STR Restrictions on deed

[Orly Howard]

Hi BP'ers

Has anyone ever come across restrictions on short term rentals on a deed? I was getting ready to sign a contract (in Sullivan County, upstate NY) when my lawyer informed me that it had this restriction. This is what the deed said;

No building nor any lot shall be used for any commercial purpose nor for any trade, business, profession, nor as a rooming house, hotel or boarding house

I was planning to buy this, renovate and then use as a short term rental. There are no STR restrictions in the town, so I'm not sure who, if anyone would enforce this. But I also know that the next door neighbour is a potential complainer so that concerns me

This goes back to 1953 and I was told that only the person who wrote that can remove that restriction

I'd love to know if anyone else has come across this and if they let the sale go or took the risk - or if anyone has thoughts on this

Thanks in advance!

Orly

[Robert Gilstrap]

I'm not a CPA but I have a damn good one and for the vast majority of STR hosts out there short term rental income is taxed identical to any other rental income and is considered a passive income (Sch. E) not subject to self employment tax. Only if you provide "substantial services" does the IRS consider it active income and thus subject to self employment tax (Sch. C). Substantial services are actually laid out by the IRS so such things as providing transportation, daily meals prepared, daily maid service, concierge services, etc.

As to insurance; It just so happens I am also a licensed insurance broker and contrary to what most think you do not necessarily have to have a commercial policy to insure a short term rental. It depends on the insurer and what the policy covers and excludes. Short term rentals are a fairly new animal to most insurance companies (I have no idea why since they've been around forever) and I agree that most vacation rentals at the beach or mountain cabins, etc. the companies running those do have commercial policies and even I have a commercial policy but not because I have to rather because I get better coverage at a cheaper rate. That being said a "commercial" insurance policy doesn't make a property commercial. In general the activity engaged in at a property is what legally determines how it is classified. Hotels are large, usually multistory commercial structures that allow hundreds of guests to stay in separate individual living quarters under one roof. They have lobbies, restaurants, bars, gift, clothing and sundries retail shops, public meeting spaces, public event spaces, parking lots, front desks, 24/7 on site employees sometimes numbering into the hundreds, daily maid services, on site maintenance staff, signage advertising their business, they offer shuttle transportation services, concierge services, etc. 

Short term rental homes are just single family homes where people stay for a shorter duration but engage in the exact same activities that you and I do in our single family homes.  They eat, sleep, watch TV, bathe, play with their kids, surf the internet, work, etc. Same activities just for a shorter duration.

So this is why I'm saying a STR is nothing like a hotel nor is it considered a commercial business (for most hosts) as much as government bureaucrats would like to lump them altogether so they can seek to control every aspect of your existence and collect more fees and taxes.