August 8, 2016 By Adam Bonislawski - The Home Story
Since launching in 2008, home-sharing service Airbnb has grown into an accommodations behemoth. According to the company’s website, its offerings currently include more than 2 million listings in 191 countries. And according to a June New York Times article, the company is raising funds at terms that would place its current valuation at around $30 billion, placing it ahead of conventional hotel giants like Marriott and Hilton.
Little wonder, then, that some home builders are devising new offerings with the home-sharing industry in mind. For instance, as The Home Story reported in January, at this year’s International Builder’s Show, several firms showcased designs optimized for generating some rental income on the side. California builder Pardee Homes, for example, showed a model house with guest suites for renting out.
Apartment developers could likewise dip their toes into this market, Dean Wehrli and Aaron Stubblefield, consultants with real estate firm John Burns Consulting, wrote last year in a post on the Bay Area real estate website The Registry. An apartment feasibility study they conducted for a developer that considered setting aside space for Airbnb rentals found these units were likely to generate more revenue than those used for conventional long-term leases.
“We sense a trend developing, especially if the apartment markets soften,” Wehrli and Stubblefield write. “Apartment developers — even those building large rental complexes — could set aside a portion of their units as a kind of Airbnb rental pool to maximize revenue and market flexibility.”
Legal and Insurance Considerations
Going the Airbnb route isn’t always so straightforward though.
As demand has risen, many municipalities have sought to either regulate or limit short-term rentals within their borders.
And it’s not just local ordinances. In addition to checking out relevant city limitations, homeowners looking to rent their property using sites like Airbnb should also make sure they aren’t leaving themselves open to liability should an accident happen.
“Normally, if somebody visits your home and gets hurt and sues you, that is precisely the kind of thing your homeowner’s liability insurance is designed to cover,” says Ralph Holmen, associate general counsel at the National Association of Realtors®.
However, your policy might not cover such incidents in a short-term rental situation, Holmen says.
“Whether or not there is an exclusion because you are offering the property for rent and collecting compensation is an important issue a homeowner would want to speak with their insurer about,” he says.
Owners should also look into whether their insurance policies cover property damage caused by a guest or, conversely, damage that occurred to a guest’s property while they are staying at your place, notes Holmen.
Renting Out With a Mortgage
It’s also possible that using a property purchased as a residential dwelling for short-term rentals could violate your mortgage agreement, Holmen adds. And, if the lender concludes that regular use as a short-term rental might cause the property’s value to decline, they could call the loan due, meaning the owner would need to pay off the balance or lose their house.
This possibility highlights the fact that homeowners venturing into the home-sharing market should do their due diligence.