When buying an income property in today’s day and age, the concept of using it sporadically and letting it sit vacant most of the time is foreign. More than ever, people are sharing their assets to maximize their return on their investment. It is becoming common for people to open up their homes on Airbnb, VRBO, and other platforms. While vacation rentals are nothing new, they are a hot topic in the eyes of city governments. Before you sign up and hand over the keys to your home to strangers, the Real Estate attorneys at Heritage Law, LLP have some tips on what you must know before you use your home for a short-term rental.
Cities Clamp Down
Because of its picturesque beauty and location for snowbirds and other vacationers, Orange County is an idyllic market for short-term rentals. But some cities are fighting back. Aliso Viejo, Anaheim, Laguna Beach, Newport Beach, and Irvine are all taking a closer look at short-term rentals. Anaheim flat out banned short-term rentals this past week. Some already have strict zoning laws, and they also are concerned about uncollected transient occupancy tax revenue the hotels must pay that short-term rental owners are skipping out on. Before offering your home, check your city ordinance to make sure you won’t be in violation of the law. On top of that, if you belong to an HOA, check with your association manager to make sure you aren’t violating a community policy.
Avoiding the TOT
In the eyes of Orange County, if you act like a hotel you should pay taxes like a hotel. Article 6 of the OC Ordinance Code (Code 1961, § 14.061) states the guidelines for short-term rentals and the Transient Occupancy Tax (TOT) Ordinance as:
Hotel shall mean as any structure, or any portion of any structure, which is occupied or intended or designed for occupancy by transients for dwelling, lodging or sleeping purposes, and includes any hotel, inn, tourist home or house, motel, studio hotel, bachelor hotel, lodging house, rooming house, apartment house, dormitory, public or private club, mobile home or house trailer at a fixed location or other similar structure or portion thereof. (Code 1961, § 14.062; Ord. No. 98-15, § 10, 12-8-98)
It requires renters to collect tax that is 10 percent of the rent charged by the operator (Code 1961, § 14.063; Ord. No. 3484, § 1, 9-18-84; Ord. No. 3792, § 1, 8-29-90.)
By not collecting or paying the taxes, you could find yourself liable down the road.
Protecting Your Property
The best way to make an informed decision whether to use your property as a short-term rental is to speak with legal counsel. They understand city ordinances, as well as how the TOT structure works. In Orange County, Heritage Law, LLP is a team of experienced attorneys that specialize in real estate law and tax law. If you have a question regarding the best way to maximize the ROI with your income property, contact the Heritage Law, LLP team.