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ComplianceNovember 30, 2021

How to start a short-term rental business

Short-term rentals are a hot business. Whether you plan to rent a vacation home on Airbnb, VRBO, or with a property management company, you can reap significant profits.

When you decide to rent a property, there is a lot to consider. After all, you are starting a business, and rules and regulations for short-term rentals apply. Let’s look at some things you’ll need to consider when starting a short term rental business.

Check local zoning laws

Before you rent a property, be sure that it is zoned for short-term rental. Given the popularity of online rental sites, cities and counties are increasingly passing regulations that impact short-term rentals. Check your city’s zoning or administrative code for specifics. Typically, these laws apply to rentals of 30-days or less and to properties in which the owner is not present during the rental period.

Some cities also limit how long a property can be rented. Depending on the location, short-term can mean anywhere between a maximum of 30 to 180 nights per year. Zoning laws also restrict how many guests can stay in a property at one time.

You may find that a city limits short-term rentals to primary residences only or prohibits them completely. If you lease your property, refer to your lease agreement since sub-letting may be prohibited.

Finally, if your property is part of a Homeowner’s Association (HOA), your HOA may prohibit short-term rentals or regulate how many guests or pets can stay at one time.

Write a business plan

To ensure your short-term rental business is a success, you need a business plan. A well thought out plan can guide your strategy, identify risks, and help you secure funding to expand and grow your enterprise.

Here’s a suggested outline for your short-term rental business plan:

  • Executive summary: A brief overview of your venture, your property differentiators, and why your vacation rental business will be successful
  • Company description: Provides detailed information about your business and explains your competitive advantages
  • Organization and management: How your company will be structured and who will run it. For example, will it be a partnership, LLC, S-Corporation? Who will be responsible for day-to-day management?
  • Market analysis: What is the industry outlook? Who are your target customers? What competition are you up against?
  • Financing plan: A description of your funding requirements, your detailed financial statements, and a financial statement analysis.
  • Marketing strategy: An overall game plan for reaching prospective consumers and turning them into customers.

Consider forming a business entity

It’s important that you treat your short-term rental as a business and form it as such. For instance, to protect your personal assets in the event a guest sues you, consider forming a limited liability company (LLC) or corporation. These entities also provide certain tax benefits.

You can also add another layer of protection with general business insurance.

Always check with an attorney and insurance broker to determine the best approach for your new business.

Follow tax rules

Just like a hotel, short-term rentals must register, collect, and remit sales and occupancy taxes (also known as lodging tax). Requirements differ by location, but generally you’ll need to register your business for tax purposes with city, county, or state agencies.

Your guests pay rental tax at the time of booking. However, it’s your responsibility to remit that tax to the correct agency. A failure to do so can result in penalties and interest on the unpaid tax.

To avoid any liability or headaches, consider working with a property management company or online booking platform (many will automatically collect and pay occupancy taxes on your behalf).

Apply for licenses and permits

Common licenses and permits needed before renting your property include a general business license and a short-term rental license.

A general business license is required of any business owner in most states, including short-term rental owners. Meanwhile, a short-term rental license demonstrates that your property is up to code and complies with certain health and safety standards (fire extinguishers, smoke detectors, etc.). You’ll also need evidence that you’re following proper zoning laws and that your adjacent neighbors know you’re renting.

Furthermore, some cities require that you obtain a permit before you rent your property. This involves a home inspection and an annual fee.

Your city and state website will have more information on specific license and permit requirements. A legal services provider or an attorney can also advise.

Make your rental stand out

As you develop your business plan, consider your location and target guests. This will guide your marketing strategy and how to decorate and equip your property.

Are your guests’ families, business travelers, outdoorsy folks? Each will have unique preferences and requirements. Make sure your property meets those needs.

Invest in good security

Protect your guests and your property with home security. Smart technology such as doorbell cameras and sensors, smart lighting, recording devices, and other deterrents can give you and your guests peace of mind. They also deter negative behavior from guests and provide video evidence should an issue arise.

Determine pricing

How you price your short-term rental will have a huge impact on the success of your business. You want to be competitive, but you also need to cover your expenses (both expected and unexpected).

Consider the following as you set your rates:

  • Mortgage or rent
  • Insurance premiums
  • Business license and permit fees
  • Renovation and repairs
  • Listing fees
  • Cleaning and laundry services
  • Landscaping
  • HOA fees
  • Newer appliances

List your property

There are more options than ever for listing your property, including online platforms and property management companies. And you don’t need to limit your listing to just one. Indeed, the more listings you have the easier it is for potential guests to find your property.

Airbnb and VRBO are good places to start. Guests can easily find properties based on their preferences and much of the back-office work is handled by each platform, including reservations, marketing, tax collection and remittance, and more.

You can also create your own property website. This way you have more control over your listing and won’t incur service fees charged by third-party listing companies.

It’s also a good idea to list your short-term rental on social media. In addition to reservation links, you can share regular updates, images, and promotions — and connect and engage with prospects and returning guests.

Automate your rental tasks

Because short-term rentals have a high guest turnover, look for ways to streamline property management and bookings. Online reservations, guest reviews, contactless and keyless check-in, occupancy tax remittance, payment processing, and more can make for a seamless experience for you and your guests.

Learn more

BizFilings is dedicated to making starting a business easy so you can focus on doing what you love. For more information check out our state guides for LLCs and corporations.

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