Is Your Airbnb Legal? How to Find Out In 2 Different Ways
Should you Airbnb or not?
Before you actually consider the pros and cons, do you know if Airbnb is legal in your city?
Airbnb Rental Arbitrage is easy to understand conceptually, but there are many legal issues you need to consider before booking your first guest. To make your life easier, I have compiled a list of all the cities that already have regulations.
( check out my list of 59 cities here)
Don’t be like this guy, who gut shut down after a couple of months because his landlord found out. Honestly, that is another story. Let’s get back to why you’re here.
Community, Neighborhood & Leases
Depending on where you live, you may need to abide by certain bylaws of your neighborhood. These procedures and rules were set in place when you moved in, but no one says they cannot be amended to create a win-win.
Whether you operate an Airbnb unit in San Francisco, New York City or wherever, you need to make sure you are creating a sustainable community relationship. Some hosts are going full-force and not considering the impact that their business is making in the community, whether positive or negative.
Are you renting the unit you are hosting out of? If so, check with your landlord or management company to make sure it is legal to sublease your space. If you violate a lease term, they can possibly kick you out and you will still have to pay the remaining lease payments. Ouch!
Actionable Advice: Be responsible, be a good person, and consider the opinion of your neighbors. Do not break any bylaws of your community such as homeowner’s association rules. If the bylaws discourage all subleasing, then try to get them amended to find a compromise. Maybe you can get them changed to allow for up to 14 days per month.
How to Find Out If Your Airbnb Is Legal In 2 Different Ways
The first method is the quickest, but it doesn’t always yield results. The second option is more thorough but can be more frustrating.
Method #1- Google
You can do a quick Google Search. Go to Google and type in short-term rental + “your city.” For example, I was looking into doing Airbnb Arbitrage for one of my local cities in California, so I typed in Google:
My search query was: Short-term rental Redwood City
This is the fastest way to find out. However, it is not the most reliable way.
Method #2- The Most Reliable Way
Let’s take the same example, Redwood City. I wanted to make sure that Redwood city was a safe city for Airbnb Rental Arbitrage. Instead of Google, you can actually go to Redwood City.gov website.
Step 1: go to http://www.redwoodcity.org/
Step 2: search for short-term rental within the site.
Step 3: read the results.
Is your Airbnb Legal? Other things to Consider
Airbnb Host Insurance
Running a business means you are putting yourself, your property and the public at risk of injury or loss. To help protect yourself and others, you should get insurance. Sometimes just basic homeowner’s or renter’s insurance will cover you, but you need to check with your insurance provider to confirm that sub-leasing is covered.
Another way to stay safe is to collect a security deposit from your guests on Airbnb. Make sure you evaluate your rental unit quickly because you only have 48 hours after your guest checks out to make a claim.
Lastly, Airbnb does offer a $1,000,000 Host Guarantee which protects a host against damages above and beyond the amount of the security deposit. Best of all, it does cover you in case you have no security deposit–just takes longer to get reimbursed.
Actionable Advice: Get a trustworthy insurance agent that knows your specific situation and let them take care of the rest. They know what riders and addenda you need to add to your policy (if any). If you are operating multiple rental units, you may want to set up an LLC to protect yourself even further. By doing this, you make your personal assets harder to get access to in the event of an extreme legal issue. You must show due care and have the proper insurance to protect yourself under the corporate veil.
Taxes or TOT
These taxes have been around since hotels/motels/traditional b&b’s first started. It’s the price the lodging industry pays their local governments for allowing them to do business. The details and enforcement of these laws are what has been coming into question and making headlines.
Not so long ago, hotels had little to no competition, but since the birth of Airbnb, nearly anyone can host and provide lodging to a guest. If Airbnb is taking over market share and they are not collecting or paying the lodging taxes, then that means less tax revenue. That is why politicians are scrambling to get a solid game plan on tax enforcement. They know that Airbnb is going to be around for a long time, so they better get hip with the times.
Actionable Advice: We suggest you contact your CPA and local Chamber of Commerce to ask what the code is in your area. If there is no code or law enforcement of the code, then create a cash reserve on the side to pay these taxes if they ever try to collect them at a future date. Better to be safe than stuck with a $4,000 tax bill you can’t pay!