Knowing the pitfalls that arise within the short-term housing industry is a must for those who want to be successful at it
Airbnb and similar vacation rental portals have changed the game in real estate investment. The benefits of renting an investment property on Airbnb are many, and it’s a trend conscious property managers and owners are jumping into headfirst.
As one of the first brokers to create and popularize short-term furnished accommodations in Providence, Rhode Island, I love this trend, and my own personal travels have centered on adorable home-away-from-home finds worldwide.
But knowing the risks that arise within this industry is a must for those who want to be successful at it. Here are a few tips to help your clients avoid the common pitfalls associated with renting out investment properties on Airbnb.
“If you vet your prospective guests correctly and manage expectations, you will have a positive experience,” Heatheran Kristopher, SRCI Group International consultant, said.
Things get riskier when an incoming guest has never tried Airbnb housing before, and he or she doesn’t know what to expect from the process. She stresses that “giving those guests attention upfront is a must to ensure that they have a pleasant experience.”
Beef up insurance
Before renting out property, homeowners need to check in with their insurance agent.
“The insurance industry has not caught up with the latest trends in technology and real estate,” James Steele of S&T Insurance Agency explains. “Nine out 10 times policies have strict exclusions for short-term rentals.”
Most homeowner’s insurance policies carry a business pursuit’s exclusion, and liability falls on the homeowners.
While Airbnb and other hosting sites offer trip protection to their users, make sure to consult with your insurance provider. Remind your clients that insurance is complicated and that waiting until they actually have a claim is not the best time to sort out their coverage.
Check condo rules
Chances are, your client’s condo bylaws or rules and regulations prohibit short-term rentals. Make sure your client reviews his or her condo documents carefully.
It is typical for a condo association to require a minimum lease term for any renters, and a requirement for association board approval is also typical.
Know municipal restrictions
Make sure you know your local laws. For example, in my neighborhood in Newport, Rhode Island, we are not permitted to accept a rental term of less than one month’s duration.
We are also required to register our property as a short-term rental with the city prior to rental commencement and post the registration up inside the front door for our tenants to easily see.
Be aware of taxes
Income earned from short-term rentals is taxable income. Some state and municipalities apply additional taxes to short-term rentals, namely sales tax and occupancy tax. Knowing what taxes to expect in your locality is a must prior to engaging in the short-term rental business.
From the income potential to the incredible cultural experiences, Airbnb and the like open up traveling and the ability to earn extra cash to a lot of people. Done right, it’s a great experience for all involved.
Article image credited to Courtesy of Pixabay