Short term rentals are a very lucrative option when it comes to real estate investing. For people just learning how to invest in real estate for the first time, you should know about the rules and regulations governing short term rentals and apply for the relevant short term rental license before purchasing your preferred property.
When launching a short-term rental or an Airbnb business, there are a few things that lie ahead that you should be considered in detail. Whether you’re a seasoned real estate investor or a rookie in the game, short term rental regulations are the most complicated challenges in the business.
Real estate markets in the East and West (San Francisco, Miami, New York, Los Angeles, etc.) are where real estate and rent costs are particularly expensive. If you are based in one of the said cities, you may get the feeling that almost all regulations are made to ban short term rentals. In this article, we will look deeper into the relevant regulations and explain what it takes to obtain a short term rental license. Read on before you start looking for an Airbnb for sale.
What Are Short Term Rentals (STRs)?
A short-term rental (STR), also known as a vacation rental, is a residential property that is rented out for short periods of time. As opposed to long-term rentals that get rented to tenants for at least one to six months (or longer), STRs are rented to guests who will be in the area for a short time. Rental property owners typically rent their houses, apartments, or rooms out on a weekly or nightly basis.
During the last few years, accompanied by the rise of the Airbnb business, short term rentals gained in popularity primarily because of the space and privacy they offer. People don’t need to rent out a property for longer periods and get tied down to one place. With STRs, they get the chance to move as they would like and visit several locations, staying only for a few days in one spot.
What Defines an STR?
The two main factors that define a short term rental are length of stay and type of structure.
The length of stay plays a critical role in defining whether a property is an STR or not. Limitations imposed by jurisdictions vary from city to city – some limit it to 30 days while others prohibit renting a property for less than a month.
Next, the type of structure that can be shared may be defined as an entire property, private room, or shared room (as it’s on Airbnb). However, in some states, the regulations may propose a minimum number of bedrooms a property must have before it can be clarified as an STR.
Since such regulations affect both the types of licenses you require and how you rent your home, you should check the definition of a short term rental on your county or city website.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Related: How to Conduct Short Term Rental Analysis
What Are the Legal Restrictions of Short Term Rental Laws?
You’ve probably used Airbnb or short rental services sometimes in your life. But have you ever considered that there are places where Airbnb is illegal?
For example, renting out a property for less than 30 days is illegal in New York City. Despite that, NYC is one of the largest Airbnb markets where listings under 30 days are available for tourists. And the fines for breaking the law are hefty – putting out an unlawful advertisement can get you paying up to $7,500 in fines.
Whether it is legal to rent out a property or not depends on several factors, such as the location and type of property you own, as well as how long you want to rent it out. Furthermore, legal restrictions on STRs can be a bit confusing and are not uniform.
Regulations Vary From City to City
Many counties and cities have defined legal restrictions on STRs, which can range from loose ones to quite severe (making STRs illegal in some places). Hosts are usually required to register as short term renters and obtain a short term rental license before renting out a property. As a future host, you must arrange to pay local occupancy taxes, pay different fees, and comply with insurance and other requirements.
Some cities may utilize their zoning laws in order to limit STRs. In San Luis Obispo County (CA), you can operate a short term rental property, but it must be located within 200 feet of a similar rental.
In the Isle of Palms (SC), the limit is two people per one bed plus an additional two people.
In New York City, a residential property in an apartment building (or another type of multiple residential dwelling unit) must be used exclusively for permanent resident purposes. In other words, such property must be occupied by the same people for 30 consecutive days (or more). Unless your property is a bed-and-breakfast or licensed hotel, it’s illegal to accommodate paying guests for less than 30 days.
Some of the cities with the most liberal short term rental rules include Milwaukee, Memphis, Philadelphia, Phoenix, Atlanta, Dallas, Tampa, and Cleveland (to name a few). With a short term rental license and small occupancy tax rate, they are the places with little to no Airbnb and short term rental issues.
What Kind of Licenses Do You Need to Run a Short Term Rental?
Everything depends on the short term rental regulations of your city or county. Still, it all often comes down to obtaining a general business license and a short term rental license.
A general business license is required for operating any type of business. It’s a basic license necessary for engaging in business activities with your local jurisdiction. Be sure to register your short term rental business with your local government. If your county or city doesn’t have a business licensing department, visit your local tax office to get the information.
As for the short term rental license, you will most likely need to get one given the restrictions and regulations we’ve discussed. The permit will help you become compliant with zoning restrictions, ensure your short term rental meets property safety and health requirements, and that all neighboring properties have been notified. Your licensing department might ask you to provide proof that the property you plan to rent isn’t your primary place of residence.
You should also pay attention and gather all necessary information about taxation. There is no uniform tax policy for Airbnb renters, and tax policies vary depending on the city. Learn as much as you can about your local laws to find out what you will need to pay or collect in order to host. Also, you may need to register for a tax identification number.
7 Best U.S. Cities for Short Term Rentals
Nice weather, ample living space, and affordable rent are all factors that drive people’s decisions when searching for the right rental property. To help you find the best cities for real estate investors, we used fresh and accurate data from Airbnb, MLS, and other private and public records. Some cities have great short-term and long-term rental potential, but if the STR regulations are too complex and limiting, going for Airbnb long term rentals might be your best bet.
So, before you start searching for the right investment property and securing your short term rental license, let’s discuss some of the best places to narrow your search down to.
1. Columbus, OH
Until 2019, Airbnb Columbus Ohio owners could rent out their property without a permit. But since then, the city’s required a permit, which you can inform yourself about and obtain through its Licensing Section.
Property owners with five or fewer units leased for less than 30 consecutive days were already obliged to obtain a permit in order to be able to operate. The ordinance passed in 2019 amends a few sections of the Columbus Code that govern short term and hotel/motel rental operations and the permitting process (Chapter 598).
The ordinance added new grounds for revocation, denial, or suspension of a permit. It also includes new processes for objection, notice, and appeal, as well as additional info on permit requirements.
As for the Airbnb Columbus Ohio rental market, let’s take a look at the numbers to help you with your Airbnb analysis:
- Airbnb Rental Income: $2,263
- Airbnb Cash on Cash Return: 24%
- Airbnb Daily Rate: $130
- Airbnb Occupancy Rate: 57%
- Median Property Price: $378,086
- Average Price per Square Foot: $232
- Days on Market: 82
- Walk Score: 41
You can apply for your short term rental license at the Department of Public Safety License Section at 4252 Grove Rd. The permit for your non-primary residence will cost you $150 per calendar year and $75 for your primary residence. You must submit your signed short term rental application in person and pay a $20 fee.
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2. Washington, D.C.
In Washington DC, they started implementing a three-year-old law that regulates and restricts short term rentals booked online. It now requires hosts to obtain permits and limits how long they can rent out a house or apartment every year. The law passed the local council in 2018, but it wasn’t until January 2022 that they started implementing it.
The law applies specifically to Airbnb Washington DC businesses and other short term rentals lasting less than 30 days at a time. If you want to rent out an entire home, bedroom, or basement on Airbnb, you must get your short term rental license from the Department of Consumer and Regulatory Affairs (DCRA).
If you (the owner) are present in the property during the rental, you can host short-term renters as long as you want over the course of a year. It is great for those who, let’s say, rent out their basement or engage in rental arbitrage but stay in the property. But if you’re not present, your rentals are limited to a combined 90 days per year. Also, you cannot obtain a short term rental license for your second home.
Before you decide to start your Airbnb Washington DC business and apply for a license, take a look at the numbers below:
- Airbnb Rental Income: $2,959
- Airbnb Cash on Cash Return: 87%
- Airbnb Daily Rate: $149
- Airbnb Occupancy Rate: 63%
- Median Property Price: $724,631
- Average Price per Square Foot: $642
- Days on Market: 115
- Walk Score: 61
With the high number of both Airbnb listings (3,217) and traditional listings (4,777), we can say that DC is a strong buyer’s market right now. The short term rental market is also hot, so buying a short term investment property here would be the right thing to do. Just be sure to nail your marketing and set the pricing right due to intense competition.
3. Seattle, WA
If you want to be an Airbnb Seattle host, you will need to apply for a license online through the City of Seattle website. Your short term rental license is issued by the Department of Finance and Administrative Services and will cost you $75 per unit. Once you get your license, you are responsible for adding the number and expiration date to your Airbnb listings. Licenses are valid for 12 months, and once it expires, you will receive a renewal reminder email. You can renew your license via your Seattle Services Portal account.
You can operate up to two dwelling units you own as short term rentals. One must be your primary residence, and the second one may be any residence you own (such as a second home or vacation home).
Want to launch an Airbnb Seattle project and perform an Airbnb analysis? Here are some fresh data to help you plan your finances:
- Airbnb Rental Income: $3,320
- Airbnb Cash on Cash Return: 08%
- Airbnb Daily Rate: $153
- Airbnb Occupancy Rate: 69%
- Median Property Price: $584,958
- Average Price per Square Foot: $618
- Days on Market: 63
- Walk Score: 68
Related: How to Find Investment Property in the Seattle Real Estate Market
4. Denver, CO
Many people decide to get into rental arbitrage in Denver because it allows them to rent out more than their primary residence.
Under a 2016 ordinance, the Denver City Council requires any property owner who wants to start a short term rental business to obtain a Denver short term rental license. The rental must be your primary residence, and you must follow all rules in terms of insurance, zoning, and safety. Airbnb Denver rentals who fail to follow the requirements can be fined up to $1,000 per transaction.
You can apply for your Denver short term rental license via Denver’s Online Permitting and Licensing Center. Open the Business, Short-Term Rental, and Occupational Licensing page, click on Apply New, and select the type of license you want to get.
Let’s take a look at the most recent Airbnb Denver numbers. Use your budget and the following data to make profit projections:
- Airbnb Rental Income: $3,540
- Airbnb Cash on Cash Return: 49%
- Airbnb Daily Rate: $172
- Airbnb Occupancy Rate: 71%
- Median Property Price: $535,549
- Average Price per Square Foot: $2,120
- Days on Market: 56
- Walk Score: 57
However, Denver might be a better fit for Airbnb long term rentals because it’s one of the top 10 most moved-to cities. With short term rentals, you need to obtain a license and cannot buy additional investment properties to turn them into short term rentals.
The monthly traditional rental income ($2,264) is lower than the Airbnb rental income, but it’s still a nice number for a side income. You won’t need to communicate with many guests, be on service 24/7, make quality assurances, manage cleaners, and spend much time managing your rental.
5. Austin, TX
Austin’s short term rental ordinance identifies three types of short term rental properties:
- Single family or duplex properties (not owner-occupied)
- Multifamily properties (not owner-occupied)
- Single-family, multifamily, and duplex properties (owner-occupied)
If you want to launch your Airbnb Austin business, you will have to obtain a short term rental license for each one of them. The ordinance places restrictions on each, but the most on single-family and duplex properties that aren’t owner-occupied. They are limited to specific town areas zoned for commercial use (such as Downtown Mixed Use (DMU) and Central Business District (CBD) areas).
Listed below are the Airbnb Austin numbers that should help you understand how to invest in rental properties in Austin and create your rental strategy:
- Airbnb Rental Income: $3,735
- Airbnb Cash on Cash Return: 45%
- Airbnb Daily Rate: $237
- Airbnb Occupancy Rate: 58%
- Median Property Price: $700,189
- Average Price per Square Foot: $445
- Days on Market: 66
- Walk Score: 50
On the other hand, because of the increasing number of technology companies in the city, Austin is solidifying itself as a tech hub on par with other major tech cities. Add its affordability relative to the expensiveness of the California metro areas; many people are coming to Austin for work. Investing in long term rentals here might be a better idea.
6. New Orleans, LA
Anyone who wants to get into the Airbnb New Orleans business to host short-term stays must obtain an owner and operator STR license. But first, you need to find out which type of license you’re eligible for. After that, you can apply for your license on the city’s website.
You can also download the application forms, fill them out, and send them back through email. Homeowners are allowed to rent entire houses or rooms for up to 30 consecutive days as long as they pay a $150 short term rental license fee, apply for an annual license, and collect city taxes from guests.
Take a look at the Airbnb New Orleans data below before you start looking for an Airbnb for sale.
- Airbnb Rental Income: $3,268
- Airbnb Cash on Cash Return: 66%
- Airbnb Daily Rate: $204
- Airbnb Occupancy Rate: 58%
- Median Property Price: $546,176
- Average Price per Square Foot: $333
- Days on Market: 72
- Walk Score: 56
7. Atlanta, GA
Airbnb Atlanta renters are required to apply for a short term rental license from the DPCD (Department of Planning and Community Development). The $150 application fee is non-refundable.
According to the city’s new ordinance, an owner or long-term tenant is allowed to license their property to an agent (who can be another person or themselves). They can get a short term rental license for their primary residence and one other property. The license must be renewed each year.
Here are recent data points to help Airbnb Atlanta renters create the most optimal renting strategy:
- Airbnb Rental Income: $2,267
- Airbnb Cash on Cash Return: 1.03%
- Airbnb Daily Rate: $156
- Airbnb Occupancy Rate: 46%
- Median Property Price: $568,865
- Average Price per Square Foot: $1,168
- Days on Market: 81
- Walk Score: 43
Related: Atlanta Real Estate Market Forecast 2022
Short term rentals offer potentially lucrative returns for investors, both new and seasoned ones. However, depending on their location, vacation rental properties are subject to different rules and regulations. You need to check the applicable laws and apply for the relevant general business and short term rental licenses if you want to go the STR route and avoid the legal pitfalls of being in the industry.
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