Hosting on Airbnb is not as simple as it may appear. The success and demand for short-term rentals around the world has sparked numerous cities and government agencies to regulate how hosting on Airbnb is handled. Before you even have your first guest there are three crucial things to know before hosting on Airbnb.
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Does your Home Owners Association (HOA) allow short-term rentals?
Living in an a neighborhood that has an HOA or Condo association has its advantages and disadvantages. Because of the increasing popularity of short-term renting these “associations” have scrambled to shut down as many as possible. However, because Airbnb was founded in 2008 an enormous amount of associations By-Laws and Covenants, Codes, & Restrictions (CC&Rs) had no verbiage that restrict this type of use in a person’s home or condo. All these “rules” were established before short-term renting was even a thought. Therefore, more and more home owners are jumping at the chance to start an Airbnb in their homes because there is nothing against it.
Read over your neighborhood/condo By-Laws thoroughly. Read over your Covenants, Codes & Restrictions. Read over any accompanying documents/rules that could be enforceable. If you are unsure have an attorney review all these documents with you. In the end, your HOA rules trump any metropolitan regulations. If your HOA decides you are in violation they can (and more likely will) send a Cease & Desist letter. At that point, they can take legal action and get a court order to shut your Airbnb down. Of course, this is a worst case scenario but it is happening more and more. Hence why it is imperative to educate yourself before truly deciding to start an Airbnb.
Why does an HOA think they can tell me what I can and can not do in my own home? Do they really have that much power over a home owner?
Unfortunately, HOA’s do have power. When you purchase into an HOA you are essentially agreeing to all those little rules and regulations. Some rules are very beneficial to the home owners, some are absolutely not. I agree 100% that HOA’s are in essence a necessary thing but they will abuse their power when given the chance. If you are considering buying a home to live in and also use part as an Airbnb make sure to read over the governing documents before signing on the dotted line. Even if there are no restrictions on short-term renting, your HOA may try to use another rule against you. Therefore:
- Get Educated – Review all the governing documents
- Consult An Attorney – Rules can be unclear and you need to know what can be used against you
- Stay Strong – HOA’s love to push around home owners and use scare tactics
- Remain Diplomatic – Remain focused and calm. This is your home but try not to take it personally if you get resistance.
Read over the Airbnb resource on talking with neighbors and homeowners associations.
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Does your city and/or county allow short-term renting? If so, are hosts required to have a permit?
There is a strong debate clouding over short-term rentals. The issues are complex and vary from city to city. Many municipalities have established rental ordinances to regulate how people can operate an Airbnb. There are arguments on both sides of the debate:
Why restrict short-term rentals?:
- Increased noise and traffic.
- Reduced housing stock available to those who live and work in a community.
- Unfair competition with licensed establishments.
Impact of said restrictions:
- Diminishes value of investment property.
- Reduces the pool of buyers able to purchase in high-demand vacation areas.
- Infringes upon property rights.
Benefits of short-term rentals:
- Promotes tourism.
- Generates revenue for community and the city.
- Defrays costs of a vacation/second home.
Once you determine that you can start an Airbnb in your home check with your local codes department on how short-term renting is handled. I live in Nashville, TN and ordinances have been created to regulate short-term renting, such as:
Hosts must obtain a short-term rental permit. Since I live in my home I applied for a Owner-Occupied permit. Hosts who do not live in the home must obtain a Non Owner-Occupied permit. Each census tract of the county has a 3% cap on the number of Non Owner Occupied short-term rentals. If your city is similar then make sure to research how many permits are available in your census tract if you are not going to live on the property. It would be terrible to purchase property with the intention of running an Airbnb, then come to find out that there are no permits available in your area.
There are more “hoops” to jump through if you are going to be a non owner-occupied host. Which is understandable since you, the owner, will not be living on the property. It is in your best interest to get a permit if required to do so. The penalty for operating a short-term rental will be much more severe than having to pay the $50 or so annual permit fee.
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Does your current home insurance provider offer short-term rental protection?
It is understandable that potential hosts do not think about the liability associated with having guests stay in their homes. However, the majority of insurance companies do not cover this type of activity. Therefore, call your current insurance company and specifically ask if your policy covers short-term rentals by paying guests. Make clear how often you plan to rent out your home, whether you will be at home while renting, and how many people you will be hosting. Ask for confirmation so that you have everything in writing. It is possible that showing proof of insurance will be a requirement to your city/county in order to receive a permit, as well as obtaining a specific coverage amount.
More and more insurance companies are adding this type of coverage. When I became a host in May 2015 only one insurance company was able to help me. And since home owners are wanting to start an Airbnb more than ever in their homes they are demanding insurance companies cover this type of activity. Thankfully, a few have wised up and now offer short-term rental protection.
In addition to the coverage you get from your insurance policy Airbnb also has the $1,000,000 Host Guarantee.
The Host Guarantee provides protection for up to $1,000,000 in damages around the world. Payments are subject to certain conditions, limitations, and exclusions. For more details, read over the Host Guarantee terms. Or read the full Terms and Conditions.
Your journey to hosting on Airbnb is nearly complete once you are able to check off these three crucial things!