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By: Attorney Davis Runde
One reader recently inquired about Airbnb rentals and what considerations to make prior to listing their property on such a site. This is a great question. Airbnb and similar platforms, such as Vrbo, have made it relatively easy to convert second properties into passive income vehicles. However, opening your cabin doors to weekend vacationers is not as simple as logging onto a website, listing the property, and subsequently making extra cash, no matter how much these companies want you to believe that.
For anyone considering renting their property out on one of these sites as a short-term rental, it is important to consider the following points.
Local Ordinances and State Laws
Many municipalities either have adopted or are beginning to adopt ordinances which limit the ability of a property owner to rent their property as a short-term rental. Some ordinances limit the amount of it is rented on a short-term basis, or limit the type of property that may be rented. Additionally, local code and state law may require you to obtain a short-term rental permit or a tourist-rooming house permit, depending on the type of property in question.
A good place to find the answers to some of these questions is your local municipality’s website, or a call to your municipal clerk.
Taxes
In addition to the permits you may need, you may also need to make sure you are paying the requisite tax on the short-term rental. Many municipalities are beginning to levy “room taxes” on these types of properties and rentals, and failure to pay the taxes may result in interest charges or revocation of your permit.
Also, keep in mind the fact that you are making additional income from your property, so you will likely be subject to paying income taxes on your earnings from the rentals.
HOA or Condo Rules
Not only may your local government stand in the way of you renting out your property as you wish, but if the property in question is part of a Condominium or Homeowner’s Association, the bylaws or rules and regulations of those associations may flat out prohibit the properties from being rented out on a short-term basis. Thus, it is important to review those documents prior to listing the property for rent, as you may subject yourself to assessments from the association you are a part of.
A similar consideration should be made if the property you are considering renting is a property you lease. Your lease may contain a prohibition on subleasing, which short-term rentals would qualify as. If you violate your lease, you may be subject to an eviction action.
Insurance
Consider the type of insurance you have on the property. Depending on the policy you have, there may be limitations or exclusions associated with renting the property out. If you have a homeowner’s policy, it may not cover claims that arise from commercial use of the property.
No matter what type of policy you have, consider getting an additional umbrella policy to cover the property and liability arising out of the rental. Umbrella policies will cover claims that are in excess of the liability limits of your property’s policy. If you are underinsured, it is possible for the injured renter to come after your personal assets.
Limit Your Liability
For the reasons discussed immediately above, consider creating an LLC to hold the property and interface with renters. If done correctly, utilizing the LLC to operate the rental business would ensure that you would not be personally liable to any renter or other injured party.
Certainly, the idea of renting out your cabin or other vacation property in order to make some extra money is attractive, but, like most things, it is not without obstacles. Fortunately, the obstacles in this instance are usually able to be overcome. If you need help doing so, however, be sure to seek assistance.
Davis Runde is an attorney with Weld Riley, S.C.. Davis is a Wausau native and is a member of Weld Riley, S.C.’s Labor & Employment, Business, and Municipal Law Sections. Prior to joining Weld Riley, S.C., Davis served as an Assistant District Attorney in Marathon County where he was awarded for Outstanding Achievement Supporting Survivors of Domestic Violence.
