It’s never been easier to rent out your spare room or your second home when it’s not in use. The rise of companies like Airbnb makes it easy to facilitate short-term rentals with most of the legal and financial work handled through a third-party website. While this could be a lucrative way to generate additional income or offset the cost of a mortgage or rent payment, short-term rental practices are not without their risks. At Jarosch Insurance, we’ve broken down some of the risks associated with peer-to-peer home sharing to help you better understand the complications that could arise.
Complaints from Neighbors
Check with your coop, homeowner’s association or condo association to find out if Airbnb rentals are allowed from your property. If so, consider how doing so may affect the community. Are your neighbors open to the idea of strangers coming and going from your home? If you are listing a condo in a vacation community where most other homeowners are doing the same, it may not be a problem. If you are frequently renting the apartment over your garage in a neighborhood full of primary residences, however, there may be some backlash – particularly if there is noise coming from the unit or your guests become a nuisance.
Tax and Financial Complications
When you generate a stream of revenue from your property rentals, there will be at least some tax and financial consequences. First, it is important to understand how the income will affect your federal and state tax liability. In some cases, you may be required to make quarterly estimated tax payments to the IRS, as there is no federal tax withholding for Airbnb income. If you fail to comply, you could face penalties. Next, consider whether you need to collect occupancy taxes in compliance with your local laws. In some cases, Airbnb collects these for you. In others, you may need to collect them yourself. Talk with your accountant to find out how hosting on Airbnb could affect your finances.
Home and Personal Property Damages
Guests don’t always care for the belongings and homes of their hosts the way they would their own personal property. Imagine finding smoke damage in your kitchen, water damage in your bathroom or even getting a call that your vacation home has burned down during a guest’s stay? The Airbnb Host Guarantee could cover some third-party damages to your property and belongings, but it is not actual insurance coverage. Furthermore, the structural and personal property coverage in your homeowner’s insurance may not extend to damages caused when you are renting the space or conducting business in your home. For that, you may need a homeowner’s endorsement or a landlord, rental dwelling, or business insurance policy that includes coverage for your home and property.
Things get dicey when you start considering the liabilities that could arise as a result of hosting on Airbnb. If a guest gets tetanus from a rusty nail left in your yard or their car is damaged by a tree that falls over in your yard, you could be responsible for the damages. Your neighbors could even sue you for losses and injuries that occur as the result of your guest’s actions. The costs can add up quickly, too. First, you will need to pay to defend yourself in court – even if you win your case. Next, you may be slapped with financial judgments for injuries and damages, which could total tens or even hundreds of thousands of dollars or more.
Airbnb offers some liability insurance protection, but it is chock full of disclaimers that leave plenty of room for claim denials. Don’t count on your homeowner’s insurance, either, as it is unlikely to cover the actions of your guests or incidents that occur while you are conducting business or renting out the property. Instead, we recommend talking with an agent here at Jarosch Insurance to find out if a business, landlord, or rental dwelling policy could be right for you.