Consider These Important Issues Before Listing Your Home on Airbnb

Listing all — or even just part — of your home on Airbnb or other similar platforms can be a great way to make some extra cash. 

But don’t let those money signs cloud your judgment: Operating a successful short-term rental is no easy feat. It could also pose challenges with your HOA, city, or even your mortgage company.

Thinking about turning your home into a short-term rental property? Consider these important questions before making your move.

1. How are short-term rentals treated in your county/city?

Every municipality treats short-term rentals a little differently. In some, they can only be operated in certain areas, or you might need a license or certificate in order to run one. In other places, short-term rentals may be banned entirely or subject to significant taxes and fees.

You’ll want to study up on how your municipality treats short-term rentals before opting to list your house on Airbnb or a similar platform. Learn about any rental restrictions your county or city may place on renting out your house as a short-term vacation rental. Failing to do so could put you in violation of local laws and regulations or mean a hefty penalty or fee.

2. Are there any HOA or deed restrictions against it?

If you live in a neighborhood governed by a Homeowners Association (or POA or COA), then you’ll want to check with your board before making any moves. Many HOAs have restrictions on rentals, as well as how often homes can be rented out in the area. Violating HOA rules could, again, result in pricy penalties.

You should also check your deed restrictions. These can also contain language about renting out or subletting your house, which would definitely come into play with an Airbnb rental. If you’re not sure your deed restrictions or HOA documents allow it, consider talking to a real estate attorney just to be safe.

3. Have you talked to your mortgage company about it?

Mortgages for primary residences and mortgages for rental and investment properties are entirely different animals. For properties you intend to make income off of, you typically need a bigger down payment, you’ll have to meet stricter qualifying requirements, and you might pay higher fees and interest rates, too.

In short? It’s something your lender usually wants to know about from the beginning.

Now, that’s not to say your current lender or servicer won’t allow you to rent the home on Airbnb, but you’ll need to check in with them first. If you applied for your loan and checked “primary residence” on that application, renting out the property could put you in violation of your mortgage contract. 

4. Do you have other means of income?

Airbnb money can be a great addition to any homeowner’s income, but it shouldn’t be the only earnings you rely on to pay your bills. After all, if 2020 has taught us anything, it’s that nothing is guaranteed (especially travel), so tying yourself down to one, very unpredictable income can be quite dangerous. That’s particularly true if you have a hefty mortgage payment or other regular expenses each month.

If you do opt to rent your home out, just make sure you have another stream of income (or two). It’s like that old saying goes: “Don’t put all your eggs in one basket.” 

5. What will it mean for your taxes?

Turning your home into a rental will likely mean paying more in taxes each year. First, you’ll pay any additional taxes imposed by your city or county (some have short-term rental taxes specifically or you may pay the local hotel occupancy tax).

Additionally, you’ll also need to report the income on your tax returns, which probably means more in taxes (or maybe even a higher tax bracket) once all is said and done.

If you’re considering renting out part or all of your home, you should consult a financial or tax advisor before doing so. They can help you estimate what taxes you may owe, as well as help you budget for them. They might also suggest some valuable write-offs and deductions that can help you reduce your tax burden, too.

6. How will you protect yourself from risk and liability?

Airbnb hosts enjoy the platform’s built-in insurance policy, but it’s not exhaustive by any means — and bringing a stranger into your home could certainly put both you and your property at risk. You’ll want to be sure you have plenty of insurance to cover both the liability you might have for any injuries on your property, as well as any damage that guests may do to your home or belongings. It’s also a good idea to consult with a real estate lawyer for legal advice and make sure you have all the governing documents in place and ready.

There’s always the risk a renter doesn’t leave, too (you’ve probably heard of squatting!), so make sure to talk to an attorney about this as well. As a property owner, you need to protect yourself from possible problems such as these. You’ll want a course of action planned just in case.

Buy an investment property from the start

Another great option is to buy a property with Airbnb in mind from the start. If you’re considering an investment property purchase such as this, get in touch with an Embrace Home Loans office today. They can point you toward the right mortgage product for your needs.