short-term rental regulations Changing short-term rental regulations and how to prepare

The ins and outs of short-term rental regulations

Short-term rentals have been running red hot, with Airbnb’s recent quarterly data showing a climb in bookings ready for the summer vacation period. But with this rise in popularity, investors may have noticed more stringent short-term rental regulations impeding operations. As laws vary across the U.S. and are dependent on individual regulations for areas at both city and state levels, it can seem overwhelming navigating through the fine print. 

The best advice for ensuring you’re not liable for any fines or are unable to rent out your property is to fully research the specific short-term rental rules and regulations for the city in which you are looking to purchase and strategize with professional advisors. While the rental business climate varies greatly by location, all searches should begin with three steps: understanding your local municipalities definition of a “short-term rental”, applying for any required licenses or permits, and ensuring compliance and understanding with tax requirements and implications.

The first three due diligence steps any investor should follow

Define “short-term rental”

To begin with, it’s important to understand what defines a short-term rental. Each city has a variation of what they legally consider a short-term rental property, along with a different set of rules and guidelines for investors to follow. For example, some cities and municipalities may consider anything less than 30-day rentals to be a “short-term rental”, so you may be able to operate there but only cater to and accept reservations from monthly travelers. On the flip side, some cities have no restrictions in terms of lengths of stay.

We recommend investors fully understand the city’s guidelines to understand what defines a short-term rental property in the area they are looking to purchase in order to avoid securing a property that does not qualify. 

Apply to operate: licensing and permits

In the majority of cases, investors are required to apply for licenses or permits for short-term rental properties. Variables such as length of stay, primary or secondary residence definitions, multiple dwelling laws, and zoning regulations can all affect short-term rentals. Some common requirement restrictions include the prohibition of short-term rentals in certain cities altogether, while large cities and tourist destinations may have strict regulations limiting the number of rental properties in a particular location. 

Investors would benefit from applying for these licenses and permits early to ensure they are approved and proper documentation has been obtained prior to operating to avoid fees or delays in the process.

Talk all things taxes

It is always important that you consult a tax advisor to understand what you are required to pay or if there are any tax exemptions you may be eligible for. In terms of operating a short-term rental, some governments may require a short-term rental occupancy tax (lodging or hotel tax). In terms of investing in a new Airbnb investment, investors may also be eligible to defer capital gains taxes if selling a like-kind property, or they may be able to claim rental expenses for rooms or properties that are rented. 

Before purchasing a property, selling your current one, or operating a short-term rental, we recommend having a full understanding of the business and tax landscape to make informed decisions and take advantage of savings where able.

Short-term rental regulations in practice

With our three starting points for rental regulation compliance in mind, it’s important to understand the nuances of regulations in practice and how our three starting points apply.

Case study: Florida

Take Florida, for example. 

Florida’s “short-term rental” definition

According to the state government of Florida, a short-term rental is defined as “any unit or group of units in a condominium or cooperative or any individually or collectively owned single-family, two-family, or four-family house or dwelling unit that is also a transient public lodging establishment but that is not a timeshare project.”

This is helpful to know as it impacts which owners and what types of units are required to obtain a permit. For example, suppose a host is renting a single room or multiple units that do not comprise one entire unit. In that case, the rental is not considered public lodging and may be exempt as The Florida DBPR and the Division of Hotels and Restaurants are not required to obtain licenses due to this classification.

Licenses and permits required to operate

In Florida, the majority of short-term rentals must obtain a license in order to operate. Anyone renting an entire unit more than three times in a calendar year for periods less than 30 days or one month are required to obtain a license.

As you’ve probably caught on to by now, there are many nuances. In this case, refer back to our point right above — hosts renting out a single room or multiple units that do not comprise one entire unit would not need to obtain a license to operate, while all other investors and hosts would. Double-checking is the name of the game when it comes to short-term rental regulations!

Taxes in the Sunshine State

Currently, the state sales tax in Florida is 6% for short-term rentals. Each time that a rental is booked for less than six months, collectively, the tax must be collected. This applies to all rentals in the state, although county taxes may apply in some cases.

The above is just a brief example of how rental definitions, licenses and permits, and required taxes can impact investments and operations in different areas. As is presented, short-term rental regulations are not always straightforward (unfortunately), and savvy investors and hosts would very well benefit from being informed.

Let the investment search begin

Once an investor has analyzed the requirements laid down by the state or city in which they would like to acquire an investment property, they must search for a property that fits the legal standards for a short-term rental. This process can be simplified with new-to-market short-term rental marketplaces that prompt investors to set a specific set of parameters for property searches and have personalized deal alerts sent directly to their inbox. If we were to use the above case study of Florida and an investor did not wish to obtain a public lodging license, they would then be able to adjust the setting on the tool to search specifically for properties that do not fall under the Floridian law definition of an ‘entire unit’. With this tool, investors can cut through the noise and eliminate properties from their search that do not fit the necessary legal requirements. 

For investors with a more targeted search in mind (like those with an address already in mind), Rabbu’s Insights tool also aids investors in the purchase process by allowing them to search for a specific address and immediately gain access to monthly short-term rental revenue projections that have been calculated using data from comparable short-term rental properties. 

By reducing the time taken to search for the perfect property, investors can shift their focus to ensure that they are searching for properties that will turn a profit and meet the unique set of guidelines that allows them to avoid any legal restrictions. 

As the regulations for short-term rental licensing continue to evolve and adapt to the new short-term rental landscape, it is vital that investors understand exactly what is required of them when making a short-term rental purchase to best strategies their future investment. 

We know a few things about regulations here at Rabbu. Want to talk more about regulations or a property in specific? Drop your details below and we’ll give you a call.

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