By: Vanessa McGrady

It sounds like a slam dunk: Set up your home (or a bedroom, in-law apartment or investment property) for short-term rental stays, price it high and watch the cash flow in. After all, short-term rentals (STRs) are a growing industry that brought in an estimated $115 billion globally last year. What could possibly go wrong?

Well—plenty. As with any business, you need to calculate your risks as well as your opportunities in a short-term rental.

Before you make the critical decisions (Southwestern vs. beach theme? Keurig vs. French press?), you'll need to have your numbers in place. In addition to math around expenses such as mortgage, taxes, permit fees, utilities, maintenance, cleaning and management, you'll absolutely need to think through back-up plans B, C and D.

Some scenarios you'll want to address:

• New rules: What happens if you start renting, but suddenly you can't operate due to changes in local laws or homeowner's association rules? Can you switch it to a long-term rental or move in yourself?
• Force majeure: What happens if there's a regional disaster or another uncontrollable problem that makes renting impossible or keeps travelers away?
• Unsuitability: How will you mitigate maintenance issues such as a leaky roof, plumbing problem or electrical failure, while you have guests?
• Slowdown: How will you cover costs during a slow season or if people aren't booking your place due to low ratings, poor pricing strategy or other reasons?
• Management: Who will help you if you are unable to be on site? Who is the stunt double for that person?

While there's a lot you can anticipate, there are some scenarios you can't, and that's why you want to make sure you have the correct insurance coverage. It's especially important not to just rely on your regular homeowner's insurance, because if there are damages due to a guest's actions or negligence, you might not be covered.

Coverage may vary by insurance company to company. Platforms such as Airbnb or VRBO may offer some protection, but it might not be exactly what you need—be sure to read the small print very carefully and understand what is and what is not reimbursable. Regardless, before you make the leap into long-term hosting, make sure to talk with your agent about how to protect yourself in case of:

• Guest injury: A guest slips on the porch, falls onto the floor and injures her arm. She may be able to sue for negligence. Do you have the right liability or umbrella insurance to protect you?
• Accidental damage: Your guests' adorable children thought it would be fun to flush small toys down the toilet—and it was fun, until water started backing up all over the floor. You're looking at unclogging the pipes, major cleaning and disinfecting, perhaps a little mold, and possibly replacing the floor and baseboards. There may be some protections from your hosting platform, but for anything that's not covered, you'll need to bridge that gap.
• Major repairs: The house is empty for a couple weeks in the off-season, so there's nobody to notice the leaky roof—which ultimately requires major repair.
• Theft: The guest used a stolen credit card and fake ID—and left with your appliances, electronics and favorite artwork.
• Inability to do business: If for some reason your business is interrupted or you lose a key manager due to illness or death, how will you mitigate those losses?

One other tip for making money on a vacation rental, which may sound counterintuitive: If you want to clear a profit over time, don't nickel and dime your guests. Rather, spend some money on amenities and err on the side of generosity. Use high-quality furnishings, art, linens and books (you can save money by buying at thrift stores, online at Craigslist and Nextdoor, or at yard sales) to make it the most stylish and comfortable home you can. Provide good coffee and stock the pantry with staples and goodies. If you're near a beach, provide towels, buckets and shovels, and perhaps some bikes; if you're in a ski area, a few sleds and a windshield snow scraper will be most appreciated.

The idea is to create a sense of abundance and convenience for your guests. Soon you'll be racking up those five-star reviews, and the small investment in charm and quality will translate to higher value, higher rates and better guests.

Vanessa McGrady is an award-winning journalist, social media strategist and communications professional. But wait, there’s more! She’s also been a playwright, actor, producer and voice-over artist. She can sing “Home on the Range” in Yiddish, which is apropos of nothing.

She is the author of Rock Needs River, a memoir.