Turning Your Second Home into A Short-Term Rental? Read This First.
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As summer winds down and school starts up, many are abandoning their seasonal retreats and second shelters to return to the real world. In the past, an entire inventory of lakefront cottages and countryside estates would sit dormant, awaiting the following season. Fortunately, things have changed in the era of the iPhone. With the advent of apps like Airbnb and Vrbo, second homeowners have easier options for profiting off their summer properties. However, as the short-term rental becomes more common, rules, regulations, and legal ramifications are mounting.
Before turning your home into a short-term rental, there are a few key things to consider. In this article, we’re teaming up with Brian Ross, a LegalShield attorney at Ross & Matthews, P.C. in Dallas, to provide expert insight on navigating these new income streams. As a LegalShield expert attorney, Brian regularly encounters commonly asked questions about short-term rentals. Here, he’ll share the most relevant tips for renting out your second home.
Do Your Research on Short-Term Rental Rules
As homeowners, we’re typically familiar with the laws in our hometowns. Though, as we’ve seen in Dallas, short-term rental regulations are constantly in motion and vary widely from one jurisdiction to another. Therefore, it’s imperative to fully understand the laws in your second home’s location.
“Make sure to thoroughly research any existing (or proposed) restrictions that may affect the short-term rental market,” Ross said. “Such restrictions can range from ordinances that purport to exclude them entirely, confine them to certain areas or zoning classifications, or perhaps require registration and permitting. While this may sound obvious, many potential lessors overlook this to their detriment.”
Take Taxes Into Account
One of the easiest ways to get yourself in deep is by discounting your tax liabilities. This is another one of those issues that varies from place to place. In some instances, you could be on the hook for more than you think.
“Many jurisdictions consider short-term rentals subject to the hotel tax,” Ross said. “And if the lessor does not collect the tax from the lessee at the time of rental, the owner may be personally liable to the jurisdiction for any such taxes.”
Unexpected tax bills can quickly eat into profits from your lease. In some cases, they may even cause you to incur interest and penalties. It’s incredibly important to talk with your attorney or accountant and ensure you’re covering your bases with big brother.
Author an Air-Tight Lease For Your Short-Term Rental
Perhaps the most important thing to consider with a short-term rental is the quality of your lease.
“This also may sound intuitive,” Ross said. “But make sure to have a properly drafted lease agreement that provides for any potential issues or contingencies that may arise during the lease term. Also, be mindful of who your potential lessees are, and why they are seeking a short-term rental. ‘Party houses‘ are all the rage on the local news nowadays, and while the majority of short-term lessees are renting for legitimate reasons, it’s best to be as careful as possible.”
Honestly, it never hurts to have a skilled attorney look over your lease to ensure you’re protected against party house pitfalls and problematic guests. After all, you’re opening your second home for the extra money, not the migraines.
Hopefully, this advice gives you a solid start in setting up your second home for short-term rentals. Once you’ve laid the groundwork for a legally sound business, your summer property can start paying dividends.
