Most Important Things you MUST consider before buying a Short Term Rental
In looking to purchase a property for a Short Term Rental investment property or if you are considering converting a current property you own into one, this is the MOST IMPORTANT article you must read. You can pick out the perfect property in a perfect location that you predict will be a great market for a short term rental, but that does not matter if you don’t consider and carefully understand the following.
Governmental Regulations Regarding Short Term Rentals in Your Area
The very first consideration you must completely evaluate is whether the town, city, county and/or state your property is located allows Short Term Rentals. For the purpose of this article, we are only discussing “whole home” Short Term Rentals where the owner does not also occupy the property. Most areas have less stringent rules on owner-occupied properties. Even if “whole home” Short Term Rentals are allowed, there still may be many rules and regulations on Short Term Rentals which may not make Short Term Rentals feasible for your location.
Outright Ban on Short Term Rentals
There are many governmental entities which have an outright ban on non owner-occupied Short Term Rentals (where you rent out the whole house to guests and you don’t also live at the property). At the time of this writing, here are some of the larger cities which have an outright ban or effectively an outright ban on non-owner occupied Short Term Rentals (typically considered a stay of less than 30 days):
Austin
New York City
San Francisco
Denver
In 2020, the entire State of Florida banned Short Term Rentals, but those restrictions have since been eased.
Regulations on Short Term Rentals
Many communities allow non-owner occupied Short Term Rentals with regulations, some of which are minimal and some extreme. Some of the more common requirements enacted by communities:
Require a permit
Limit the number of days per year the property can be rented out
Require proof of insurance
Limit the number of non-owner occupied permits that can be issued
Require short term rental operators to collect and pay Hotel Occupancy Tax on stays less than 30 days (these taxes can reach close to 20% in some jurisdictions)
Example of Regulations on Short Term Rentals
In San Antonio, Texas, the City Council approved regulations in 2018 which provide requirements for Short Term Rental operators to work in the city limits of San Antonio.
Some components of San Antonio’s regulations are:
Must get a permit ($200 application fee) – the permit is good for 3 years – $100 fee on the renewal
Must pay Hotel Occupancy Taxes (HOT) and be registered with the City Department that collects those taxes
If you are subject to HOT on a San Antonio short term rental, the total of these taxes is 16.75%! (6% Texas, 9% City of San Antonio, 1.75% Bexar County) – this cost is typically passed through to the Guests
Safety, Parking and other requirements (such as requiring smoke alarms and fire extinguishers)
Density Limitation – Non-Owner Occupied Short Term Rentals can not exceed 12.5% of the blockface (one side of the street between two perpendicular streets). There is a procedure to get around this by going to the Board of Adjustment and get an exception.
$200-500 fine for each violation of the rules
This is by no means all the regulations in San Antonio, but just written to give you an idea of what to expect.
A great resource which has compiled information on most cities is on Airbnb.com. If you go to the Airbnb website help center and search Help Articles for your location, it will bring up some information on that locale. BEWARE, these Regulations change so you will need to verify with your local government (typically zoning/planning department) as to the current rules and regulations.
Homeowners Association or Condo Association Rules Regarding Short Term Rentals
Your analysis can not end once you determine that your property location is viable and legal based on governmental regulations. If your property is located and governed by a Homeowners Association or Condominium Association (or something similar), you must also thoroughly review those restrictions!
It is very common for Association Documents to have prohibitions of some kind or an outright ban against Short Term Rentals
The language in the documents can vary greatly, but the most common language I have seen prohibits rentals less than 30 days.
****IMPORTANT***
Just because the Association does not currently prohibit Short Term Rentals doesn’t mean they can’t prohibit them in the future! Over the past few years I have seen several Associations pass new restrictions placing a prohibition on Short Term Rentals in their communities – for this reason I recommend first looking outside of these communities when looking for an investment property that you plan to operate a Short Term Rental. If you choose to purchase in an STR friendly community, you must be aware that the climate could change at some point!
