Millions of homeowners and investors have become part of the sharing economy. They have fixed up and rented out their houses and apartments on a short-term basis, from palatial mansions with swimming pools and landscaped acreage to tiny studios of a few hundred square feet. And then there’s everything in between that offers a good opportunity to attract visitors to secure some cash at minimal effort and cost.
Numbers are hard to peg, but according to one article on the site Trip101, Airbnb has grown to have about 2.3 million listings in 191 countries. HomeAway has more than 1 million listings in 190 countries. Of course, there are other rental-sharing companies engaged in the practice such as VRBO, One Fine Stay, and The Plum Guide.
Those who pay attention to changes in the sharing economy know that when it comes to renting out your own home or renting someone else’s for business or vacation, it’s not quite as easy as it first appeared.
These days you need to do more than have a bed, sofa, a few chairs, some cooking equipment, dishes, glasses, cutlery, and clean, safe surroundings to entice guests to your home rather than to another rental. Some guests are looking for certain amenities such as a pool. Others want all the niceties like a Nespresso machine with capsules and a deck with a killer view. And you may want rules to be sure your guests take care of your house but not so many that they feel they can’t relax. Such helicopter hosting could become a negative in a post-stay review, which may stop others from coming.
But there’s another challenge to be aware of these days. Elected officials, from governors to mayors, and locally appointed building, planning, police and fire department personnel, in many parts of the country have voiced strong opinions about having new regulations regarding what places can be rented out and for how long they can be shared. In many cases, the new rules reflect stricter guidelines as the number of rentals expands, houses are taken off the market for sale to full-time residents, and problems arise. In some cases, it’s a matter of too much noise, too many cars, and too much garbage. In other cases, there are intangibles that are perceived to change the fabric of a building or neighborhood.
New York City—one of the most popular tourist destinations and Airbnb’s largest domestic market—is in the middle of a particularly nasty fight over Airbnb and other online home rental services, according to New York City real estate and corporate attorney Jonathan S. Berck. He notes that the city just enacted a new law requiring such services to provide the names and addresses of hosts in the city on a monthly basis. “This would make it much easier for the city to enforce New York State law requiring that permanent tenants be present during rentals of more than 30 days “thus knocking the number of Airbnb bookings roughly in half,” says Berck. The fines for noncompliance with the new law are draconian, he adds, ranging from $1,500 for each listing an owner or lessor fails to disclose and up to 12 months’ worth of the fees collected for that listing.
Berck adds that the arguments in favor of the law stemmed from evidence that some landlords were keeping valuable rent-stabilized housing stock off the market to make more money through Airbnb-type rentals, as well as complaints of lost business and unfair competition by the highly-taxed hotel industry. “Ordinary” New Yorkers, according to Berck, countered that they were being deprived of the opportunity to use their most valuable asset to help make ends meet.
To avoid upsetting neighbors or breaking a law—which some renters and home owners may not even know they are doing—and getting a fine or being told the property isn’t a viable rental choice, anybody who participates needs to check that their rentals follow all the rules set by the municipality or state. Here are eight to pay heed to, but understand that this is a changing situation, so what’s a regulation today may not be tomorrow.
1. If you’re a homeowner, know if your property can be rented out. Not all buildings permit it. In fact, many apartment buildings—whether rental, condo or cooperative—don’t allow subletting for any period. As reported by Peter Klose, a New York State real estate attorney with his own eponymous firm based in Nyack, N.Y., Airbnb’s own website refers to New York’s efforts to restrict the use of multiple dwellings. Same goes for some communities and certainly home owner associations (HOAs). Be sure before you do this that the sharing is legal. You don’t want to have a visitor evicted in the middle of the night if an angry neighbor complains. Klose points out that courts have found such rentals a violation of rent stabilization rules, which means that hosts can lose their status, and incur significant litigation expenses for a relatively minor benefit.
2. Ask if a fire inspection is necessary if renting is allowed. Local codes may dictate the need for a fire extinguisher on each level of a multifamily dwelling or at least in a one-floor unit, so find out. You may also need a CO2 detector on each level and a secondary egress in case of an emergency, again if it’s a multistory dwelling.
3. Know about timelines. Regulations vary widely. It’s worth taking the time to do your research. Airbnb offers useful information regarding what a long list of cities is doing, again on its website. Some cities such as Santa Monica, Calif., Nashville, Tenn. and, as stated above, New York City, no longer permit short-term rentals of an entire apartment building or sometimes a home—depending on the specific city and rules—for less than 30 days when the owner host doesn’t remain on the premises. Santa Monica’s Home-Sharing Ordinance, for example, went into effect June 12, 2016. The law also requires a business license, taxes and compliance with other health and safety laws, with important information listed on the city’s website. And tiny Rhinebeck, N.Y., in the Hudson River Valley, is considering limiting the number of days a rental is permitted when the owner doesn’t remain on the premises. The goal in each case is to avoid a constantly changing parade of strangers.
4. Know if the community permits non–resident hosts to rent out their listings. Some communities permit only local owners to be able to rent out their property to avoid housing being owned by investors who rarely get to know their neighbors, shop locally or even show up, especially if they hire a property manager to do their work.
5. Know the number of visitors who may be permitted at a single time. To avoid large, noisy parties that possibly could get rowdy and require police or fire department personnel to show up, some communities are instituting restrictions regarding how many renters are permitted at a single dwelling at one time, sometimes based on the number of bedrooms or just some arbitrary finite number they consider safe.
6. Know about parking regulations. There may be a big enough driveway that’s part of your property for renters to park their cars, but a town or city may have a rule that supersedes that and limits the number allowed at each house. Some towns and cities also regulate whether cars can park on the street, for how long and when.
7. More communities are requiring that an owner occupancy tax be paid. For example, in Dutchess County, N.Y., homeowners renting out their homes must register, get an I.D. number and pay a small 4 percent tax on the rental income earned each quarter. And many towns are also requiring that owners who rent secure a permit, which adds another expense, though usually small. For those renting through Airbnb, each Dutchess County host must register as a host, but the website collects and pays the tax without the homeowner reporting, says Klose.
8. Know the tax implications. Taxpayers do not have to report rental income if they stay within the less-than-15-day rule, but over that number of days their earnings will be taxed. To understand the full implications of sharing, be sure you speak with your accountant about potential taxes as well as what you’re allowed to depreciate and deduct.
The bottom line, Klose says, is to be careful. “Condominium and cooperative apartment boards are increasingly litigating their displeasure with shareholders or owners permitting transient use of their facilities,” he says. “While the laws and rules may be slow to catch up, you do not want to be litigating your right to sublease for a few extra dollars a month.” When in doubt, contact local officials or a real estate attorney.