What Is A Short-term Rental?

Posted on Sep 26, 2022

A short-term rental is a furnished living space available for short periods of time, from a few days to weeks on end. Short-term rentals are also commonly known as vacation rentals and are considered an alternative to a hotel. 

Understanding short-term rentals

Many people who own a second home or vacation property generate income by renting out their home when they’re away. 

Because short-term rentals are most often used by people on vacation, stays might vary from a few nights to several weeks; some are leased for as long as a month. Anything under six months is generally considered a short-term rental. 

Over the last 10 years, the use of shared economy brands like VRBO, HomeAway and Airbnb has exploded. 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 (through sites like Airbnb), overall flexibility and tax benefits. Short-term rental requires less commitment than a long-term lease and tenant, and works well if the homeowner wants to enjoy the home themselves. 

That said, short-term rentals do have drawbacks. Owners are responsible for cleaning, coordination and maintenance to keep the property in guest-ready condition. Seasonality 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. 

Local restrictions are another critical consideration. Each city or county defines what qualifies as a short-term rental property, and the fees are hefty for homeowners who rent under the radar. Owners should verify local regulations, zoning, taxes and licensing 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. 

Takeaways

To have a short-term rental, owners need to:

• Research local regulations and restrictions
• Ensure property zoning allows short-term rentals
• Register for appropriate licenses through the city
• Prepare for additional taxes

In more detail:

How long can you stay in a short-term rental?

Every city has different rules. Some areas restrict stays to less than 30 days, while others allow stays that are several months long. It also depends on the kind of property; multi-family properties can fall under different rules than single-family homes. 

How do I know if my city allows short-term rentals?

Do a Google search for your city name and “short-term rentals.” Airbnb has gotten so popular that most local governments devote a section of their website to licensing FAQs. 

What kind of properties qualify as a short-term rental?

It depends on what your city allows. Some local governments allow whole homes to be leased as short-term rentals, while others restrict residents from leasing anything larger than a single room. In some cities, homeowners can rent out something as small as a renovated Airstream trailer or a “structure” in their backyard. 

What taxes do I have to pay on a short-term rental?

Short-term rental income qualifies for income and self-employment tax. Additionally, some cities expect landlords to pay occupancy taxes, also known as a hotel tax. 

Do I have to have a license?

Local governments define licensing laws for short-term rentals. Some have mandates around zoning or whether short-term rentals are allowed at all. Owners may need to register for a general business license, should check their property zoning and may also need to pick up a short-term rental permit.

Original article: What Is A Short-term Rental?