Co-ownership 411

Short-term rental definition A short-term rental is a furnished living space available for short periods, from a few days to six months. They are considered an alternative to a hotel. You’ve probably seen vacation home listings on Airbnb or VRBO, but what exactly is a short-term rental? A short-term rental, or vacation rental, is a furnished living space available for short periods. Though you can book most vacation rentals for a few nights or weeks, each state has its own qualifiers for short-term rental properties. We’ll share the pros and cons, and additional considerations potential owners should bear in mind. Understanding short-term rentals Over the last 10 years, vacation rental brands like Sonder and Airbnb have exploded in popularity. Staying in short-term rentals is so common that many companies allow employees to expense their stays — just like a hotel room. Homeowners choose a short-term rental strategy for income potential, marketing automation, flexibility and tax benefits. Short-term rentals require less commitment than their long-term counterparts. A vacation rental can work well if the homeowner wants to also enjoy the home themselves. Seasonality, however, can also play a part in whether a rental will be in demand — meaning owners might have to give up personal stays during the most popular times of the year. Owners are also responsible for cleaning, coordination and maintenance to keep the short-term rental property in guest-ready condition. How short-term rentals work Many people who buy a second home or vacation property generate income by renting out their home when they’re away. On the other hand, homeowners can also buy investment properties to generate short-term rental income year-round. Because people on vacation will most often use short-term rentals, stays might vary from a few nights to several weeks. Sometimes, renters may lease them for as long as a month. Anything under six months is generally considered a short-term rental. Ultimately, your local jurisdiction defines what a short-term rental is for your area. What’s considered a short-term rental in each state? Local restrictions are a critical factor for anyone considering owning multiple homes. Each city or county defines what qualifies as a short-term rental property, and the fees can be hefty for homeowners who rent under the radar. Short-term rental qualifiers by state State Length of stay maximums Local regulations Alabama 30 consecutive days or less Requires a zoning certificate Alaska 30 consecutive days or less Requires a business license Arizona 30 consecutive days or less Subject to Arizona transaction privilege tax (TPT) Arkansas 30 consecutive days or less Requires an STR business license California 30 consecutive days or less Requires a business license Colorado 29 consecutive days or less Requires an STR license Connecticut 90 consecutive days or less Requires a zoning certificate Delaware 150 consecutive days or less Requires an occupational license Florida 181 consecutive days or less Requires zoning approval Georgia 30 consecutive days or less Requires an STR license Hawai’i 30 consecutive days or less May only be permitted in resort-zoned areas Idaho 30 consecutive days or less Requires an STR license Illinois One month or less Requires a zoning permit Indiana 29 consecutive days or less Requires a zoning permit Iowa 30 consecutive days or less Requires a zoning permit Kansas 30 consecutive days or less Requires rental registration Kentucky 30 consecutive days or less May require a conditional use permit Louisiana 30 consecutive days or less Requires an STR permit Maine 30 consecutive days or less May require a minimum of two nights Maryland 90 consecutive days or less Requires a rental license Massachusetts 31 consecutive days or less Requires a rental license Michigan 30 consecutive days or less Requires a rental license Minnesota 30 consecutive days or less Requires a zoning permit Mississippi 30 consecutive days or less Requires rental registration Missouri 31 consecutive days or less Requires a rental permit Montana 30 consecutive days or less Requires a zoning permit Nebraska 29 consecutive days or less Requires an STR license Nevada 30 consecutive days or less Requires an STR license New Hampshire 30 consecutive days or less Requires a zoning permit New Jersey 30 consecutive days or less Requires a seasonal certificate of occupancy New Mexico 29 consecutive days or less Requires an STR permit New York 30 consecutive days or less Requires rental registration North Carolina 30 consecutive days or less Requires a zoning permit North Dakota 29 consecutive days or less Requires a sales and use tax permit Ohio 29 consecutive days or less Requires an STR permit Oklahoma 29 consecutive days or less Requires an STR license Oregon 30 consecutive days or less Requires an STR permit Pennsylvania 30 consecutive days or less Subject to the hotel occupancy tax Rhode Island 30 consecutive days or less Requires rental registration South Carolina 29 consecutive days or less Requires rental registration South Dakota 14 consecutive days or less Requires a conditional use permit Tennessee 30 consecutive days or less Subject to local occupancy tax Texas 30 consecutive days or less Requires a zoning permit Utah 29 consecutive days or less Requires an STR permit Vermont 15 consecutive days or less Subject to the local option tax Virginia 30 consecutive days or less Requires a special use permit Washington 29 consecutive days or less Requires liability insurance Washington D.C. 30 consecutive days or less Requires an STR license West Virginia 29 consecutive days or less Requires a business license Wisconsin 180 consecutive days or less Requires a DATCP license Wyoming 29 consecutive days or less Requires a basic use permit Owners should verify local regulations, zoning, taxes and licensing with their city or state government website for specific details about what qualifies as a short-term rental in their area before leasing their property. Example: John lives in Austin, Texas, and rents out a garage apartment during South by Southwest, a festival that fills the city’s hotel rooms. His property is registered and licensed with the city to allow stays under 30 days in length. Types of short-term rentals Many vacation rental sites allow you to filter the type of short-term rental options you can browse through. The three main types of vacation rentals are entire homes, accessory dwelling units (ADUs) and individual rooms. The type of short-term rental you operate can affect how you operate your vacation rental business. It’s important to correctly categorize your vacation rental so that you pay the appropriate taxes and apply for the right zoning permits. Entire homes Example: A beachside retreat Airbnb and Airbnb alternatives list entire homes that double as seaside sanctuaries, mountain retreats and urban oases. The key component of qualifying as an entire home is that the rental must have a living area, bathroom and cooking space separate from shared spaces. Accessory dwellings Example: A backyard cottage Accessory dwellings are sometimes known as in-law suites because they often take the form of cozy detached studios complete with an en-suite bathroom and comfortable furnishings — perfect for when the parents are in town. An ADU is generally on the same property as the primary residence and can potentially include a private entrance. Rooms Example: A private guest suite Some jurisdictions allow homeowners to rent out a room in their primary residence as a short-term rental. The room can serve one or multiple guests at a time and can potentially include access to shared spaces like a kitchen or yard. Like an accessory dwelling, private rooms can sometimes include private entrances. Comparing long-term to short-term rentals Both short-term and long-term rentals are investment properties that homeowners can use to generate rental income. The length of the lease between owner and tenant often determines which type of rental agreement both parties will abide by. A long-term rental is generally a lease agreement for tenants who live at a rental property for at least 90 days, although some landlords require a minimum of 180 days or a full calendar year. A short-term rental, however, is generally available to lease for less than 30 consecutive days. Short-term rentals Long-term rentals Furnishings Furniture required Typically unfurnished Tenant responsibilities Light cleaning may be necessary Moderate maintenance may be necessary Utility payments Utility costs are built into rental rates Tenants generally pay for utilities independently Vacancies Seasonal vacancies are possible Potentially fewer vacancies Compared to a long-term rental, owning a short-term vacation has its fair share of unique pros and cons. From zoning laws to low-season vacancies, there are a few considerations before investing in short-term rentals. Considerations before investing in short-term rentals Short-term rentals require homeowners to abide by local vacation rental rules and regulations. There are several factors to consider before investing in a vacation rental. To operate a short-term rental, owners need to: Ensure property zoning allows short-term rentals: Check your local state, city or county website for specific short-term rental guidelines. Register for appropriate licenses: You may need to obtain a permit or license before earning income from your rental. Report business income: Operating a short-term vacation rental business means you assume the responsibility of reporting your income and expenses. Budget for additional taxes: Create a financial plan that accounts for the appropriate tax payments. Manage and maintain your rental property: You may need to hire a property manager or schedule time to manage and maintain your vacation rental. A short-term rental investment property generates income from short-term leases. Short-term rentals can take the form of entire homes, ADUs or rooms within your primary residence. Although vacation rentals can potentially yield rental income, they also come with a fair share of property management and tenant communication. If you’re more interested in relaxing than running a business, consider becoming a co-owner of a second home. Co-owning a luxury second home has never been easier. Unlike vacation rentals, a Pacaso vacation home is fully managed and turnkey — which means less work and more time to unwind. You choose the amount of ownership that works for you, and you share the costs and time spent in the home with other co-owners.

Co-﻿ownership 411

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Co-ownership 411