Thanks to companies like Airbnb and The Short Term Shop, short-term rentals have gained in popularity, and the annual income from leasing out a room or flat seems to be limitless. Operating short term rentals is one great way of earning more income with little active asset management duties.
Do you have a flat that you want to make a short-term rental? Are the HOA rules confusing to you? Do you want to know how to get around short term rental restrictions? Learn more in this article.
What Is a Short-Term Rental?
Short-term rental generally refers to renting out a well-furnished flat for a very short period. In this type of rental service, house owners can rent their home to vacationers, business travelers, tourists, or people who need a residential property for a few days or weeks.
There are zoning and local laws governing how short-term rental owners can operate depending on the city. However, just like any business, renting out a flat has its own pros, cons, and many legal challenges.
How Do Short Term Rentals Work?
Factors such as competition, property value, and mortgage payments can significantly impact how much income you make on an investment property. On the other hand, most property owners have reported making between $500 and $1000 per month on short-term rental properties.
Suppose you own a house in New Orleans or San Francisco, you can list the flat for rent on websites like Short Term Shop or Airbnb. Ensure your listing highlights features like the property's proximity to downtown, parking availability, and any amenities you provide.
Furthermore, you can expect your listing to gain a lot of attention when there's a major event in or near San Francisco. When a guest rents your flat, the website where you listed takes a certain percentage (usually three percent), and the rest goes to you. However, your expenses may include:
- Mortgage payments
- Home maintenance cost
- Amenities for your guests
- Cleanup after each group of guest
Municipal Restrictions on Short Term Home Rentals
Different cities, counties, and municipalities have different legal laws on short-term home rentals. In certain areas, these laws are so strict that most short-term rentals are illegal. The majority of large cities require homeowners to obtain a license or permit before renting out their properties.
To register a residential building, the host will be required to pay various rental fees, property taxes, local occupancy taxes and often comply with insurance requirements. For example, in New York City, residential properties located in multiple residential neighborhoods, such as an apartment building, must be used only for "permanent resident purposes." In summary, the same person or family must live in a property for at least 30 days.
This law makes it illegal for guests to pay for a flat for less than 30 days unless the property is a licensed hotel or other similar businesses. Other cities utilize similar zoning laws, and these laws are in place to limit short-term rental use. Some cities in California restrict similar short-term rental properties from being located within 200 feet of each other.
Furthermore, cities such as Isle of Palms, South Carolina, impose an occupancy rule which states there can be no more than two people per bed. Additionally, violations of these laws can also result in a hefty fine of over $1000 for the first offense.
Lastly, New York City requires websites such as the Short Term Shop and Airbnb to share their listing data and hosts in order to assist it in enforcing these rules.
How to Find Short Term Rental Laws
The first place to check is your local government's website. Visit the website of your local government and search for your local administrative or municipal code. Furthermore, you can put a call out across your city's HOA board or local housing authority and ask about their rental policies. Additionally, you can check the Short Term Rental Advocacy Center for short-term rental rules.
If you own a condo or co-op, visit your homeowners' association and ask about its short-term rental policies. Lastly, if you're a renter, ensure you check your rental agreement and contact your landlord before giving out your unit.
How to Get Around Legal Challenges Surrounding Short-Term Rentals
Although many cities have strict rules, some cities and municipalities are much more flexible with their rules. Some cities have certain rules in place that permit short-term rentals of the entire property for up to 27 and even 90 days.
Short-term rentals are an amazing way to start making money in real estate. However, as an entrepreneur, you need to figure out how to respect these laws and still make money in the short-term rental market. So, here are three tips on how to get around short term rental restrictions:
Set Up a Business Name
The first key to getting around these rental laws is to set yourself up as a business. Although this idea may sound crazy to some people, there's a big difference between setting yourself up as a business versus a person.
You can get a rental property in a business's name and lease it out. Setting up accommodation in a company name allows you to legally and ethically put those properties on Airbnb and other websites.
You have to name a person who lives in the flat and if you then list the house on a website, each guest is just an occupant.
Become a Legitimate Company
After setting up your company's name, the second step is to get your necessary licenses and to register. You're going to have to get an LLC, an S corp, or a C Corp, or whatever your state requires to become a real business. Additionally, you'll need to get an EIN and actually become a legitimate company.
With a real business setup, you can go to a seller or a landlord and rent or buy the property in the business's name. This way, you'll be able to circumvent several of these property laws. But, at the same time, you'll have to stay above board and notify the relevant authorities of who is in the flat.
Don’t Spill the Beans
Now you know how to get around legal challenges surrounding short-term rentals, your next big task is not to mess it up. So the one thing that you shouldn't do is go to the property manager or property owner and tell them that you are about renting out the property. That will be a big mistake as you are only shooting yourself in the foot.
Instead, tell them that you have a corporation with corporate clients staying in your flat. You really want to keep the word to "my clients" because essentially, they're your clients. Remember, if someone contracts to stay in your apartment in your company's name, they're your guests or clients.
Furthermore, your relationship with the seller or manager of the flat is different. As long as you don't drag yourself into the mud and tell them what you're really doing, you're probably going to be okay.
However, make sure you notify them and stay away from terms like vacation rentals and short-term rentals. As a reminder, note that you're legally responsible for the property.
Lastly, as a tip, almost all the websites you'll put the flat on don't care whether or not you own it, and they never ask. All they really want from you is proof that you have the legal rights to put people into that property.
Frequently Asked Questions (FAQs)
- What is the advantage of short-term rentals over long term rentals?
First, in short-term rentals, your guest pays ahead of time and you don't have to pursue tenants for money. Secondly, unlike with a long term rental lease, your guests are staying for just a few days or weeks and you don't have to deal with bad tenants for long.
- What about zoning law challenges?
Zoning laws are an important part of your real estate planning. Without these laws, your apartment options will be limited. Don’t skip this important step, as all it takes to get a cease and desist notice from the zoning department is a complaint from a disgruntled neighbor.
- What licenses and permits do you need to lease out a flat short-term?
Before turning your flat into guest rooms, make sure you have the required licenses and permits to avoid issues with the law. Your city or county will likely require you to obtain a general business license and a short-term rental license.
However, most applications require you to certify that the apartment complies with health and safety regulations, is up to code, follows zoning laws, and that adjoining properties have been notified.
Now you know the secret of how to get around short term rental restrictions. All you have to do is set up a business name and become a real business. However, remember that these HOA rules and laws were created for a purpose, and you don't want to go in there and break these rules.
Don't bring people in to have parties or events as this will land you in lots of trouble with the local government. Make sure you restrict your guests from such activities because you want to honor what these legal restrictions are there for.
Ready to take the next step into your real estate journey? Join thousands of real estate investors who have begun their rental journey and build wealth through short-term rentals.