Can renters Airbnb a rental property?

Question

Can tenants Airbnb a rental property? I believe this is called Airbnb arbitrage? From the landlords perspective, what would be the things to watch out for or the extra liability/risk involved? I'm a realtor and listing a rental property for lease that has a main house and garage appt. Potential renters are asking if they can live in the main house and Airbnb the garage appt but I want to make sure I'm advising them correctly. FYI this is in Houston. Thanks for the help y'all!

Joe Splitrock · Answer

@Benjamin Dougherty liability is the biggest risk. Standard landlord policies do not cover short term rental, so odds are good the landlord would not be covered in a lawsuit. Even if the least says their tenant has liability, that will not stop someone from suing the property owner. In fact most lawsuits target the easiest market with the deepest pockets. That is why you want good short term rental insurance with high liability limits. It will cost extra money. The insurance offered by AirBNB is junk, broken promises and false sense of security.

Repairs could create extra stress, because in a short term rental, your repair turn around time needs to be faster. Guests are brutal on reviews and if things are not working right, it will tank the hosts rating. That could put pressure on the landlord for fast service time that could cost extra, so work that out ahead of time.

Most guests in short term rental are great, but due to volume, you will get some bad ones. The actual condition of the property may be better with a short term rental. The property will be cleaned 1-2 times per week. If things are not kept clean and operating, the host will get bad reviews.

Jerry W. · Answer

@Benjamin Dougherty, I have both types of rentals, STR and LTR.  I would allow the tenant to do a STR if it was my house providing that they can show that they have decent knowledge or expertise in it.  You screen tenants anyway do screening to make sure they know how to do it.  As to special insurance, I made one call to my local agent and got STR insurance on my unit.  There is a $1 million policy from AIR BnB, but don't rely on it.  The tenants would be responsible for ALL repairs.  Good hosts keep things in excellent shape, bad hosts don't last long.  I wouldn't think a garage house would attract the party crowd folks worry about most.  I have never had a really horrible tenant, and can only recall 2 I would not rent to again out of 3 years.  My area may be different from yours however as I am pretty rural here.  Make sure you add a clause to the lease that specifically addresses the STR aspect if you allow it.  You may be able to get more rent by doing it and it will probably be kept in great shape.

Theresa Harris · Answer

Not unless they have written permission from the owner. Most owners would not allow it as it is a recipe for a disaster and insurance problems as well since they are running a business out of the rental.

Michael Dumler · Answer

@Benjamin Dougherty there needs to be a provision in the lease that indicates if the tenants are or are not allowed to sublet the property. Most leases include the clause specifically stating that tenants are not to sublet the property. If anything, the tenants need to get the landlords permission. Hope this helps!

Benjamin Dougherty · Answer

@Joe S. @Michael Dumler @Jonathan Dempsey @Josue Vargas  Thanks everyone for replying! There is no HOA and I know that short term rentals are legal with this property. When the owner lived in the home, he Airbnb-ed the garage apartment for a while, but got worn out doing it himself. The landlord is definitely open to the idea of letting the tenant sublet the garage appt. @Theresa Harris can you elaborate a bit on the risks for the landlord? Can an umbrella policy protect against person liability the same way as for long-term rentals? Does Airbnb have their own insurance built in? @Nathan G. I know this is a concern for subletting, not being able to screen the subletting tenants. The landlord and I discussed the possibly of letting the tenant sublet the property to a long term renter, with the landlord having final approval (not sure how that would be written into the lease). But with a short term rental, to my knowledge there is no screening process anyway so that would be a risk that any Airbnb host would have, right? Are there protections built in by Airbnb to mitigate this risk? As far as getting hung out to dry, the tenant would still be responsible for the full monthly rent, so as far as getting rent payment goes each month, this would be the same as a typical residential lease. And lastly, that's a good call to just have a property manager deal with the Airbnb instead of the tenant. The property will be maintained by a property manager anyway, so that does make a lot of sense. Thank you all so much for the help!

Eric Goldman · Answer

You would have to check the lease and what it says for subletting

Colleen F. · Answer

@Benjamin Dougherty one of the issues with airbnb or subletting is that the renters don't have an incentive to screen the tenants or limit who rents. If you let them airbnb if you should consider limiting to less than 28 days rather then sublet and x occupants.  You also have to increase insurance.  The other issue they will have is airbnb people might mean repairs need to be expedited.  You aren't benefiting from the revenue in this case too so expediting repairs should be on the tenant who is subletting.

A long term sublet means you need to get rid of two tenants when they move so make sure you get final approval on screening and the leases should have similar timing.  I would favor airbnb or a month to month lease in the garage apartment for this reason.

Josue Vargas · Answer

Yeah, talk to your broker and your client.  It sounds like the AbnB is a sublet.  Probably the owner of the property will not allowed.  I wouldn't if is my property, would you?

Present that to your client and move from there.

Joe S. · Answer

The real short term rental Rockstars will probably chime in soon. With that being said is it in a HOA that even allows Short term rentals?

Jonathan Dempsey · Answer

Hey @Benjamin Dougherty!

There must be a provision in the lease that states you are allowed to sublet the property out to other tenants. Otherwise, you are not allowed.

Another thing that you must check for is that the area you are in allows short-term rentals, as every single township has different rules and regulations around STRs - A simple call to your township manager can solve this question!

If you ever need anything feel free to reach out whenever!

Live Free,

JD