What to Know Before You Rent Your Home on Airbnb
Simply slapping up an ad on Airbnb or other rental sites can result in you being in violation of local zoning regulations, your homeowners association bylaws, and may end up voiding your insurance coverage.
Summer is in full swing and if you have a beach or vacation house that you hope to rent out there are plenty of opportunities. Unfortunately, there is also tons of risk involved when it comes to renting your vacation home.
According to data from Airbnb, reservations for beach houses are up dramatically in the United States as well abroad. Havana in Cuba has seen a 940% increase in bookings according to Airbnb.
While renting your vacation home as a short-term rental can be lucrative there are also pitfalls that can end up being very expensive. If you are considering putting your home on the rental market it is important to do your due diligence and make sure you are in compliance with all local regulations as well as being fully protected with the proper insurance.
Simply slapping up an ad on Airbnb or other rental sites can result in you being in violation of local zoning regulations, your homeowners association bylaws, and may end up voiding your insurance coverage, leaving you on the hook for major repairs if your tenants end up being less than honest.
Following are some of the bigger risks you should address before putting your home on the short-term rental market:
Insurance Issues
In most cases, a standard homeowners policy does not cover losses related to short-term rentals. While some insurers do allow short-term rentals you must notify them before hand and there may be limits on the number of times it can be rented in a year.
In most cases your insurance company will require that you add a rider or endorsement to your policy that covers risks that are specific to short-term rentals. If you plan on renting your property on a regular basis, you are technically running a business, which will usually require a different type of policy.
If you plan on renting to one person for a long period of time, usually six months or more, you will most likely need a landlord policy to cover any damage to your home.
Consulting with your insurance agent or insurance company before putting your home on the short-term rental market is extremely important. If it turns out that your policy does not cover damages you may end up having to pay any repair bills due to the negligence of your renters.
Check Local Laws
Laws and ordinances that relate to short-term rentals vary by city and state. You should familiarize yourself with all local requirements before putting your vacation home up for rent.
Many cities require you to have a license and collect additional taxes from your renters, much like hotels or bed and breakfast establishments. Zoning laws may also apply which means in certain areas you may not even be eligible to offer your property to short-term renters.
One of the major reasons for these additional taxes and licensing requirements is related to complaints about parking, noise and trash pickup which can dramatically increase due to renters coming in and out on a short term basis.
Your Homeowners Association May Prohibit It
Depending on what type of property you are renting, your homeowners association may prohibit you from doing short-term rentals. Before putting your property up for rent, check with your homeowner’s association to make sure you are not violating any of their bylaws.
If you fail to do so your homeowner’s association may levy fines against you and if you continue to rent your property or ignore the fines, legal action is a possibility.
This advice also applies to properties that are in a rent-controlled or rent-stabilized building as they may have special rules, which prevent you from offering your apartment as a short-term rental.
You May Need More Liability Coverage
Airbnb and most of the other short-term rental websites do offer host protection insurance, which is usually liability coverage up to $1 million per occurrence. However, if a renter is seriously injured on your property this may not be enough coverage.
In addition, if an injury is caused because you have failed to maintain the property the insurance from Airbnb may not apply. You may want to consider an umbrella policy or adding additional liability coverage to your current policy.
Umbrella policies offer significant liability coverage at a very reasonable price. Check with your insurance company to make sure the coverage extends to a short-term rental property.
Your mortgage May Forbid Short Term Rentals
In some cases your mortgage may have a provision that states you cannot rent out your property and if you do so it is in violation of your mortgage and your mortgage company may be able to fine you or even foreclose.
While this is not very common, it is best to call your mortgage company before listing your property to make sure.