Money Mondays: The Sharing Economy

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  • Is there any way to take a frugal vacation this summer?

    Travelers are in luck, because there’s a sea-change afoot working in their favor. The digital age has ushered in a new mentality of collaborative consumption which hinges on the idea that you don’t have to own to have access to a lovely home or a great car. One popular website, airbnb.com, is capitalizing on the new “sharing economy.” Airbnb.com connects homeowners to “guests” who pay a fee for a short-term stay in a spare room or an entire home. The company started less than five years ago and is already estimated to be worth more than a billion dollars.

    You can rent anything from a treehouse to a mansion to a spare room. The upside for travelers is considerable savings: A one-bedroom apartment in Manhattan with a full kitchen and bath is frequently less than a hotel and lets the tourist play the role of the local.

    So that means travelers can rent out their homes out while they’re away?

    This is where is gets a little trickier. First, do you own your home? If you’re already renting, chances are that renting your apartment to someone else—however short-term the agreement— would violate your lease. Also, be sure you understand the tax implications of your earnings. Airbnb helps report owners’ federal income to the IRS but leaves the onus on owners to report any income to local/city tax officials. And consider liability issues: Talk to your insurance company and understand the details of your coverage before you list your home. Airbnb offers their hosts a $1 million “guarantee” for property damage, but it doesn’t cover personal liability, jewelry, collectables or rare artwork. Be sure you know your risk if someone is injured in your home. Finally, the hotel industry is not taking the new “sharing economy” lying down and is working to ensure some little-known laws are being enforced: For instance, renting your home could violate zoning laws, and many cities have laws forbidding short-term rentals. As a consequence, some airbnb “superhosts” may find themselves using their newfound income towards litigation fees.

    What about renting a car on a person-to-person basis?

    The concept of car sharing is both convenient and green. A company called RelayRides has grown in popularity. In exchange for a portion of the rental fee, the company handles reservations, money collection, and background checks on the renters.

    A couple of tips for renters: First, do the math. If you rent a car frequently enough, you might actually save more money owning—and have unlimited access to your car. Be sure to do a thorough cost/benefit analysis if you’re a frequent renter. Also, understand your insurance coverage. RelayRides insures borrowers for physical damage (up to the value of the car) and liability protection (up to $300,000) during your rental. And finally, accept an element of the unknown: RelayRides depends on user reviews to weed out bad eggs, but this doesn’t insure the borrower from a bad experience. Owners can only list cars that are model year 2000 or newer with fewer than 120,000 miles, and owners are required to ensure their cars meet all legal requirements for vehicle safety, condition and operations. That said, the soccer mom may service her car more thoroughly and more often than the cash-strapped graduate student.

    On the flipside, if you’re a car owner and you want to rent out your car, be aware of a few things. In addition to having strangers in your car, remember that additional users mean added wear and tear on your vehicle. Also, be sure to report any income to local/city tax officials. If the amount of money you earn from sharing your car is greater than $600 in a calendar year, you will receive a Form 1099 from RelayRides for that year. Likewise, you should carefully weigh your risk before lending your car. Renting your car could violate the terms of your car insurance and cost you your policy. RelayRides offers a $1 million policy for owners, but claims from one fatal case still in court may exceed that limit.
     

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