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What is a short term rental (STR)? Everything you need to know

What are short term rentals. Everything you need to know
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There’s lots of buzz in the news around short term rentals or STRs. So, we’ll to take a closer look at exactly what the term means. If you are considering purchasing a vacation rental it is very important to understand it. Plus, it will likely factor into your decision on where to purchase. 

What defines a short term rental (STR)?

A short term rental is defined as a furnished property rented to temporary guests for a rental period of less than 30 days. Rentals that exceed 30 days in length are typically considered monthly or long term rentals. Sometimes, short term rentals are referred to as vacation rentals, transient rentals, short term transient rentals or even transient vacation rentals. They all mean the same thing: a furnished property that is rented out for less than 30 days.

What are some examples?

Generally, properties found on Airbnb and Vrbo are considered short term rentals. Typically, they are single family home, apartment or condominium. However, you can also find condo-hotels, and alternative housing like yurts, airstreams, boat houses and more. 

Now, you can find all different types of platforms catering to short term rentals. For example, Kid & Co. focuses on kid-friendly vacation rentals while We Go Lightly caters exclusively to female hosts and travelers.

What a great time to travel! The choices are endless! 

Is a short term rental considered a business?

In short, yes, a short term rental or a vacation rental is considered a business.The IRS defines a business “an activity carried on for a livelihood or in good faith to make a profit.” Sometimes it can be just a side hustle. Other times, property owners will rent out the property year round to guests. Property owners will rent out their homes as short term rentals to: 

  • > Cover some or all of their mortgage expense
  • > Offset some or all of the costs to maintain the property
  • > Make a profit and earn extra income 

Can I make money with a short term rental?

Short term rentals can be very profitable. Ultimately, however, the answer to that question depends entirely on you and the location of your property! Pricenomics conducted a study comparing various earnings from the sharing economy and found that, on average, Airbnb hosts earned $924 per month. 

Certainly, there will always be a wide range. Many short term rental hosts make much more while others make less. Factors such as location, size of the property, amenities, photography and reviews will make a difference in the success of the short term rental business. 

What are the pitfalls?

Short term rentals are more work than long term rentals. There is generally more wear and tear on the property. But, the returns for short term rentals are usually greater. More work equals more reward. We have some tips on how to overcome common challenges and be successful as a vacation rental owner.

Short term rental (STR) regulations: What are they?

Many cities and towns all over the world have passed ordinances regulating vacation rentals. These ordinances, however, vary widely by city and town. In general, the ordinance will define what the city considers a short term rental. In addition, the ordinance usually does some, or all, of the following:

  1. creates zoning restrictions
  2. requires permitting for a license to operate 
  3. put regulations on advertising
  4. imposes taxes and fees  

Other times, a city ordinance may ban STRs completely, as in Aventura, FL. Aventura does not allow short term rentals of any type.  

Several cities and towns who don’t currently have STR regulations in place may consider them for the future. For example, Michelle Turck, the Zoning Administrator in the Town of Rhinebeck, NY said recently that “the Town does not currently have regulations on short term rentals. The Town Board is working on drafting legislation to address this issue.”

New regulations, or changes in existing regulations, have the potential to drastically affect your earnings. I know firsthand. It happened to me with a vacation rental property that I owned in Austin, TX.

The city passed regulations a few years after I had started my STR business and one of my rentals fell in a restricted zone. Because of these new zoning restrictions, my vacation rental home became ineligible to advertise and run as a STR. 

Moral of the story: understand and monitor your city or town’s short term rental regulations. And, if they don’t have one, have a back up plan in case they institute one.

What is a short term rental permit?

If you want to open a restaurant your city or town will require you to apply for a permit to operate your new business. As such, many towns now require a permit to run and operate a short term rental. Permit fees range anywhere from $50 to $550 to obtain the license to operate. And, more often than not, the license must be renewed on an annual basis.

Do permits or licenses transfer to a new owner?

That depends entirely on the city’s ordinance. Some towns and cities allow transfers of short term rental licenses to a new owner for a fee. For example, Garrett County in Maryland that covers the Deep Creek Watershed, allows for license transfer to a new owner for a new registration fee of $25. 

Generally, however, most cities and towns do not allow for the transfer of this type of license. New owners must apply for a permit and follow all of the procedures to obtain a new short term rental or vacation rental license.

Visit HighFlyRE’s STR regulations page and do a search for “license transfer” to see which other cities and towns allow it.

How to get around STR restrictions

This is a tough one. Unless your property has been grandfathered in by your governing city or town, it is unlikely that you’ll be able to bypass any STR restrictions. The best way to avoid fines or other penalties is to first, fully understand the stipulations of the law. Once you have a thorough understanding you can find loopholes or workarounds. 

For example, perhaps your town does not allow short term rentals, which they define as any rental period of less than 30 days. However, you want to avoid renting to long term tenants because you wish to use the property occasionally yourself. You can advertise the property for a 30 day period and accept a rental term of less time. You will have to determine if the income for a single rental during a one month period is worth it to you. If yes, then you can maintain that flexibility. 

HOA (Homeowners Association) and STR restrictions

While the focus of this article is primarily on local government’s regulations, don’t forget about your HOA. Even if a town does not regulate STRs, the HOA in your community or condominium might. You don’t want to find yourself in a situation with a promising, new vacation rental where you’re totally restricted by your HOA! 

If you are considering purchasing a vacation rental in a location with HOA oversight, carefully review the HOA’s Declaration of Covenants, Conditions, and Restrictions (CC&Rs). The laws outlined in this document will help determine your decision to purchase.

The Sharing Economy: Does it include short term rentals?

The “Sharing Economy” is a term coined to describe an economy based on sharing of private resources, usually for a fee, over the internet. What started as a crazy thought – “Travel and sleep in someone’s house!” ultimately grew into an industry worth billions of dollars. Now, renting your home or apartment to guests seems as normal as renting a hotel room. 

The sharing economy, specifically short term rentals, has forced the hotel industry into re-thinking their strategies. We all benefit. Homeowners can make money on their real estate assets. In turn, travelers get lots of diverse accommodation options.

Now that you have a better understanding of the term short term rental and STR regulations that may follow them, you are ready to purchase a vacation rental property. Take a look at our turnkey vacation rentals for sale and get started!

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