Ready to purchase a short-term rental or vacation property? Don’t forget to follow these common-sense guidelines
By Kirby McClanahan
The sharing economy represents a growing financial opportunity for Seattleites. According to a recent COUNTRY Financial Security Index®, Seattleites actively support sharing, with 67 percent of them using services such as home sharing platforms.
Short-term rentals, collectively referred to as “home sharing,” can create big economic benefits for both individuals and cities.
Just how big? Airbnb estimates it generated $180 million in economic activity in Seattle in 2015. Such newly-found revenue supports jobs, helps local hosts make ends meet, and is spread across Seattle’s diverse neighborhoods and local businesses, including neighborhoods that have not traditionally benefited from tourism.
The typical Airbnb listing in Seattle was rented 80 nights per year. The income a host makes can also be crucial to helping Seattle residents afford to stay in their homes. In a survey of Airbnb hosts in Seattle, 11 percent said that their income from hosting had prevented them from losing their home to foreclosure or eviction.
If you are interested in pursuing short-term rentals as a money-making venture, protect yourself by adhering to these guidelines before taking the plunge.
Play by the Rules
Not all cities facing an increase in home sharing see it as a positive development. Cities are constantly passing new regulations so it’s important to stay up to date on what’s happening in your city.
In some cases, civic leaders fear a city’s housing supply is being drained by too many short-term rentals.
The city of Seattle, for example, has imposed a set of restrictions that limit the operation of a home-sharing business. These new regulations, which go into effect in January of 2019, allow you to rent out your primary residence plus two additional properties. If you own more than three properties, you will be prohibited from using them as short-term rentals.
In our neighboring big city to the south, Portland, Oregon, one person had 22 listings all within close proximity to each other and none with a proper city permit. Such blatant disregard for playing by the rules led Portland to enact more severe regulations, with stronger penalties for violators.
Make sure you know, understand and are prepared to follow the rules for home sharing in Seattle or your city. Get required permits and pay all necessary fees and taxes. Ignorance of the law is never an excuse and avoiding laws would be criminal.
Be a Good Neighbor
Ballard. Madison Park. Upper Queen Anne. Capitol Hill. Belltown. Seattle is made up of distinct neighborhoods, and people are proud of where they live. So, remember to consider your neighbors. For instance, how will your short-term rental impact your neighbors? Will they have to compete with guests for on-street parking; will they feel less secure with strangers in their neighborhood?
You don’t need to get your neighbors’ permission before renting rooms to others. But as a courtesy, you’ll want to let your neighbors in on your plans.
Most complaints a city receives about short-term or vacation rentals are about on-street parking and noise or activity associated with arriving and departing, along with late night outdoor socializing. Establishing a few house rules and setting clear expectations for your guests can prevent most of these problems from happening. If you have any problems with neighbors, it’s a good idea to discuss it with them directly, rather than let issues get out of hand.
In short, be a good neighbor and think carefully about the impact of a short-term rental on a neighborhood’s character before taking part. Do want you can to make sure it’s a beautiful day in the neighborhood.
Insure to Ensure
The internet is full of horror stories about out-of-towners trashing a rental. Although such episodes are the exception, not the rule, such stories serve to remind us about the financial and legal risks facing rental property owners.
To protect yourself, your guests and your property, it’s important to make sure you have a sufficient amount of insurance. It’s true that some sharing companies, such as Airbnb or HomeAway, offer basic coverage. But what they offer may not be enough or could be severely limited by exclusions.
It’s good to remember the rental of a room or temporary rental of an entire home is considered to be a “business.” Many insurance contracts may include restrictions for Liability, Medical, and Personal Property coverage due to this definition. For example, Liability/Medical coverage is often restricted or excluded based upon how often the property is rented annually; Personal Property is often limited to a few thousand dollars; and Theft is often excluded for property in living space that is rented.
In order to ensure you have proper coverage, it is best to a discuss specific scenarios with your insurance agent. Be upfront and open with your insurer. That way, if anything does happen, your insurance carrier will be informed and you’ll be covered.
The obvious guideline here is to be a smart property owner and protect yourself with an appropriate insurance policy.
Share in the Wealth of the Sharing Economy
There were 198,000 guest arrivals at Airbnb listings in Seattle in 2015. And why not? According to Business Insider, the Emerald City is the fifth most visited tourist city in America, just ahead of San Francisco and behind Las Vegas. From Pike Place Market to the Museum of Pop Culture to watching the Seahawks or Mariners play, there’s so much to do in and around Seattle. It’s why we love living here, and why so many tourists visit.
Should you tap into the income potential of this vacation market? Buying additional homes to participate in the sharing economy can boost your financial portfolio with extra income for years to come.
But it’s not risk-free. Before jumping in, think it through. When creating your budget, remember to include all costs, such as maintenance and taxes, know and follow all city regulations, plan to be a good neighbor, and, above all, shore up your property with the best insurance coverage you can get.
Kirby McClanahan is Agency Manager for COUNTRY Financial, Greater Seattle. COUNTRY Financial and its representatives do not give tax or legal advice. While care was taken to ensure all facts represented were accurate, please be aware of all applicable laws and regulations that may apply in your situation, as hey may be different and are subject to change. For questions or more information, Kirby’s contact information can be found here.