Do You Really Want to Rent Your Apartment out Using Airbnb and VRBO?
Ever thought of renting out your apartment through Airbnb and VRBO to make some quick cash? Before you take on the role of temporary landlord, you should be aware of the risks and regulations — including what the process for abiding by the Madison ordinance.
They’re extremely popular in the same way that Uber and Lyft have revolutionized the taxi cab industry: They let anyone, anywhere, essentially become a hotel owner, albeit on a micro-level.
It’s a great service for homeowners, but for apartment renters — especially in Madison — there are a number of regulations and risks you need to assess.
Can you pay your tuition / rent / etc. by renting out your apartment?
In theory, it’s possible. One of the main selling points for Airbnb and VRBO, along with Uber and Lyft, is that they are providing people with a way to make extra income.
However, there are a number of people who treat this like a business (read the Fast Company article for an example). This type of approach can have tax and safety implications for the City of Madison, which led to the 2013 ordinance.
Tax revenue and safety are the city’s cause for concern
The City of Madison and local hotel and bread-and-breakfast owners were concerned that the playing field wasn’t level — that many of these “micro-hotels” weren’t paying the same taxes and abiding by the same safety regulations.
That’s what prompted this 2013 city ordinance. It includes a number of taxing and licensing requirements, which we’ll detail later in this post. The point of the ordinance appears to be twofold:
- To ensure the city receives taxes levied on all hotels (thus leveling the playing field if you want to be in this business.)
- To ensure the safety of people staying in a vacation rental by owner.
Because it is a city ordinance, Mayor Soglin and the city of Madison have proposed creating a city position for a person to collect revenue from people renting out their home (or apartment home).
The Madison ordinance was also challenged in April of 2016 by proposed new legislation, but both the Senate and the House versions were defeated. The topic is a hot one — both for municipalities here and around the world.
But how does it affect you if you want to rent out your apartment…as a renter?
Implication for a renter: Consider the risks
Beyond the regulations and the taxes, which we will detail in a bit, pursuing Airbnb and VRBO — as well as subletting in general — is dependent on your tolerance of risk. That’s because you are ultimately responsible for your guests.
“Even if the lease doesn’t say it, if you have a guest, and they damage the property, that’s most likely your responsibility,” said Alyssa Hellenbrand-Best, Director of Operations at Steve Brown Apartments.
The Uber and Lyft models are different in this respect. In those cases, you are using your own car. With Airbnb and VRBO, as a renter, the apartment isn’t yours. So what kind of liability are you going to be bringing up on yourself? What type of consequences are you opening yourself up to?
There are also safety considerations that the novice might not realize. “Apartments are pretty highly regulated industry,” said Alyssa. Unless apartment renters adhere to the same application criteria and regulations that property owners must follow, safety could be an issue for the residents; the residents renting the apartment; and the property owner.
Let’s say that you decide you want to assume the risks and rent out your apartment. How do you actually play by the rules?
Here’s the Requirement Checklist of what you need to do if you want to rent out your apartment – or “Tourist Rooming House” as the Madison ordinance describes it:
Your lease must specify you can rent part or all of the apartment. Technically, only the owner can rent out an apartment. A renter may rent “if explicitly allowed in the lease,” as noted in the city’s Tourist Rooming House FAQ sheet.
However, don’t expect to see a lease that “explicitly allows” the practice. According to Alyssa, “It would be very unusual for a property owner to have language in a lease agreement explicitly allowing residents to rent out their apartments as a rooming house.”
You actually should be certain you’re not violating your lease in the following ways:
- Does your lease say anything about “unauthorized occupants” or guests? Often leases will require consent of owner if you are going to sublease apartment.
- Does your lease define a time period to allow guests? It may restrict how long you can have a guest visit in terms of days or even weeks.
- Does the lease talk about how the apartment is going to be used? It’s likely for residential purposes. It might restrict business or commercial use (which could possibly fall into airbnb or VRBO category.)
In addition, the City stipulates that a “Tourist Rooming House,” as it’s specified in the ordinance, must be your primary residence.
The City Treasurer’s office requires you to contact the City of Madison DPCED Building Inspection to ensure your apartment is zoned for this type of activity.
We contacted Building Inspection when this post was published, and were informed that currently all city of Madison apartments are zoned for Tourist Rooming Houses. However, you’ll want to double-check and contact the department.
Before you obtain a Transient Room Permit from the City of Madison Treasurer’s Office, you’ll also need to produce a Wisconsin Seller’s Permit Number, which needs to be obtained through the State Department of Revenue.
A few noteworthy items when applying for a Wisconsin Seller’s Permit:
- You need to apply 3 weeks before you “open your business.”
- You may be required to make a security deposit of $15,000. Fortunately, you get the $15,000 back if you comply with the sales and use tax law for 24 consecutive months (phew!)
- You must display the seller’s permit in a prominent location at your place of business. You will also be mailed a personal wallet copy, so you have easy access to your permit number.
- You can register online or complete an Application for Business Tax Registration.
Public Health Madison and Dane County must issue a license for your Tourist Rooming House. The Department’s role, per their website, is to “inspect hotels, motels, tourist rooming houses and bed and breakfast establishments annually. Inspections are to verify guest rooms are cleaned properly and meet all code requirements of Chapter DHS 195 of Hotels, Motels and Tourist Rooming Houses. The lodging establishments are also inspected for general safety hazards, proper laundry facilities, guest bathrooms and proper refuse collection and removal.”
The completed license should be submitted to the City Clerk’s office at 210 MLK Jr. Blvd. Rm. 103.
The health department must perform a pre-inspection of your residence prior to you renting out a room or apartment on a nightly or weekly basis. In addition, an annual inspection will take place as part of the license.
Once you received a license from Public Health Madison and Dane County and a Wisconsin Sellers Permit from the Wisconsin Department of Revenue and have contacted Building Inspection, you need to obtain a Transient Room Permit from the City of Madison Treasurer’s Office.
An application is included in this Room Tax Packet that was issued by the City Clerk’s Office. (The application requires a $2 fee.)
As you fill out the application, indicate how many rooms you’re trying to fill, and at what rate. You’ll also have to indicate your “legal organization” — are you a Sole Proprietor, a Partnership, or a Corporation? This can have tax implications, so you may want to consult with your accountant.
At this point, you’ll be issued a permit.
From that point forward, you’ll be expected to file Quarterly Returns with the City Treasurer’s office. (The returns are required, even if you don’t have any rentals for the quarter.) You’ll then be expected to pay a 9% room tax rate.
The Quarterly Returns are mailed in with the payment. If the returns are not mailed in by the deadline, there is a $25 late fee.
Ok – we’ve covered the broad strokes of the process. Here are a collection of FAQs for further clarification.
Do I need to keep an ongoing registry?
You have to have a registry available on‐site for inspection by the health department. It must include “the identity of all guests, dates of stay, acknowledgement of operator presence or absence during stay, and length of stay.” The registry must include all information from the current registry year and the year immediately prior.
How often can I rent the apartment?
You can rent it as much as you want if you live there. If you don’t “occupy the residence at the time of rental” you cannot rent it more than thirty (30) days per year. If you live there while you’re renting the space, there is no limit to the number of days you rent it.
How many people can I rent to at one time?
The “occupancy” for the space has to conform with the “underlying zoning district regulations.” So check your lease for the maximum number of people who can occupy your apartment.
Can I rent out just a bedroom?
As noted above, if you want to rent out the whole apartment, you get a maximum of 30 days in a license year. If you only want to rent out a bedroom while you live there, you can rent it for as many days as you’d like.
How long can renters stay?
Your renter can stay as long as they want, providing you’re staying in the apartment too. If you’re not staying in the apartment, you have a max of 30 days in a license year. (Again, check your lease.)
Do I need a food license?
No, as long as you only offer prepackaged, shelf‐stable food, or whole fruit to your guests you won’t need a food license.
Are there any bathroom restriction?
Guests may not share bathrooms unless the house is rented to a single family. For unrelated guests, each bedroom must have its own bathroom or separate designated men’s and women’s bathrooms must be provided.
Are there any building codes I need to be aware of?
There are no building code issues beyond what is otherwise required for the residential use.
What rules are there regarding smoke detectors and carbon monoxide detectors? Yes, current rules for smoke detectors apply, no change required to TRH.
Are there bedroom door lock requirements?
Individual locks on the bedroom doors are required unless you rent the home to a single family.
How many people can I rent the space to?
There are multiple factors to consider when answering this question, and the answer can be complex. Your best bet is to refer to the City of Madison Occupancy Standards.
Lots of regulations? Yes, this is how the industry works
Speaking of confusing, if you’re not confused and a bit dizzy from this post, you’re either a brainiac or a glutton for punishment. But don’t be surprised by the red tape.
As Alyssa of Steve Brown Apartments noted earlier, this is a heavily regulated industry. And it should be. You’re dealing with a lot of taxation and public health issues. The amount of oversight is vast, but the stakes are high.
Consider it all before you make a move. You just might decide it’s easier to go on vacation than to host one.