Advising Clients on Short-Term Rentals

More and more people are purchasing short-term rental properties, which can be lucrative investments in the right situations. As a real estate professional, you can take advantage of this trend, but only if you’re well-versed in local rules and regulations.

What Exactly Is a Short-Term Rental?

While it may sound straightforward, the legal definition of a short-term rental can vary depending on several key factors, depending on the city or county. Some places have unusual laws relating to structure types, while others have very strict rules relating to length of stay. Since all of this can vary wildly, it’s important to check with local institutions to find out what exactly qualifies as a short-term rental property and which types of permits and licenses your client will need.

Read Up on Restrictions

In addition to regulating lengths of stay and structure types, local governments may also impose certain legal restrictions on short-term rental businesses. To keep investors who don’t reside at the property from renting the entire property or a unit as a short-term rental, some cities may require that the property be owned by a local primary resident. Similarly, certain cities, such as San Diego, completely prohibit short-term rentals, while others, such as Santa Barbara, regard short-term rentals as “hotels” that can only exist in designated zones.

Some cities may also limit the amount of short-term rentals allowed in a certain zone, while others, such as New York City, forbid rentals of less than 30 days unless a permanent resident is present. Since violating these regulations can result in thousands of dollars in fines, it’s important for you to know all the applicable rule so you can advise your client accordingly. It’s also important to note that investing in a short-term rental comes with certain risks, since cities and counties could change regulations and laws at any time.

What Licenses Will Your Client’s Need?

While rules and regulations can vary wildly by city and county, most demand that buyers acquire – at minimum – a general business license and a short-term rental license. Applications usually require owners to attest that their properties are up to code, meet health and safety requirements and are compliant with zoning laws. Most also require owners to notify neighbors that they intend to use a property as a short-term rental. Your client may also be required to show proof that the property is a primary or secondary residence.

Tax Concerns

Since they blur the lines between personal and business space, short-term rentals can come with special tax requirements. If they rent for 14 days or fewer per year, your clients are not required to report the income on their tax returns. You should advise your clients to consult the IRS website to help determine their tax liability.

With all this in mind, it’s clear that agents must do their due diligence to ensure that they can confidently advise clients in their areas. If you aren’t familiar with the local rules and requirements for short-term rentals in your market, start by checking your local government website for details or refer to online rental companies such as VRBO and Airbnb.

 

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