In recent years, short-term home rentals have soared thanks to online services such as Airbnb and VRBO. Renting your property to short-term guests can be easy to earn cash to build home equity. But there are six things you should consider before becoming a short-term rental host.
Guests who damage property: yours and others
You could have a guest who damages your property or the property of another guest or a neighbor. For example, your guest could back his car into your or another guest’s parked car. Or, if your rental is in a condo building, your tenant could leave water running and flood both your home and those of your neighbors.
Guests who get hurt on your short-term rental property
Bodily injury is always a risk when you have any visitors to your home. But you elevate your risk when you increase the volume of visitors by renting your property. Airbnb and VRBO each offer $1 million in liability protection insurance. But this insurance has extensive terms and conditions that could ultimately leave you liable for damages. You should read these policies carefully before signing up and talk to your homeowners’ insurance agent to determine whether you need additional coverage.
Guests who hurt you or others on your property
You are inviting strangers to stay in your home and need to know their temperament or level of responsibility. A guest could cause injury, either intentionally or accidentally, to you or other guests. A guest may also become a squatter.
Potential violations of your obligations as a renter or owner
If you are a renter, your landlord may bar short-term rentals. Homeowners associations may as well. If you violate these policies, you could pay stiff fines or be ordered to stop your rentals.
Potential violations of local ordinances
Cities and counties impose different restrictions on Airbnb usage in some areas because of neighbors’ opposition to the practice. Some municipalities require short-term rental hosts to register with the city and/or collect and pay a hotel-motel tax. Airbnb and VRBO often handle this for you, but they may not manage all taxes and fees. Your municipality may require you to obtain a business license, restrict the number of Airbnb units you rent out or even ban the permits you need to use your property as an Airbnb. You may be subject to building and housing standards, zoning rules and landlord-tenant laws. You must protect yourself by carefully researching local laws before renting out your property. Reach out to your municipality or a local attorney if you have questions.
Potential violations of your short-term rental tax obligations
If you rent any part of your property for more than 14 days, you must report the income on your federal taxes. It’s always a good idea to consult a tax professional to ensure you don’t run afoul of state or federal tax laws.
Related – Demystifying Tax Rules for Airbnb Hosts