Your Guide to Owning a Short-Term Rental

Thanks to the rise of online platforms like Airbnb and VRBO, the short-term rental market is booming. These online platforms make renting your home as a short-term rental easy. However, before you dive in headfirst, don’t overlook these important considerations.

1. Understand your local government’s laws

The laws applicable to short-term rentals in Indiana vary depending on your local government. However, while rules may differ to some degree, Indiana Code section 36-1-24 limits the regulations local governments may place on short-term rentals. At a minimum, laws relevant to your short-term rental will include zoning, building and housing standards, rental permits, and tax (property, inn’s keeper, and gross income taxes). There are too many laws applicable to short-term rentals to discuss here, so make sure to properly consult an attorney familiar with your area before moving forward.

2. Register and apply for a short-term rental permit

You must get a permit for short-term rental from your local government. The fees and the process for obtaining a permit are local government-specific; however, Indiana Code section 36-1-24-13 limits fees to no more than $150. Permits expire after one year. However, renewal does not cost anything as long as the permit was not previously revoked for cause. Don’t skip this step, because renting without a valid permit is a Class C infraction, punishable up to $500 per rental occurrence that takes place without a permit.

3. Pay your taxes

As with many things today, short-term rentals are subject to taxes. In addition to local property taxes, owners of short-term rentals are liable for gross retail tax and innkeeper’s tax. Make sure you are on top of these as most rental platforms (such as Airbnb) likely will not collect and/or pay these taxes on your behalf.

4. Verify your HOA or condo association bylaws allow short-term rentals

While Indiana law limits the restrictions imposed by your local government, it does not necessarily limit the covenants set by your HOA or condo association. See Indiana Code section 36-1-24-19. The consequences for violating an association restriction against short term rentals in your neighborhood can be severe. So, you will need to make sure you are in compliance with your association requirements before allowing your property to serve as a short-term rental.

5. Beef up your insurance

Your standard homeowner’s policy likely isn’t going to cover your property as a short-term rental. You’ll need to increase your insurance policy and make sure it adequately covers you in the event someone gets hurt or has valuable property destroyed while staying at your place. Remember, when it comes to insurance for your short-term rental, it’s better to error on the side of more coverage.

6. Consider forming a business entity

Short-term rentals will expose you to much more liability than your house normally would as a permanent residence. While adjusting your insurance policy is one way to limit your liability, consider forming a business entity as another means of reducing your liability. You’ll want to consult with an attorney to determine which entity is right for you, but more information about business entities can be found in our previous blog post, Indiana Business Entities and Their Pros and Cons.

7. Be mindful of your neighbors

While your neighbors do not control your decisions, they should influence them. Keeping your neighbors happy will make your short-term rental experience much more pleasurable. So, be mindful of your neighbors and plan accordingly for things that may impact them, such as guest parking, smoking, pets, loud music, etc.

8. Abide by relevant health and safety guidelines

Short-term rentals must abide by the health and safety guidelines of the local government and the rental platform (for example, see Airbnb’s here). Relevant considerations include COVID-19, first aid, working smoke and carbon monoxide alarms, fire extinguishers, and emergency contact information. Additionally, make sure nothing on your property is inherently dangerous (e.g., exposed wiring, loose railings, HVAC equipment not regularly serviced, trip hazards, faulty windows, etc.).

Owning a short-term rental can be rewarding. Yet, the process to get there can be overwhelming. If you have any questions or need any assistance during the process, the Real Estate Law attorneys at McNeelyLaw are here to help.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.