Things to Consider Before Listing your Home on Airbnb
BACKGROUND
In 2007, two San Francisco tenants struggling to pay rent decided to throw a few air mattresses on the ground and advertise for nightly rentals. Fast forward ten years and that company, now called Airbnb, is worth over $31 billion and helps hundreds of millions of users save money on short-term rentals. Since the company’s success, cities, counties, and states have been resisting the home-sharing model because of the complexities involved with enforcing rental laws in commercializing residential zones.
Arizona has taken the opposite approach. While municipalities across the country are rejecting short-term rentals by passing preventative legislation, Arizona has disallowed cities, towns, and counties from putting any restrictions on short-term rentals “simply because the property is not classified as a hotel.” State law also provides that hosts can rent out rooms, homes, or other properties for as many days of the year as they like.
Before you go-ahead and start your own short-term business, it is important to understand some of the pros, cons, and legal limitations involved with listing on Airbnb or other short-term rental platforms in Arizona.
PROS
- Money
- Experience
- Better Upkeep
If you live in good location, advertise and furnish the rental well, and provide great customer service, then you can probably create more revenue than most long-term rentals. Remember: you are an entrepreneur, so there is always a risk of failure. However, if you do your homework by learning more about the market in your area, the expenses, and the taxes you will encounter, you can be prepared to make the right choice. If you choose wisely, the results could end up being very rewarding.
Besides money, the experiences that come from hosting an Airbnb rental can be rewarding. Travelers from all over the world are familiar with Airbnb-like platforms and you will certainly have the opportunity to host many people with very different backgrounds. As you host individuals, you may find yourself using makeshift sign language to communicate, tasting foreign snacks, or even learning new languages.
Are you ever grateful that a friend or family member paid you a visit solely because it forced you to clean up your home? After listing your place on Airbnb for a while, you may find that your home is much nicer because repairs are performed frequently, it is cleaner, and the environment is more welcoming.
CONS
- Risk
Aside from the business risks that you will take as an entrepreneur hosting a short-term rental, renting your home will always pose personal risks. For example, you could get physically hurt or your property might get damaged or stolen. While the majority of transactions occur without incident, there are numerous stories circulating the web of thrashed houses, broken windows, and stolen property. Airbnb’s website states that hosts are “unlikely to experience any issues with property damage.” Furthermore, they “provide protection for up to $1 million in damages to covered property in the rare event of guest damage, in eligible countries.” However, Airbnb’s “guarantee” only covers limited types of damages in a limited number of countries. Inviting strangers into your home is not always easy and poses certain risks. Fortunately, there are steps you can take to prevent and minimize your vulnerability to those risks. - Time and Work
Hosting on Airbnb or other platforms might seem easy, but it actually requires a lot of work. You will scrub toilets, vacuum floors, wash sheets and towels, and repair fixtures more than you ever have before. Hosting on Airbnb also limits your availability to travel if you are doing the work yourself. Like a normal job that pays by the hour, you can only get paid if you are present. Do you live close to your rental? Are you okay traveling there once or twice a day? The daily work you put into your rental will directly correlate with guest reviews and the demand for the renting of your space, which in turn means more money for you. If you cannot outsource the work or do it all yourself, then a long-term rental might be a better option for you.
LEGAL LIMITATIONS
As discussed at the beginning of this article, Arizona is a very favorable state for individuals to list and run short-term rentals. However, laws found at any level of government are subject to change at any time. While Arizona currently protects short-term rentals, it will not necessarily do so in the future. Even with the legal protection that is offered to hosts of short-term rental properties, there are limitations that may affect your ability to list your property and perform your duties the way you want to.
- Co-Hosting
Airbnb now provides the option for owners renting their homes to employ a “co-host.” According to their website, this feature permits listing owners to hire another individual or entity to “help take care of their home and guests in exchange for a portion of the reservation income.” Hosts and co-hosts agree on how to divide up responsibilities, how much of the reservation income will go to the co-host, and how the co-host will be reimbursed for expenses required as part of their co-hosting duties. This method allows owners flexibility in creating and tailoring a business relationship that is just right for their needs. Co-hosts can help listing owners manage their properties by performing any of the following: getting property guest-ready, creating a listing, messaging with guests, managing reservations, welcoming guests in person, helping guests during their stay, writing reviews, updating calendar and pricing, restocking essential supplies, cleaning and maintenance, and getting help from Airbnb.
Unfortunately, many items on this list could lead an Arizona co-host to violate state law for practicing as an unlicensed broker. Under Arizona Revised Statutes (“A.R.S.”) § 32-2101(48), a real estate broker is defined as a person “other than a salesperson, who, for another and for compensation” manages property. In other words, a person must have a real estate broker’s license when: 1) the person does not own the property; 2) the person receives compensation; and 3) the person managing the property engages in real estate broker activities.
- Homeowner’s Associations
While the state of Arizona has disallowed cities, towns, and counties from putting any restrictions on short-term rentals, this rule does not apply to homeowner’s associations (HOAs). Your HOA rules will likely be less clear than state law. If you live in an HOA, review the Covenants Conditions and Restrictions (CC&Rs) and Rules and Regulations implemented where you live. Many CC&Rs contain restrictions which prevent homeowners from renting their property for under 30 days. Additionally, renting out your home for under 30 days will probably still qualify as a “lease” since you are paid money in exchange for allowing the guest to occupy your home. This means that any leasing restrictions in the CC&Rs will also apply to short-term rentals. Another gray area of HOAs occurs when the CC&Rs restrict owners from engaging in “business or commercial activity” in their home. Home businesses are generally permissible in residential zones, but permissibility will vary based on individual circumstances.
After reading this article, you might feel overwhelmed, skeptical, or even unsure about your choice to list your home on a short-term rental platform like Airbnb. You are not alone and these decisions are not easy. An experienced real estate attorney or business attorney can examine your unique circumstances and help you get the answers you need to make an informed decision.
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1 A.R.S. § 32-2101(27) defines “real estate salesman” as a person engaged by a real estate broker to perform acts or participate in transactions in the manner included in the definition of real estate broker. It is illegal for a salesman to engage in the business of a real estate broker or salesman without a license, Ariz. Rev. Stat. § 32-2122, as well as for a broker to employ and utilize the services of an unlicensed salesman, Ariz. Rev. Stat. § 32-2155.
2 § 32-2121(A) defines the narrow exception to §32-2121 where a person or entity does not need a real-estate broker license if they own the property in question.