Gross Rent vs. Airbnb Rent

[Brandon Raeburn]

Hey, I'm new to real estate investing but spent many years watching my dad and uncles do many house flips, brrr's, and rent holds. However, the events that always stood out to me was how terrible some of the tenants could act and treat the property. Also, to get disruptive and non paying tenants evicted in NYC took almost a year. My first property will be nothing less than a 4-plex or Multi-family rental property. I'm leaning more towards using the Airbnb because of the more transient nature (so I won't need to deal with bothersome tenants for extended periods of time) than a traditional rental. Will I lose more money on a monthly income by doing this? Will I average more ROI? Is there a different process for filling taxes using Airbnb as income? Are there tax credits for transient rentals? Will I need to provide food for the guest? Please all and any insight on this matter will be appreciated.

[Ana Garcia]

@Brandon Raeburn, You will probably end up with higher returns through airbnb when compared to long-term tenants. Find out about local laws and regulations in the specific areas you are looking to invest. There are cities that prohibit and penalize the use of airbnb. In my experience, short term (airbnb) guests take better care of the units, mainly because they get reviewed by the hosts. 

Regarding the tax treatment of short term rentals, if your guests stay in the property an average of 7 days or less, then the net income from this property is considered ordinary income and you will pay self-employment taxes. If your guests stay longer than 7 days, then it is reported on Schedule E (passive income) and no self-employment taxes are paid. Always make sure to subcontract any work related with the units (i.e. hire a cleaning person) and try not to provide breakfast, as this will turn the activity into ordinary instead of passive.

For a multifamily, as long as 80% of the units are rented on a long-term basis, then the income is considered passive, hence no SE tax involved. 

The key is to know how much more revenue the short term rental will generate when compared to the additional tax implications that will result from going the short-term route.

Good luck in your search and let me know if I can ever be of assistance!