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Renting your home or an area of your home (bedroom or wing) is a great way to make extra money or mitigate the costs of owning a second home or vacation property. As such, it has become a popular and growing market, expected to reach $169.7 billion by 2019.
These short-term rentals can be great for homeowners and renters alike. But there are plenty of naysayers. Neighboring residents and players in the traditional hotel industry have pushed back, and many cities and towns are playing catch-up. In some cases, there are also fines in place for those who choose not to comply—and those fees are more than a slap on the wrist. The city of Miami Beach, FL, for example, issued fines totaling $1.59 million from March through August of 2017. Their fine for a first violation starts at a whopping $20,000.
These hefty costs and evolving regulations mean that it’s important that you understand the legal implications and considerations for your own short-term rental. Here’s what you need to know to make that extra money and avoid fees for non-compliance.
While the idea of a short-term rental may seem straightforward, in actuality, it’s a little more complicated. Your short-term rental can usually be defined by two categories: type of structure and length of stay.
The Type of Structure: What is a short-term rental? This varies from state to state. In Vermont, a short-term rental property is defined as “a furnished home, condominium, or other dwelling rented to the transient, traveling, or vacationing public.”
In Chicago, Illinois, that definition changes slightly to “a dwelling unit that contains 6 or fewer sleeping rooms that are available for rent or for hire for transient occupancy by guests.”
While confusing, this detail is important because it impacts how you rent out your space, along with the licenses and permits you need.
Length of Stay: How long, and in some cases, how often, you rent your property is also a crucial part of defining your short-term rental and the regulations that govern it. Florida specifies that a short-term vacation rental is “a property that is rented more than three times a year for less than 30 days at a time”.
Yet, in Seattle, Washington, they simply define length of stay as “a home, or part of a home, [that] is rented for a fee for fewer than 30 consecutive nights”.
Legal restrictions (which vary from state to state) are also put in place to control how many rentals there are in one region. In some cases, this is also done to help the other lodging businesses (such as hotels and B&Bs) in the area. Here are a few common stipulations and limitations:
These laws and regulations change regularly. If you’re renting, check the laws in the city or state where you intend to rent, first and foremost. Don’t forget to check with association rules if you want to rent a condo or co-op space, and check with all HOA bylaws or timeshare ownership rules as well.
A license or permit lets the state know that you are using the property as a short-term rental and that your home is up to code and complies with certain health and safety regulations. Here are two common licenses you might need to obtain before renting:
To find out the requirements, you can search for information on local and state websites or speak with a legal services provider.
Bottom line, if your property is not zoned for short-term rentals, you don’t have many options to pursue this with your current property. Remember, just one complaint could lead to legal action from your local government, and potential fines.
As a short-term rental owner, you may be subject to new taxes—specifically, short-term rental occupancy tax, which acts as a lodging and hotel tax. This is to be paid in addition to your usual income and self-employment taxes. Start by working with an accountant or tax professional to figure out what you can claim and deduct. That way you can keep track of all expenses properly throughout the year. The service provider or consultant can also help you determine whether you need a separate bank account, credit card, and so on for your rental business. In some cases, it’s wise to do so. In others, it may not be necessary.
The short-term rental industry is growing fast, and cities and local governments are working to have regulations in place to keep rental owners and residents happy and safe. If you’re interested in becoming a short-term rental owner, start by checking with city and state ordinances and laws. Be sure to check back periodically to make sure you are still complying with the requirements for short-term rentals.
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