet and our new digital society has upended the way we do business. For the uninitiated, the sharing economy is based off of the idea that you can earn supplemental income by simply “sharing,” or renting, assets that you already own.
An example is Uber, with which you use your own car to give people rides and earn income as you do so. Another is Airbnb and other property rental sites, which allow you to rent your home, vacation property or even a spare bedroom to another person. There are even sites that allow you to rent tools, yard equipment and other types of property.
In all of these cases, you are sharing your property with others who need it for a short period of time. The obvious benefit is that you earn income from assets that otherwise wouldn’t be generating any cash flow. That spare bedroom would normally sit empty. If you rent it, it becomes a cash-generating asset.
According to a recent PricewaterhouseCoopers study, the sharing economy generated a total of $15 billion in 2014. By 2025, the firm estimates, the sharing economy could generate as much as $335 billion.1
The sharing economy isn’t just for digitally savvy millennials. According to the same study, 7 percent of Americans are service providers in the sharing economy. However, among those 55 and older, 25 percent provide sharing-economy services.1 There could be a variety of reasons for the popularity among seniors. One of the largest is likely that it’s a way to generate supplemental retirement income.
At first glance, renting a vacation property, a spare bedroom or even your home while you’re on vacation may seem like a no-brainer. As mentioned, you receive supplemental income for an asset that would otherwise go unused.
However, there are a few important points to consider before you jump into the sharing economy. Below are three considerations to review. Make sure you understand that renting is about more than just income. If it’s truly income that you’re seeking, you may find there are alternative strategies that may be more appropriate for your needs.
One of the biggest considerations is liability. Remember, you will have someone who is basically a stranger living in your property. Review your rental agreement carefully so you know who is responsible for what actions.
For example, what is your protection against damage that the tenant causes? Is there a deposit that you can keep? Can you pursue the tenant in court? Will your insurance policy cover any damage, or do you need additional insurance?
Also, what happens if your tenant commits a crime on your property? Can you be held liable? This may seem like an unlikely risk, but it’s a headache you likely want to avoid.
When you’re living in your property, you have the luxury of deciding when and how you make repairs and administer maintenance. When you’re a landlord or a sharing-economy provider, though, you may not have that choice. Generally, when someone rents your property, they rightfully expect that you will maintain the property and resolve issues quickly.
Think about whether you want to have that burden in retirement. Do you want to deal with cleaning property for guests? Do you want to have a tenant calling you at all hours with potential issues? If not, are you willing to pay a management company to handle this aspect?
On the surface, the income may seem too attractive to pass up. However, consider that you’ll have costs that diminish that income. For instance, most rental sites, like Airbnb and VRBO, charge fees to use their service. You’ll also have cleaning, maintenance and management costs. You may face taxes on the income and possibly premiums for additional insurance. After all these costs, the income may not be worth the inconvenience.
If you’re looking for ways to generate supplemental income, sharing your property could be an appropriate strategy. However, take your time and look at all the options. At Carstens Financial Group, we can help you analyze your needs and options and develop the appropriate strategy. Contact us today, and let’s start the conversation.
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