• Dennis Cogbill

What You Need to Know before Diving into Short-Term Rentals

For years, the apartment industry has, generally speaking, held short-term rentals at an arm’s length.

The reasons are no doubt familiar to you: Residents aren’t crazy about them, and they present an array of tax and logistical issues. But forward-thinking operators have looked at the inescapable popularity of sites like Airbnb and VRBO and have decided to pursue a significant business opportunity.

Before you pursue the opportunity, make sure you consider the following three potential challenges and plan ahead for them:

• Taxes. There’s no way around it: taxes can get really complicated when it comes to short-term rentals. Depending on the jurisdiction in which your community is located, putting apartment homes up for short-term rentals could have some unexpected tax consequences. Some local jurisdictions even require you to get a lodging license and subject you to expensive hospitality taxes.

Offering short-term rentals can be a great way to enhance a community’s revenue stream, but you have to make sure you understand the tax implications in the jurisdictions you’d like to operate and plan accordingly.

• The organization and configuration of short-term rentals. Are you going to cordon off one floor of your community for short-term rental units and manage the units yourself? Are you going to dedicate a whole building to them? Or are you going to let residents rent out their homes when they want to and share the revenue with them? If your residents are free to lease their units when they want to, will you ask them to get the lodging license and pay any hospitality taxes? As you can see, there are a lot of strategic and tactical considerations to explore before moving forward.

• Resident concerns. Renters traditionally have been squeamish about the idea of random people who don’t live there visiting the property for short stays. However, evidence is emerging that apartment residents' hostility to short-term rentals is beginning to soften at least somewhat.

According to J Turner Research's 2019 "Short-Term Rentals: Deal or No Deal?" report, 19 percent of apartment residents would "definitely not" live in a community that allowed short-term rentals. That's a six-percentage-point reduction from the 2016 report.

Still, before implementing a short-term-rental operation, apartment managers need to proactively address residents’ concerns. Send them emails explaining the decision and explain why they don’t need to worry. Detail whatever safeguards and screening procedures may be in place. Consider holding a town-hall-style event at which you will answer their questions and allay their concerns.

Ready to learn more about short-term rentals and hear first-hand insight and analysis from your peers who’ve had success with them? Then register for MICA 2020 today! The “Short-Term Rental - Southeastern Product Review” session that will be held on Wednesday, Feb. 5, at 2 p.m. will present case studies of various models, such as master leased, renter-initiated hosting, corporate rentals and lease-up period hotels. The goal of the session is for attendees to leave with a localized understanding of the revenue potential and operational challenges of this new business model.

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