Not only is Airbnb investing a great way to make money in real estate, but great for travelers all around the world. Airbnb investment has helped travelers worldwide save money. This magical app opened more options for travelers on where to stay instead of relying solely on pricey hotels. For this reason, the demand for Airbnb rental properties has increased over the years and made investing in Airbnb a very lucrative investment strategy. The problem is that Airbnb regulations are causing investors to hesitate before jumping into this type of property investment.
Related: Four Things to Consider Before Purchasing an Airbnb Investment Property
When deciding whether or not to become an Airbnb host, it’s important to understand how the laws work in your city. To avoid getting yourself into trouble, read about the Airbnb regulations and the cities where Airbnb is illegal.
Becoming an Airbnb Host
Before listing the cities with strict Airbnb regulations, let’s discuss the issues you would have to approach seriously if you are an Airbnb host, or considering becoming one, to ensure that you stay within the bounds of the law. If you would like to learn more about Airbnb legal issues, visit Mashvisor to gain further knowledge.
1. Check Your City’s Airbnb Regulations
It can be complicated to keep track of your city’s Airbnb regulations since they are constantly shifting. However, staying up-to-date about your city’s laws is very crucial. Carefully examine the zoning laws and find out if the investment property you live in falls within the allowable limits.
Operating illegally results in very harsh consequences. There are fines to pay that are constantly skyrocketing. So do your homework before anything to ensure you don’t cause yourself problems later on.
2. Get a Permit or License
In some cities, hosting an Airbnb rental property is illegal if you don’t register and apply for a permit. The owner of an unregistered property found on Airbnb will receive a nasty fine.
3. Pay Your Taxes
Even though many Airbnb operations are avoiding paying tax, you should still own up to your responsibilities and pay. In certain cities, it is required that you pay a tax similar to hotels, so do your homework carefully. You don’t want to find yourself with a surprise back-payment when the tax office finds out.
4. Check if Subleasing Is Permitted
Unless you are the owner of the rental property that you plan on renting out on Airbnb, then checking if subleasing is permitted is a must. Not every landlord will be pleased about the fact that you’re handing over the keys to strangers. It is better to be on the safe side and get a written permission from your landlord before anything.
5. Have a Strong Insurance Plan
Just in case you’re not one of the lucky Airbnb hosts that have wonderful guests, you would need a strong insurance plan to back you up. There will be times where your guests will damage your rental property and a good insurance plan is required. While Airbnb promises coverage with its $1 million Host Protection Program, if you read carefully, you’ll notice that there are damages it will not extend to.
6. Health and Safety
Just like hotels take complete responsibility to ensure their guests are safe, you as an Airbnb host would have to do the same. You can get yourself into an ugly lawsuit if a guest was injured while staying at your property. Read through Airbnb’s guidelines on Responsible Hosting. It includes basic things like providing a first aid kit, ensuring your smoke alarms work, and providing numbers for emergencies.
Many states have imposed on their cities strict Airbnb regulations because they claim that Airbnb is significantly affecting their current housing market. Airbnb is driving up rent as well as property prices. Here are the top 3 cities in the US housing market 2018 with strict Airbnb regulations.
3 Cities in the US With Strict Airbnb Regulations
Here are three US cities that have strict Airbnb regulations:
1. New York City
It’s no surprise that this city is one of the United States’ biggest tourist destinations, making the New York housing market very appealing to real estate investors. The NYC area alone has over 16,000 Airbnb listings. However, there are strict regulations about Airbnb investment in New York City.
As of right now, only permanent residents are allowed to rent for less than 30 days and only while the owners are actually in the house. Here are the laws and regulations of New York City that should be taken into consideration according to Airbnb.
- Rent control: Check first to see if your investment property is subject to rent control or rent stabilization. If so, then you need to read The New York City Rent Guidelines Board’s website to ensure that you are not violating any laws.
- Taxes: New York State imposed multiple taxes that may apply to short period occupancy or tourist use property, subject to certain exceptions. Some of the taxes that could apply to your listing are state sales, city hotel room occupancy tax, and state and city nightly room fees.
- Business licensing: In New York City, you must obtain a special license or permit before investing in Airbnb rental properties.
- Advertising: The state of New York banned advertising rentals that violate the Multiple Dwelling’s Law restrictions on short-term rentals. Multiple Dwellings Law limits renting out multiple dwellings for a period less than 30 days when the Airbnb host is not present.
- “One host, one home”: New York brought about the “one host, one home” policy which prevents an Airbnb property owner from advertising more than one property on the home sharing website.
Read Also: What’s the Deal with Airbnb New York Regulations?
2. San Francisco
The San Francisco real estate market was listed as one of the most profitable Airbnb cities at the beginning of 2018. Yet, due to new Airbnb laws, it might lose this title. Strict Airbnb regulations are making short-term investments in this city more difficult. To avoid falling into any illegal pitfalls, you need to keep yourself updated on existing Airbnb laws.
- Registration and taxes: Every Airbnb host must register in the city and obtain a Business Registration Certificate and a Short-Term Residential Rental Certificate in order to host on websites such as Airbnb. San Francisco also imposes a tax fee. Hosts are required to pay a 14% Transient Occupancy Tax (TOT) on reservations for less than 30 days.
- 90-day rule: This Airbnb regulation does not allow the Airbnb host to rent out the property for more than 90 days if he/she is not present in the property.
- Primary residence requirement: This means that in order to register your listing, you must live there for at least 275 days per year. You would need to provide proof in documentation that the address you are registering is your primary residence.
- Liability insurance: Airbnb hosts are required to be covered by liability insurance with a minimum of 500,000 dollars in coverage. Airbnb in San Francisco provides $1 million worth in host coverage.
Related: The San Francisco Real Estate Market for Short-term Rentals: New Airbnb San Francisco Laws in 2018
3. Santa Monica
This upscale beach town and attractive tourist destination is currently undergoing strict Airbnb regulations. Santa Monica has wiped out 80% of its Airbnb listings! All of this is due to the strict regulations on short-term rentals. Here are some laws and regulations concerning short-term rentals in Santa Monica.
- Business license: Every host should register for a business license from the city. Hosts who are found without a business license will be given a costly fine.
- Occupancy tax: In Santa Monica, a 14% Transient Occupancy Tax on the listing must be paid.
- The primary resident living on site: It is required that the host lives on the property during the renter’s stay. The law prohibits short-term rentals if the primary resident is not living on site throughout the stay.
The Bottom Line
Most of the time investing in short-term rentals is a smart investment strategy and can generate a positive cash flow. However, before choosing the location for your short-term rental, double check to see how strict the Airbnb regulations are. To help you find the best locations for Airbnb properties, use Mashvisor’s heatmap and property finder tools!
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.